I know you had high hopes, as did I. Who doesn't love a broad rally led by what you have been adding to? Who doesn't love record close upon record close? There were so many delicious ingredients that it all made for what seemed to be a well-balanced meal. But something was missing. Garlic? A little nutmeg? A hint of molasses?
Winners beat losers as advancing volume beat declining volume quite easily at the New York Stock Exchange and in a complete rout at the Nasdaq Market Site. Eight of 11 S&P Sector Select SPDR ETFs closed in the green, led by growth as Technology (XLK) and Communications Services (XLC) tacked on 2.14% and 1.89%, respectively. The crowd (bots) piled back into the semis. Hooray. Internet stocks were cool again. Yippee. Record-high closes for the S&P 500, the Dow Industrials, Dow Transports and Russell 2000. Even the Nasdaq Composite went out in much better shape technically than it went in. The children were all in their places with bright shiny faces. All this joy has to be meaningful. Right, Sarge?
You want the fluff piece you'll get on TV here on Friday morning, or the truth? I told you Thursday, and I am sure I have told you many times. Prices count. You made or you lost that money on Thursday, regardless. To confirm trends, we (or maybe just "I") need to see follow-through. As broad as Thursday's rally was, aggregate trading volume was lighter for names listed at both of New York's primary equity exchanges. In fact, aggregate trading volume for corporations subordinate to the Nasdaq Composite have failed to hit their 50-day simple moving average (SMA) for any single trading session this week to date. From that particular view, it appears that despite making a new record high the S&P 500 almost took the day off. Thursday was nice. Thursday was not confirmation of trend by follow through.
Now, understand, and I know this is difficult to grasp: Traditional follow through is indeed how we confirm, but markets can go on doing whatever it is that they do without old fogies like me confirming anything. While Thursday's markets had the feel of a return to trend, equity index futures have been absolutely pasted overnight as bond traders have moved out of global sovereign debt to include, but not at all limited to, U.S. Treasury securities. Overnight, Asian and European traders are also decisively moving back into the U.S. dollar after going the other way for a couple days.
Operation Market Garden
Embrace the volatility. You have no choice. Either adapt or fail. On Thursday afternoon, the U.S. Treasury completed its three days of heavy auctioneering and for the third time in as many days the results were far better than had been feared by many traders and economists alike earlier this week. A total of $24 billion in 30-year paper sold at a high yield of 2.295%. Bid to cover printed at 2.28, up from the 2.17 that the 30-year attracted back in February. Indirect Bidders (foreign central banks) took down $14.5 billion, or 60.4% of the total issue, up slightly from 60.3% last month. Broadly, Treasury ran three successful auctions this week, making that brutal auction for seven-year notes the week prior look like something of an outlier. Financial markets to include equities breathed an audible sigh of relief.
Still, as I bang on this typewriter (keyboard) through darkness of pre-dawn morning, I see the U.S. 10-year giving up as much as 1.613%, up from 1,537% as late as 9 p.m.-ish Thursday on the East Coast, which was the last time I checked. If debt markets stay where they are now or sell off further, equity traders will come for their pound of flesh on Friday. Like it or not.
Recall what I wrote to you 24 hours ago, that for successful follow through to occur the Nasdaq Composite had to take and hold both its 21-day exponential moving average (EMA) and its 50-day SMA.
Well, both of those levels were taken on Thursday. The Composite's 50-day SMA now stands at 13,358, the 21-day EMA at 13,287. The hold part of "take and hold" becomes Friday's challenge. Remember, a small element of the British 1st Airborne Division captured the Arnhem Bridge Road and held one side of that bridge over the Rhine for several days until eventually it was overrun due to a lack of both resupply and reinforcement. "A Bridge Too Far" ... can the Nasdaq Composite be resupplied here. Are reinforcements on the way? Out of ammo are we? The index closed at 13,398.
Accounting for fair value, early futures trading now implies an opening somewhere in the 13,150s. Anything and everything could change over the next few hours. It would appear key to the Nasdaq Composite holding those now-lofty key levels would be bond traders finding attractive the long end of the curve at these prices as they had earlier in the week. Sans that appetite, the market is leaning toward re-rotating the un-rotation that had replaced the original rotation. You dig? Out of growth, into cyclicals. Again. I just plan to get my cash levels right going into the weekend.
You're a Grand Old Flag
"You're a grand old flag
You're a high-flying flag
And forever in peace may you wave
You're the emblem of
The land I love
The home of the free and the brave."
- George M. Cohan (1906)
The President of the United States addressed the nation on Thursday night. You may like him. You may not. My chain of command has ended with both President Reagan and President Obama at the top.I have learned over time to be pragmatic, to root for whomever is in command, and to be as apolitical as possible. President Biden sounded optimistic on Thursday night. Stimulus had been passed and signed into law. Politically, there was no need to sound downbeat. First phase, you are worthless. Who are you to stand on these hallowed yellow footprints? Second phase, there is hope. Maybe you can do this. Third phase, you know you've got this. You are about to earn a title that the forces of evil have feared and hid from since 1775. We have just moved into phase two. There is hope.
The president is directing all 50 states to make eligible for Covid vaccination all American adults by May 1, with an aim at enjoying something closer to social normalization by our nation's birthday, the Fourth of July. This announcement, based on the rapid increase in the recent pace of these vaccinations as Johnson & Johnson (JNJ) has joined Moderna (MRNA) and Pfizer (PFE) on the front lines, is a big improvement from the president's former goal of Christmas Day. That former goal had been announced just one month ago. The president will also assign an additional 4,000 troops to vaccination support, which will be a tripling of the number of active duty troops currently assigned.
This, I Don't Get
Novavax (NVAX) is trading 20% higher overnight after rallying 9% on Thursday. The company's Covid-19 vaccine candidate, NVX-CoV2373, shows an efficacy rate of 96.4% against mild, moderate and severe disease caused by the SARS-CoV-2 virus. Novavax now expects to submit to various global regulatory authorities for emergency authorization.
Just one thing: Phase 2b trials in South Africa show an overall efficacy rate of just 48.6% versus mostly variant strains of the virus. Though this vaccine does appear to be well-tolerated, does efficacy of less than 50% versus later mutations of the virus really do much to improve our global condition? Maybe it's just me, but greater than 50% efficacy versus all strains, I'm still cool. Less than 50% and it's no longer "whatever vaccine is available.'' It becomes, "What vaccine are you distributing?"
Awesome, I Think?
The Federal Reserve released a boatload of data on Thursday. Apparently, Household Net Worth ended the year 2020 at $130.2 trillion, up 5.6% for the quarter and 10% for the year. Bear in mind that the S&P 500 gained 16% and the U.S. median existing home price increased 13% for the calendar year. So, why the heck do we seek fiscal support for the economy?
Unfortunately, the Fed either does not have or does not release data on wealth distribution across income levels or population demographics. The Fed also released some interesting data on aggregate debt levels. Total household debt increased just 4% for the year to $16.64 trillion despite little change for consumer credit. This would be mostly mortgage debt as city dwellers largely and literally headed for the hills. It gets worse from there. Outstanding business debt jumped more than 9% for the year while federal debt ramped an ugly 24%.
Economics (All Times Eastern)
08:30 - PPI (Feb): Expecting 2.6% y/y, Last 2.0% y/y.
08:30 - Core PPI (Feb): Expecting 2.7% y/y, Last 1.7% y/y.
10:00 - U of M Consumer Sentiment (March-adv): Expecting78.0, Last 76.8.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 310.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)