Change, nothing stays the same
Unchained, yeah you hit the ground running
Change, and nothing stays the same
Unchained, yeah you hit the ground running
No, I don't ask for permission
This is my chance to fly
Maybe enough ain't enough for you
But it's my turn to try
- 'Unchained' Alex Van Halen, Edward Van Halen, David Lee Roth, Michael Anthony (Van Halen) 1981
What a Week?
Where do we go from here? Who can know? Too many questions.
The week through Thursday was, from the perspective of traders, investors, economists, baseball nerds and especially math kids (I think of myself as all five), so very interesting. First, let me say that as this abbreviated baseball season winds down and my beloved New York Mets (who won last night) edge ever closer to their annual extinction event that I prep my New York Yankee cap for the postseason. You see, I am not one of those Mets fan/Yankees haters. I root for New York until New York is out of it completely. I grew up in Queens. Went to school in Brooklyn. Worked in Manhattan. Most of my life. The Mets grew up in Queens, too, though they were born in Manhattan. The Yankees played in Queens for two years while I was still an adolescent.
I practically lived at Shea Stadium for those two glorious summers. My parents knew where I was. Tickets were $1.25. I could get in, by a scorecard, a hot dog and a Coca-Cola for less than five bucks. I ran the second-largest New York Daily News route in Queens before school at that time. So, I was the richest pre-teen in my working-class neighborhood. My friends had to ask their parents for money, so sometimes I had to pay to get them in.
Somebody played at Shea every day for two summers. I made all the day games. In 1975, both Tom Seaver and Catfish Hunter had tremendous seasons.... in Queens. It was magic. By the way, I was also a New York Jets fan growing up. That team, that league betrayed both my home, Queens and the City of New York itself in 1984. I have never been a die-hard fan of any NFL team since. In my opinion, the legendary Black Knights of the Hudson are New York's real football team. Just an FYI, because you obviously follow business news, SoFi's CEO, Anthony Noto, was not just any Army football player, he was one of the best linebackers I have ever seen. True story.
This has been an undeniably interesting week for baseball fans, but it has been a tough week for traders. Maybe a little less trying for investors as they have patience on their side, a certainly perplexing, angst-provoking week for economists, and a just delicious few days for math kids who spend their time making statistical comparisons and look at charts all day.
Take Thursday, for instance. Thursday was an "up" day on decent trading volume. Does that tell the story? The day started out shrouded in darkness, after the Department of Labor put a disappointing weekly jobless report to the tape. Then there was a rally, then an early afternoon sell-off, and then finally a rally into the close. Where does this leave the math kids? In an odd spot. Let me explain.
Lows of the week, where and how they happen, do matter. The S&P 500, while closing up 0.3% on Thursday, created a new low for the week earlier in the day. Beyond the S&P 500, which is justifiably our focus from 10,000 feet, the Dow Jones Industrials, Dow Jones Transports, S&P 400, S&P 600 and Russell 2000 are all in the same boat. New lows for the week on Thursday. By the way, the small and mid-cap indices essentially closed unchanged (not unchained) for the day, up less than a smidge.
This is where the Nasdaq 100 and the Nasdaq Composite may have differentiated themselves. We won't really know until we hear two more bells, but both of these more tech-heavy measures of large-cap performance led the way on Thursday. Both of these indices also can backdate their lows of the week all the way to Monday. Same, by the way, for the Technology Select Sector SPDR ETF (XLK) . What does this tell the math kid? Think about it.
While investors appear to have rejected the March 23 through Sept. 2 uptrend due to a lack of continued fiscal support, the certainty of electoral uncertainty, increasing dollar valuations and rising caseloads of Covid-19 as well as a global state of sadness (not a joke), the rotation out of growth into value that made headlines just a couple weeks ago might be, in truth, rotating the other way already.... very subtly, under the guise of a pressured marketplace.
Earlier This Week
This week, we have discussed portfolio manager behavior quite a bit. We all know that both the 50-day and 200-day simple moving averages (SMAs) scare the snot out of these guys. They even have certain risk-averse reactions to these lines written into their algorithms. Would they chase Tuesday's rally? Would they lean into that rally? How much cash is appropriate? I think more cash than most, but I have felt that way for a long time. That's a byproduct of trading your own dough. Trapeze artist without a net. Most managers, if they underperform, they might lose some prestige, or maybe even if it's bad enough or often enough, their jobs. Forget out-performance -- we lose money, our families don't eat. The stakes are much higher when you are your employer.
What does this all tell me? I'm not sure. If I was, I could stand on my wallet and run for office because our nation needs people who fight off the tears when they see the flag or hear the anthem and who live by a personal code of honor to be leaders.
Back to the markets. While broader markets to include nearly all market caps in reality suffered a setback on Thursday, the information technology sector and the large-cap indices most exposed to that sector are actually now several days into an attempt to round out a bottom. Could this fail? Of course. That said, and while Fridays are typically dangerous, that sector and those indices have not failed yet. They don't even need to rally here on Friday; they just need to close above the Monday low in order to keep this shred of a silver lining alive.
Readers may have noticed that while losers beat winners at both the New York Stock Exchange and the Nasdaq Composite, and new lows beat new highs at both exchanges, that advancing volume beat declining volume quite decisively at both locations. Does this make rising trading volume at both exchanges (the NYSE in particular) less meaningful? I think it does.
How much less meaningful? While tech worked its way higher on Thursday, and software led tech, the sector finished in fourth place of the 11 sectors on the daily performance tables. The Utilities finished in first place. A creation of those seeking yield. Consumer Staples finished second. Food products led the Staples. You know who led food? You'll never guess. The lightly traded Tootsie Roll (TR) soared 4% on no news. I've been eating candy lately, how about you? Campbell Soup (CPB) also ran 3.6%. At least that firm made a dividend announcement.
I know. The Census Bureau reported a fantastic number for August New Home Sales just two days after the National Association of Realtors reported a great number for August Existing Home Sales. Fantastic. A hot housing sector is a sign of a good economy. Unless this behavior is simply the result of urban dwellers fleeing the violence and chaos of the cities. That's not good. That's actually terrible, because away from urban areas too many folks are chasing too few homes, while business and residential vacancies scream ever higher in places where young families do not want to be. This is how one-way bubbles are formed.
Perhaps a more useful metric for the state of this economic recovery would be both weekly first-time applications for jobless benefits that have stabilized at terribly elevated levels and continuing claims that are still falling, though that tail has been flattening for weeks now. In addition to the 870,000 first-time filers for these benefits, another 630,000 filed for the federal PUA (freelancers & self-employed) program. This condition does not improve any time soon without more fiscal support for small to midsize businesses as well as households. Unfortunately, this has become about politics ahead of the election rather than about getting the American public to the other side of a pandemic.
Finally, some movement on this issue? House Democrats appear to be putting together a new scaled-down version of a next phase Coronavirus Aid package. This one would include help for airlines, restaurants, small businesses and households, as well as states and municipalities. The price tag comes down to roughly $2.4 trillion from the ridiculous $3.4 trillion bill that was passed in the House months ago. On that note, the Trump administration had already shown interest in supporting a package that would run as much as $1.5 trillion. Unfortunately, a number of Senate Republicans think that number is too high, and instead chose to support a $300 billion proposal just a few weeks ago that was as absurd if not more so than the $3.4 trillion package was in the House.
Here's the deal. President Trump is up to $1.5 trillion. Speaker Pelosi is down to $2.4 trillion. If we don't see a bipartisan compromise close to the $2 trillion level well before Election Day (people already need help), then shame on those responsible. We do not have to rehire anyone.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Aug): Expecting 1.3% m/m, Last 11.2% m/m.
08:30 - ex-Transportation (Aug): Expecting 1.1% m/m, Last 2.4% m/m.
08:30 - ex-Defense (Aug): Expecting 2.5% m/m, Last 9.9% m/m.
08:30 - Core Capital Goods (Aug): Expecting 1.7% m/m, Last 1.9% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 179.
The Fed (All Times Eastern)
09:00 - Speaker: New York Fed Pres. John Williams.
15:10 - Speaker: New York Fed Pres. John Williams.
Note: Yes, Williams speaks twice today.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings are scheduled for release.