Just how forward looking are markets supposed to be? How are markets supposed to price in various "certainties" opposed to obvious risks, and over what timeline?
The Dow Jones Industrial Average finally took a powder on Wednesday, but really didn't go anywhere. The S&P 500 popped to the upside for 27 points, or 0.77%. This used to pass for an impressive day, back when markets were slower, and price discovery a more well-developed process. Now this sort of day makes for a small, though positive candlestick and little else. The Nasdaq indices, both the Composite and the 100, turned in far more impressive performances. Both ran more than 2%, putting a halt to rather nasty looking two-day losing streaks.
While traders may have clearly bought the dip across the realm of what we refer to as "growth" (semiconductors, software and the internet) while allowing the week's early winners (Energy, Materials, Financials and Transports) to flounder for a day, this action came on dramatically lower trading volume. Not low, holiday style trading volume, but lower trading volume. Low enough to indicate a lack of conviction, or conviction that did not spread across enough managers to truly change the narrative. At least not yet.
For example, at the New York Stock Exchange, declining volume beat advancing volume by roughly 7 to 5, but with winners actually beating losers by a hanging chad or two. Up at the Nasdaq Market Site (Texas bound?), winners did beat losers by less than 4 to 3, while advancing volume beat declining volume by something close to 7 to 4.
Wednesday's action, to me, shows indecision. How about those small-caps, highly sensitive to prospective economic growth? The Russell 2000 closed flat on the day, very difficult to do in the electronic era, while it's sibling, the S&P 600 surrendered 0.66%. Remember, on my screen any move less than half of one percent remains orange, while anything greater turns either green or red. Odd to see two indices that essentially track the same class of security shaded differently.
The risks around uncertainty have supported an early November rotation into more economically sensitive areas of the marketplace. The election had a result, or results that investors saw leading to a potentially smaller fiscal package, but a more globalized tilt in trade policy, taxed at rates unlikely to change dramatically. A little something for investors of all political persuasions to cling to. On that, President Trump's campaign has refused to concede (recall that in 2000, Democratic candidate Al Gore did not concede until Dec. 13), so there is precedent to await results once an electoral outcome moves to the courts. Do I think anything changes?
Probably not, but it is interesting that RealClearPolitics has still not called the election as of this writing. RealClearPolitics has not called Arizona, North Carolina, Georgia, or Pennsylvania, leaving former Vice President Biden with 259 electoral votes, and President Trump with 217. Why does this matter? Throughout the election, both sides probably cited data provided by RealClearPolitics as much, if not more often than any other source. I do think the president at some point concedes for the good of the nation, I don't see it before the service most often cited by both sides actually hands his opponent the 270 electoral votes required for victory. There is some market risk around this uncertainty that had already been priced out.
What's worse is the pandemic seems to grow each and every day. We all welcome positive-sounding news around vaccines and therapeutics. That much is true. We also know that local and regional leaders are taking, or will be compelled to take steps that will slow economic activity. Maybe we need to stop raising Q4 numbers. The fact is that as more and more people become more concerned for themselves and their families, the velocity of money will slow whether through executive mandate or not.
The Johns Hopkins University website that we have all been following for most of the year now, shows more than 144,000 new confirmed U.S. infections on Wednesday, another new record. Nov. 2 was the last day that the U.S. experienced fewer than 100,000 new infections. U.S. Covid-related hospitalizations are at record levels, and U.S. Covid deaths amounted to 1,984 on Wednesday, the highest number since May 6.
While the spread appears much worse in parts of the country that were mostly spared last spring, local websites that I follow show the virus is spreading rapidly here in New York once again. A website run by the Long Island newspaper Newsday shows that Wednesday was the worst day in terms of confirmed viral spread across Nassau and Suffolk counties in N.Y. since May 1. The rest of the state, as well as New Jersey and Connecticut, tell similar stories. Once again, as it was last spring around here, friends are asking for prayers for their loved ones and for themselves as they test positive and start to become symptomatic.
Is this unwelcome surge in infections due to a lapse in personal discipline around Halloween? The numbers were already rising, but I am sure that Halloween did not help. What about Thanksgiving? What about the various religious and cultural holidays that center around family gatherings as one year closes and another begins? New York Governor Andrew Cuomo has limited gatherings at private residences to 10 individuals, while mandating 10 p.m. closings at bars, restaurants and gyms. He is not the first governor to take some kind of action in response to this wave, and he surely will not be the last.
Personally, I have never stopped living like it was April, when I actually suffered the wrath of this awful beast. I am lucky. Though not quite well, I remain on this side of the dirt, and I do have the kind of job that one can do from home in the year 2020. I can, for now, provide. Not everyone is so fortunate. My sons have the kinds of jobs that actually require a physical presence. I hold my breath every day, every morning.
On That Note
The International Energy Agency has adjusted its downside forecasts for demand for crude oil over Q3 and Q4 2020 as well as Q1 2021, while predicting an upside move on the supply side of more than a million barrels per day for the month of November. This is as much a reflection of the rapid spread of this pandemic in recent weeks across much of Europe and now North America as it is anything else.
News like this could not just slow, but reverse the recent rotation out of growth and into value. This is why I ask above about just how forward looking markets are supposed to be. Folks will continue to work as remotely as possible for quite some time. There is good news as far as modern medicine is concerned, but this will be a drawn-out process.
The cavalry is on the way. We know that. We just can not yet hear the thunder of hoofprints. For now, it's you, me, and the quality of our masks.
On Wednesday, Moderna (MRNA) reported it had discovered enough cases of the virus within its ongoing Phase 3 vaccine study to begin interim analysis of both safety and efficacy. Should this provide positive results, this will add a second vaccine to the U.S. portfolio, as the Pfizer (PFE) /BioNTech (BNTX) vaccine had recently shown positive preliminary results.
Dr. Anthony Fauci stated on Wednesday that he would expect Moderna to start putting the data together "within a week." More importantly, Fauci has expressed some level of confidence that this vaccine candidate might show "a similar degree of efficacy" to the Pfizer/BioNTech effort.
Thursday evening, we'll hear from perhaps the most economically sensitive company of them all. The Walt Disney Company (DIS) will go to the tape with its fiscal fourth-quarter results. Wall Street has already baked in a whole lot of ugly, but has positioned itself for economic recovery. I myself am long this name going into the numbers, but I must admit, I am not as confident as I often am.
Tonight we look for a loss of $0.65 per share on revenue of slightly more than $14 billion. These numbers, though not comparable due to a changed world, will be compared to EPS $1.07 on $19.1 billion in revenue for the same period last year. We know that Disney has taken extreme measures to reduce headcount and reorganize. We know that the theme parks, lodging, cruise lines, and the cinema are not contributing much if anything at all, in terms of operating income.
The company will have to show a path, its path toward some form of post-Covid normalization, while also showing a narrowing of the gap between its portfolio of streaming services and that of industry leader, Netflix (NFLX) . At last glance, globally, Netflix had something like 195.15 million subscribers versus the 104.5 million that Disney has across Disney+, Hulu, and ESPN+. Disney will likely have to show not only that it is gaining on Netflix, but that it can profitably offer major theatrical releases across these platforms just in case the movie theater business never fully recovers.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 751K.
08:30 - Continuing Jobless Claims (Weekly): Last 7.285M.
08:30 - CPI (Oct): Expecting 1.3% y/y, Last 1.4% y/y.
08:30 - Core CPI (Oct): Expecting 1.7% y/y, Last 1.7% y/y.
11:00 - Oil Inventories (Weekly): Last -7.998M.
11:00 - Gasoline Stocks (Weekly): Last +1.541M.
13:00 - Thirty Year Bond Auction: $27B.
14:00 - Federal Budget Statement (Oct): Last $-125B.
The Fed (All Times Eastern)
09:30- Speaker: Federal Reserve Chair Jerome Powell.
13:00 - Speaker: Chicago Fed Pres. Charles Evans.
14:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (GDRX) (-0.31)