As we have stated here, the recently seen narrowing breadth in equity market success may not be signaling anything. The narrowing of winners versus losers on declining trading volume experienced this summer (especially late this summer) could really just be an accurate reflection of a U.S. (or even global) economy that was thinning out itself as the now famous right side of the "V" shaped recovery started to flatten out well short of the pre-pandemic peak (in activity or velocity) on the left side. You'll recall that we referred to that shape as a "reverse square root symbol" back in March/April, and that is what some parts of the economy (especially labor) have started to look like.
Monday's market action was in no way similar to that recent disparity between the "haves" and "have nots" that we have been trying to describe in this space. On Monday, sure Apple (AAPL) took off yet again. This time, however, the supporting cast that showed up looked a bit different.
It's not as if the information technology sector sold off. Far from it. Tech, as a group was up on the day, broadly. Tech just was not a leader. Energy led. The Financials led, the banks in particular. Readers may see a little more of that, as the U.S. 10-year note gave up a few basis points overnight, allowing for slightly higher yields. Behind the Financials, both the Industrials, and Materials (without Gold, or Copper really running wild) sectors had nice sessions.
Oh, trading volume? Glad you asked. Trading volume moved sideways at the Nasdaq Market, and moved higher at the New York Stock Exchange. It counts.
Monday's positive price action was an act of broadening accumulation, or at least could be the start of one, committed by professional managers. Are these managers starting to believe that this economy can overcome what lays directly to its front? They aren't sure. We do know that surveys show a bullish appetite, and that short interest is down significantly across large-caps. Faith? Contrary indication?
Tell Us More
I shall. Basically, all I've really told you is that Apple is still king and that at least on Monday, Apple got plenty of help from "value" without this action taking a wrecking ball to "growth." Look within the Industrials... look at the Dow transports, such a key to economic growth. That average moved 1.9% higher on Monday, outperforming almost everything else I follow. Even the mid-caps and the small-caps got in on the action on Monday. Very positive. Back to the transports. That move was propped up by the airlines you say? True. But every group did well. Trucking, the Rails, Delivery services, even Maritime transport had a nice day. These are groups that suffered from economies that have been suffocated.
Monday's victories were triggered by Covid-19 related news. Yes, the FDA Emergency Use Authorization for the use of convalescent plasma as a therapeutic was a catalyst. It's more than that, though. Much more. It was the rumor of a potentially similar "EUA" for the AstraZeneca (AZN) vaccine candidate being jointly developed with Oxford University in the U.K. It was the Friday announcement that the vaccine candidates (yes, plural) being worked on by Pfizer (PFE) in the U.S. and BioNTech (BNTX) in Germany should have enough data to be ready for regulatory approval (hopefully) by late October. It was talk that Moderna (MRNA) was in talks to sell tens of millions of doses of that firm's vaccine candidate to the European Union.
This also comes as infection rates in the U.S. seem to be on the decline. According to the Johns Hopkins University website that we have all been following since at least February, Sunday's tally of 34,567 new cases of this coronavirus in the U.S. was the lowest single day total since June 22. Monday's total came to 38,057. The last day that the U.S. saw more than 50,000 new cases was August 14 as all of the Sunbelt states that were hit so hard appear to be (let's pray) on the downside of the slope. Let's hope this continues as schools try to restart and college-aged kids move back into dormitories.
My fear? As the seasons change, and those that live in warmer states get back outside, we who live in cooler states will move back inside. That is when we will find out about a second wave. What we saw this summer in the South and West was really an extension of the first wave that hit the Northeast in late winter/early spring. Whether one is invested or not, one is rooting for these pharmaceuticals and biotechs that have been working on this. That is if you ever want to sit at a table with a tablecloth ever again. Or at least not to have worry about loved ones whose jobs put them in peril.
There's more. Late Monday night news broke that a phone call had taken place between China's Vice Premier Liu He and both Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer on the U.S. side. No details of the call have been publicized. It is believed that such broad topics as economic cooperation in the face of the pandemic, and of course cross-border trade were discussed. I think just about every investor I know had given up on the Phase-One trade agreement signed by both countries back in January. Especially after scheduled trade talks were cancelled last week.
Is this a positive development? Well, it's not negative. This is why European equities are slightly higher on Tuesday morning, not an awful print for German GDP that "beat" expectations. This is also why equity index futures in the U.S. are trading higher (and the 10-year note is selling off a bit), but with that "skating on thin ice" kind of feeling.
Have You Noticed...
That such financial firms as Blackrock (BLK) , Fidelity Investments, and JPMorgan Chase (JPM) have been waiving fees that have been typically paid by customers on money market funds in order to keep these funds from hitting negative yields? The story was covered at the Wall Street Journal's website on Monday evening. From the Journal, and quite incredibly, seven-day net-yields for the average money market fund fell to 0.05% in July. This would be comparable to 1.31% toward the end of 2019. The article credits Crane Data for that tidbit of information, so I guess I'd better as well.
The deal is this, from my point of view. The only thing keeping the populace from stuffing cash in fireboxes and hiding it around their homes is the fact that nobody wants to touch cash anymore due to the pandemic. I have not touched cash in months and I know many who say the same. This inability to use good, old-fashioned cash, coupled with a need to do something productive with that dough (many investors still run at elevated cash levels) could force even riskier public investment behavior. Especially should these financial firms flirt with allowing these money market funds to yield what the (admittedly altered) marketplace offers.
Whack a Mole
Ahh, nobody follows the Dow Industrials anymore anyway. Well, that's not really true. If one watches the financial media, or even the mainstream media, when they zip through the business news, this is the index that garners the most attention, even if in reality very little money in the way of capital flow actually tracks the Dow Jones Industrial Average, at least not relative to the S&P 500 or the Nasdaq Composite. It's still big news when a name is shown the door, or a new name is invited in. This is about prestige. The news released on Monday regarding membership among the "blue chips" impacted quite a few Sarge names. Overall, I am elated.
On the way out are former Sarge fave Exxon Mobil (XOM) , and current Sarge holdings Raytheon (RTX) and Pfizer (PFE) . Apparently Raytheon really did not belong in this club in its current form, and nobody cares that Pfizer may just win the race to a Covid-19 vaccine, even though that's about saving people (and economies).
Moving on in, will be another former Sarge name, Amgen (AMGN) , as well as long time Sarge fave, Salesforce (CRM) , and another holding of mine that I have not touted, Honeywell (HON) . Interesting story there, Honeywell became the largest position on my book when adding on last week's dip due to an error. No joke. This moron (your author) accidentally added a zero to a trade that made the trade exponentially larger. Yes, I did notice the error immediately and could have gotten out at cost or better. I decided to let it ride. Thank you very much. Some profits will be taken this morning. That is a promise. By the way, Salesforce reports tonight.
Why all of this action? Apple, that's why. That stock splits this Friday, and will weigh upon this price-weighted index to a far lesser degree than it does today. Hence, the equity shell game.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last -2.8% y/y.
09:00 - Case-Shiller HPI (June): Expecting 3.7% y/y, Last 3.7% y/y.
09:00 - FHFA HPI (June): Expecting 0.3% m/m, Last -0.3% m/m.
10:00 - Consumer Confidence (Aug):Expecting 93.1, Last 92.6.
10:00 - New Home Sales (July): Expecting 779K, Last 776K SAAR.
10:00 - Richmond Fed Manufacturing Index (Aug): Expecting 7, Last 10.
16:30 - API Oil Inventories (Weekly): Last -4.3M.
The Fed (All Times Eastern)
17:25 - Speaker: San Francisco Fed Pres. Mary Daly.