It happened again.
Gosh darn it. What's that, Sarge?
That final hour or two where equities sell off. Wednesday became the fourth consecutive day that sell programs hit broader large-cap equity markets toward the end of the regular session. I tried to illustrate this for you on Wednesday morning with a simple OHLC (Open, High, Low, Close) chart when this was a three-day streak. Now, adding the Wednesday session, just take this in...
Four straight days, in this case the Nasdaq Composite (but also true for the S&P 500), the index closed at or close enough to the bottom of the day's range. In fact, excepting for last Thursday (one week ago), there can be a case made that this trend, though less pronounced, began as early as last Tuesday (Oct 13).
Not that the Wednesday session (yesterday) presents as a serious beatdown at the headline level. It was not. Sure, the Transports flashed red, while most of the rest of the equity marketplace closed somewhere in between "down small" and "moderately lower. That, itself, however, tells a tale that I do not quite understand just yet.
Tell Us More?
No problem, gang. Here goes. By now, I am sure readers are well aware that the U.S. dollar is showing weakness versus peer reserve currencies. The U.S. dollar index, the DXY, which is admittedly too heavily weighted against the euro, has moved toward its lowest levels in about a month. Should this 92.25 to 92.5 area of support crack, there is reason to think that this index could move as low as 90 -- depending on the trajectories of monetary and fiscal policies both here in the U.S. and in the European Monetary Union, the U.K., and Japan.
This dollar weakness coincided with weakness at the long end of the Treasury yield curve. We have written about this of late as well.
Now, this is what I find perplexing. Yes, some folks are blaming comments made by Chicago Fed President Charles Evans. Evans sounded on Wednesday less than enthusiastic about possibly increasing the pace of the Fed's long-term asset purchase program (quantitative easing). I don't blame Evans. This trend was already in place, and that said, is he supposed to jump for joy at the opportunity (necessity) to increase the monetary base in order to support "everything"?
Capital is flowing out of equities, and out of bonds, while the dollar loses value, yet certain energy-based commodities flounder. Yes, precious metals, agricultural and some industrial based commodities rallied on the weaker dollar, but oil and gasoline most certainly did not.
What this did to our equity market was drag the Energy sector, as well as key energy-reliant components of the Dow Transports as well as the S&P Industrial sector. The rails were hit. Marine transport was hit especially hard. For other (fiscal) reasons, so were the airlines, as well as the aerospace & defense industry. Nothing away from the internet showed any kind of overt strength, and that was quite narrow. Carve out Snap (SNAP) , Pinterest (PINS) , Twitter (TWTR) , and Facebook (FB) , and there really was not much meat left on the bones outside of some of the Staples that do well, when the human race does not as the SARS-CoV-2 viral spread unfortunately gains momentum. Globally.
How I See This
The Beige Book tells us that the U.S. continues to experience slight-to-modest growth in economic activity. Huzzah. Somehow, I don't feel better. Markets, or rather the algorithms that control markets, are pumping up markets on a daily basis as headline writers await news on a concrete fiscal support package as both sides see potential for political catastrophe in being left holding possession of blame in withholding aid from households and employers.
Rising yields at the long end of the curve would normally signal either the coming of inflation, or economic growth, or both. This kind of action would also be in line with the expectation of a large deal that increases already dangerous levels of deficit spending. The weakening dollar supports this line of thought.
However, a weaker dollar would usually be, and should be, a positive catalyst for equities, in particular., large-cap multinationals. For energy-based commodities as well. Unless, and these are both ugly outcomes, either the U.S. is expected to underperform going forward, or the rest of the world is expected to be unable to produce anything close to the kind of cross-border demand necessary to see positive impact.
There have now been several sessions over the past 10 days or so where trading volume has increased at the New York Stock Exchange, but not the Nasdaq Market Site, and for the S&P 500, but not the Nasdaq Composite. This would have to be seen as reflective at this point of some professional risk reduction. Food for thought here, gang.
'Help Me, Obi-Wan Kenobi. You're My Only Hope'-- Princess Leia (Star Wars Episode IV, 1977)
You may have missed this. In this environment, the news cycle has simply run amok. The FDA's Vaccine and Related Biological Products Advisory Committee will meet (virtually) today, Thursday. Under discussion broadly will be the development, authorization, and potential license of Covid-19 vaccines.
In addition to efficacy and safety, the advisory committee will have to also focus on how to vaccinate certain populations such as those with varied physical issues, children, and pregnant women. The group will also have to work on not just what is "good enough" for an EMU (Emergency Use Authorization), but how to actively track immunized populations well beyond vaccination, as well as how to get a product from an EMU to full authorization.
On that note, on Wednesday, CDC Chief Dr. Robert Redfield spoke. He was "optimistic a limited supply of one or more vaccines" would be in distribution prior to year's end after receiving this EMU from the FDA. That sentiment was echoed by both Redfield's deputy, Dr. Jay Butler, and Alex Azar (Secretary for Health and Human Services).
The trio did not name names, but what do we know? As investors? As humans who just want to survive? As social creatures craving interaction? One of my sons cancelled a date last night with a woman he met at work. He was protecting me. That stinks.
We know that the two efforts that took the experimental messenger RNA route (new technology) are the closest (in terms of time) to actually applying for an EMU. That would be the collaborative effort under co-development by Pfizer (PFE) and Germany's BioNTech (BNTX) , and then Moderna (MRNA) . Should all go well,, which is a big if, Phase 3 clinical trials will likely provide at least some data for both by November. Pfizer has indicated that it "could" apply for that EMU as soon as the third week of that month, while Moderna has mentioned December.
We also know that the U.S. government has agreements in place with national pharmacy chains such as CVS Health (CVS) and Walgreens Boots Alliance (WBA) with logistical support provided by both McKesson (MCK) and the U.S. Army.
Red Light, Green Light... 1,2,3
Quoted in the Wall Street Journal on Wednesday. Pfizer Supply Chain Vice President Tanya Alcorn stated, "If we get the FDA approval, we will be able to ship the vaccines very shortly after." Pfizer has apparently spent roughly $2 billion developing this vaccine, and in setting up distribution. The company now has two large refrigerated storage/assembly areas. One in Michigan, one in Belgium. It has developed special boxes that will keep the vaccines cold enough through large scale transport, while bypassing the distribution wholesale network in order to speed things along.
Instead of going the Mckesson route, Pfizer plans to go direct, making extensive use of both United Parcel Service (UPS) and FedEx (FDX) as well as other delivery services in getting product from Michigan to large vaccination centers to more remote areas. The company expects total delivery time, from Michigan to the point of actual use to run approximately three days.
The rain continues. Perhaps for days. The sun is still there. I promise. Those clouds will part. Floodwaters will recede. In 10 years, 15-year-olds will not remember that all of this ever happened. The rest of us will die trying to forget.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 898K.
08:30 - Continuing Jobless Claims (Weekly): Last 10.018M.
10:00 - Existing Home Sales (Sep): Expecting 6.1M, Last 6.0M SAAR.
10:00 - CB Leading Indicators (Sep): Expecting 0.6% m/m, Last 1.2% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +46B cf.
11:00 - Kansas City Fed Manufacturing Index (Oct): Expecting 12, Last 11.
The Fed (All Times Eastern)
13:10 - Speaker: Richmond Fed Pres. Tom Barkin.
18:00 - Speaker: Dallas Fed Pres. Robert Kaplan.