There was a door stood long ajar
That one had left for me
While I went trying other doors
To which I had no key
-- "The Door" (excerpt), Jessie Belle Rittenhouse (1918)Just what was Jessie Rittenhouse trying to tell us when she wrote that verse? Not casting blame for being incapable of recognizing opportunity in real-time, I don't think. Certainly not casting blame for any lack of initiative or work ethic, for the subject had been trying other doors. More, a message of perseverance, in my opinion. For if the effort is there, and one adapts to the environment while honing cognitive ability and situational awareness along the way, then one ultimately finds a way... finds the door that will open to where one was always headed in the first place. She may have been writing about doors in a room.
I like to think that she was writing about you, about me, about the guy or gal that we all know who has just never given up despite whatever it is that could have held them back. Rise with me this morning, my readers, my friends. Rise with me, and meet the challenge. Dare to try that door that you had a reason not to try. Dare to dig deep. Dare to explore the limits of potential. Dare to find weakness. Be that shining beacon of light through the foggiest night that your children see when they think of their Mom or their Dad. Whether you think you deserve that honor or not. Dare to strive. We shall.
I Counted Three
Equity markets sort of reversed course on Wednesday from Tuesday, but without really hurting anyone too much -- unless one got caught in GameStop (GME) and you knew that doorknob felt a bit hot when you reached for it. Correct?
On Wednesday, small-caps lit the path, while blue chips also reached for the sky. Those Dow Industrials closed at a record high as Boeing (BA) , Walgreens Boots Alliance (WBA) and Goldman Sachs (GS) all scored gains of more than 3%. What do those three tell us? That if a major industrial manufacturer of aircraft, a chain of pharmacies, and an elite investment bank can move in step, the rally we stand at the foot of, must be for real, and must be rather broad in nature. Stand by.
Catalysts? I counted three:
1) The House passed the $1.9 trillion COVID relief/economic support package Wednesday. President Biden is expected to sign the bill into law on Friday, with helicopter money raining down on most Americans perhaps as soon as next week.
2) The Bureau of Labor Statistics put February CPI data to the tape Wednesday morning. Sure, there is some inflation but at least statistically, it all lies outside of what we consider core. Energy, energy commodities, gasoline, and fuel oil all saw large month-over-month increases. Away from energy, and the energy adjacent, however, used cars and trucks, apparel, medical care commodities, and transportation services all experienced month-over-month contraction. Core inflation actually slowed to 0.1% m/m and 1.3% y/y. You may not believe it, but policy makers see that as disinflation, gang, and that can (will be) a green light to get more aggressive.
3) The U.S. Treasury sold off $38 billion of 10-Year Notes Wednesday afternoon. The auction is not the most robust we've ever seen, but probably exceeded expectations, and certainly came out far better than feared. Bid to cover improved slightly to 2.38 from the 2.37 that has been the six-month average. A high yield of 1.523% sparked a rally at the longer end of the Treasury yield curve that has not slowed overnight. Best of all, indirect bidders (foreign central banks) took down $21.5 billion, or 56.8% of the entire issue. Not the 60% I look for, but certainly not the sub-50% I feared (still down from 60.4% in February, so something to keep an eye on). Don't forget, the Treasury will move to borrow $24 billion in long bonds this afternoon.
Even better, I felt, than record highs and 10 of 11 sectors closing in the green was the action across the Nasdaq. Huh? Umm, Sarge... the Nasdaq Composite, and Nasdaq 100 both surrendered nice early gains to close in the red. The Philly Semiconductor Index fell 1.8% on the day. Didn't you see? I'll tell you what I saw, cowboy. I saw winners beat losers at the Nasdaq Market Site by almost two to one, I saw advancing volume at that same exchange top declining volume even if just by a smidge. I saw aggregate trading volume for the Nasdaq Composite fall 14% short of its 50-day trading volume simple moving average, as trading volume across the entire universe of Nasdaq-listed names decreased 4.8% from the day prior.
Oh, the day still counts. If you lost money, you still lost money, but from the perspective of trend identification, it counts a lot less than Tuesday. We can still look forward to that always elusive "follow through" day for the Nasdaq. It may not come today, it may not come tomorrow. I told you 24 hours ago: All the Nasdaq Composite has to do is stay above that Monday low of roughly 12,937,and the game remains afoot.
What the Nasdaq Composite needs to do really, is take and hold the 21-day exponential average. See that line in green, currently standing at 13,276? That line made for resistance on Wednesday, made for resistance in early March, and made for resistance in late February. This, my friends, is the door on Thursday. (Yes, THAT DOOR !!) This my friends is the door that we need to kick in, and pile into the room on top of each other, weapons covering every possible avenue of approach. We take and hold this line, and we will see that "follow through" day.
The top four sectors on Wednesday were all cyclicals. Tech finished last and in the red. You all know I have bought every dip in tech for more than a week. Am I afraid? Fear is but, for the wicked, and the wicked shall fear my wrath. Does anyone really think that if we rock, we rock alone? Don't the banks need tech? Do not producers of both fossil fuels and methods of renewable energy rely upon tech? Know where the transports go without tech? Nowhere. There's a chip shortage for a reason. Think of any business not reliant upon software, or the cloud?
Do you realize how much money will not just seep into both bond and equity markets over the medium to long term as stimulus creates possibly far more liquidity than necessary, but that helicopter money will flow sooner than that?
I saw something on social media yesterday that I did not originate, but I thought worthy of a laugh and then a thought. The posting read, "Buy $1,400 worth of stock today. The Federal government will pay you back in cash." You smiled. Then your brain said, "That's exactly what these kids are going to do," didn't it? Party on, Garth.
Door Number Four
Another catalyst? Or perhaps our downfall? Haven't come to a conclusion on that just yet.
Big News! The U.S. and China will hold high level meetings in Alaska next week. Hoo-ray. These will be the first such overtures made since President Biden took office. Secretary of State Antony Blinken and National Security Advisor Jake Sullivan will represent the U.S. The Chinese government will send Yang Jiechi and Wang Yi, that nation's top foreign policy official and foreign minister, respectively.
To this point, President Biden has largely left intact President Trump's tough policies around relations with China and Chinese trade. Does this open another "door" to a more open global economy? Is that even the right door to open? There is much to consider. I see two obstacles that stand in the way of a warmer relationship. That said, any attempt at diplomacy is always preferable to not talking at all.
Keep in mind:
1) President Biden's team will be fanning out ahead of those meetings in Anchorage. For SecState Blinken, Anchorage will be his last stop on a trip that will include visits to Japan, and South Korea, two nations that have reason to be leery of China. Blinken will be joined on that trip by Defense Secretary Lloyd Austin, who will go on to visit India before returning home. Remember that Chinese and Indian troops have engaged in hand-to-hand combat in the Himalayas as recently as this past June.
2) Earlier this week, Admiral Philip Davidson, head of the U.S. Indo-Pacific Command, appeared before the Senate Armed Services Committee. The picture he painted was indeed troubling. "We are accumulating risk that may embolden China to unilaterally change the status quo before our forces may be able to deliver an effective response." Davidson added, "I cannot for the life of me understand some of the capabilities that they're putting in the field, unless it is an aggressive posture." Last week, Rear Admiral Michael Studeman, who is Admiral Davidson's head of intelligence, pointed out that China continues to militarize the islands in the South China Sea disputed with Japan... "At some point, you're going to see fighters. There'll be a few at first, and then they'll try to do the boiling frog sort of approach... pretty soon they'll have as much as they'll want to deploy there."
We have a problem, gang. Talking is good, but only a first step. Taiwan's autonomy is at risk. Hong Kong's freedom is already lost.
I remain long my recent purchases of both Lockheed Martin (LMT) and Kratos Defense (KTOS) . I already recognize that my sales of both Boeing (BA) and Raytheon (RTX) were probably mistakes and I need to try to re-establish those longs as intelligently as I can. Northrop Grumman (NOC) , L3 Harris (LHX) , and Leidos Holdings (LDOS) are interesting.
A potential name of interest for retail investors on a budget might be Coda Octopus (CODA) , a naval sonar specialist that finally seems to be breaking out after a long slumber.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 745K.
08:30 - Continuing Claims (Weekly): Last 4.295M.
10:00 - JOLTs Job Openings (Jan): Last 6.646M.
10:30 - Natural Gas Inventories (Weekly): Last -96B cf.
13:00 - Thirty Year Bond Auction: $24T.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (FIZZ) (0.39)