Thalia and Melpomene. You have seen the masks on theater walls for probably most of your life. Perhaps you took notice, perhaps you asked your Mom just why they were there. Maybe you didn't notice at all, or hardly cared. These are the masks of comedy and tragedy. The names Thalia and Melpomene are the names for the appropriate muses, taken from Greek mythology.
The news, lack of news, or method of presentation has always created both a positive and/or negative reaction to face value. The same news produces the faithful, the cynic, and even the skeptic. My guess, and this is only an educated guess at best, as I have only traversed my life through my own eyes... I can feel for you, but try as I might, I can not feel as you. Drama, not theatrical entertainment, but actual drama plays out over minutes, decades or maybe a lifetime and eventually concludes through the prism of interpretation as either comedy or tragedy. It's all in the resolution.
Did something stupid as a kid? Tell the story years later. Nothing really became of it? Over time it became funny. Somebody got hurt, or worse? Now that's a different story altogether, and one probably not often told.
So, for the second time in seven days, a U.S. company released interim data from a Phase 3 trial for a vaccine against the SARS-CoV-2 coronavirus that appears far more positive in terms of both safety and efficacy than we could have reasonably expected. This second U.S. vaccine, developed by Moderna (MRNA) , seems to be even more effective (94.5%) than the Pfizer (PFE) one announced a week earlier (90%). In addition, the product being manufactured by Moderna is far more user friendly from a logistical perspective, requiring just standard refrigeration.
Not just stocks, but people rejoiced. People I barely know in the streets wanted to talk about this news, to say "hello" -- from 10 or 12 feet away. Did one of us vote for Trump, the other for Biden, maybe one of us for a third-party candidate? On Monday morning, we were just people again. Any concern for other issues that might result from a growing national tribalism had faded. Two (at least) vaccines are this >< close to an EMU authorization at the FDA. Word is that several other efforts both here in the U.S. and elsewhere are not really too far behind. So close, yet so far.
As travelers, we now realize that the light at the end of the tunnel is indeed daylight, and not an oncoming train. Still, the virus spreads across the U.S. and much of Europe at a completely unacceptable rate. People I know, people you know are ill with this disease right now. Most of them will survive. Some will not. Some will not recover for quite some time even if they do survive, all while an effective and apparently safe method of artificial mitigation through scientific discovery now exists.
Comedy? Only for those who have somehow not been impacted, or can have incredibly short memories going forward. Reality? Something every human being is, and will experience on their own terms for the rest of their days.
Tragedy? Way too much, even if the worst case is somehow alleviated. Too many souls lost. Too many lives changed. Too many businesses / jobs lost perhaps for good. Masks on a wall. Comedy, and Tragedy. It is but human reality that they hide. Perhaps out of necessity.
The Wrong Term
They called it rotation. I'm still not completely convinced. Don't you normally have to sell something to rotate? Sure, the Nasdaq Composite has traded sideways for close to a couple of weeks, but the index is still moving sideways -- at the top of it's all-time chart. Even the Technology Select Sector SPDR ETF (XLK) , and the Communications Services Select Sector SPDR ETF (XLC) , have been moving sideways, not lower.
This could change, and certain darlings of the pandemic environment have taken it on the chin, but in nearly everyone of those cases, there was a technical need for some profit-taking. If capital pours into industry groups that had been left behind earlier in the year, but early winners en masse still move sideways to higher, then there is no rotation, and some of our talking heads appear quite foolish in using the terminology. What we have seen, at least so far, as vaccine related news has been optimistic, has been a broadening of the bull market. A broadening of the flow of capital. Not a "rob Peter to pay Paul" market in the least. We all knew that savings rates were nudging higher. We all knew that cash balances in trading accounts were elevated. Same for the pros.
This is a deployment to some degree of inactive resources. That will ultimately turn this market bearish. When? I just do not yet know. Perhaps as fundamental analysis returns to its rightful place in determining market direction. Technical analysis has always been a useful tool -- at least for me, in terms of market timing. If I want to know whether we are headed north or south, I crunch the numbers. Elevated valuation metrics are warranted in this disinflationary (not deflationary) environment, and could become more so, should Congress go to bat one more time in support of small businesses and households, not to mention standing with, and not apart from the central bank. Still, as the sun sets on some day in the future, and not in time for economies to truly reopen, the numbers we crunch will not be there for everyone.
The Day That Was
As investors, we have seen enough days, where the breadth did not truly support headline performance. Monday was not such a day. Market breadth was outstanding, and that is an understatement. Winners beat losers at the NYSE by roughly 5 to 1, 5 to 2 at the Nasdaq. Advancing volume crushed declining volume by about 13 to 2 at the NYSE, and nearly 3 to 1 at the Nasdaq. Aggregate trading volume increased on Monday from Friday at both exchanges, while this volume moved above its own 50-day simple moving average for both the S&P 500 and Nasdaq Composite. What this suggests is that professional managers are moving money, either joining a rally already in progress, or covering short positions.
Both would result in moves of finite duration. It is when the "broadening" starts to truly look like a "rotation" that we will know that some of these "managers" (word used kindly) are starting to run low on ammo. For now, Energy, Industrials, Financials, Materials, and Discretionary types are in favor, but nobody (at least not broadly) is getting hurt. The pain is still name specific.
I had a ham and swiss sandwich on a bagel. It was so good that I am still thinking about it. You? Oh, also paid attention to Federal Reserve Vice Chair Richard Clarida. His remarks are available on the Fed's website for those with an interest. Without giving away much, it appears that at least Clarida would consider adjusting (in order to support the economy while targeting maximum employment as well as price stability, of course) the current pace of the Fed's asset purchasing program (QE infinity), now at $80 billion per month in U.S. Treasuries across all maturities, and $40 billion worth of mortgage-backed securities.
The question that will arise for the FOMC in about a month's time will be this simple: Sans any partnership with the legislature, does the economy outperform by reigning in borrowing costs at the longer end of the yield curve, or is there more benefit readily achievable through the continued anchoring of the short end, while letting the long end price in more supply that could ultimately lead to growth (no guarantee), and / or consumer level inflation?
Dangerous game. No easy answer. Overt, as opposed to unofficial yield curve control is coming.
1) I noticed on Monday afternoon that Susquehanna's five star analyst Christopher Rolland had raised that firm's price target for Nvidia (NVDA) to $610 from $560, while noting that the company could face near-term shorages. My price target for NVDA is $670. Though above the norm, am I the upside outlier? Not exactly. Needham's Rajvindra Gill is still up at $700.
2) News broke late Monday that Tesla (TSLA) , in a move that comes long overdue, will be added to the S&P 500 on Dec. 21. The company, certainly after this overnight run will enter our market's broadest large-cap index among the top-10 most valuable companies in the index. Anyway, I will try not to take profits today, but I know temptation will be on my shoulder. Taking profits in Disney (DIS) ahead of the Moderna news has not worked out for this trader just yet. Well, they were still profits. I have that.
3) Get fired up for Walmart (WMT) earnings. The numbers come out this morning, and ahead of this release.. on Monday, the shares took (and held at least for now) the $151 pivot point that I had given you on Thursday. The stock pops? My target goes to $181. Disappointment? My panic point has moved up to $141. Rock on.
Economics (All Times Eastern)
08:30 - Retail Sales (Oct): Expecting 0.5% m/m, Last 1.9% m/m.
08:30 - Core Retail Sales (Oct): Expecting 0.6% m/m, Last 1.5% m/m.
08:30 - Export Prices (Oct): Expecting 0.3% m/m, Last 0.6% m/m.
08:30 - Import Prices (Oct): Expecting 0.2% m/m, Last 0.3% m/m.
08:55 - Redbook (Weekly): Last 1.1% y/y.
09:15 - Industrial Production (Oct): Expecting 1.0% m/m, Last -0.6% m/m.
09:15 - Capacity Utilization (Oct): Expecting 72.2%, Last 71.5%.
10:00 - Business Inventories (Sep): Expecting 0.5% m/m, Last 0.3% m/m.
10:00 - NAHB Housing Market Index (Nov): Expecting 85, Last 85.
16:00 - Net Long-Term TIC Flows (March-F): Last $27.8B.
16:30 - API Oil Inventories (Weekly): Last -5.147M.
The Fed (All Times Eastern)
13:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
13:25 - Speaker: San Francisco Fed Pres. Mary Daly.
14:00 - Speaker: New York Fed Pres. John Williams.
14:35 - Speaker: Atlanta Fed Pres. Raphael Bostic.
14:50 - Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (NIO) (-1.14)