"Inside outside, leave me alone. Inside outside, nowhere is home."
Pete Townshend wrote the words in 1973. By the way, the New York Mets also won the pennant that year. Should have saved Seaver for game seven, Yogi. That matters not on this fine morning. Once again, we breathe the sweet air of life. We rise and stand once again, on the preferred side of the dirt. Huzzah.
So, why was that tune, a classic by The Who running through my brain last night as I tried to settle down and do a little chartwork? It all has to do with the Nasdaq Composite. Oh joy.
First, a recap of an odd little trading session. As if peering down at the edge of a glimmering pond on a sunny day, the reflection was surprising in its accuracy. As if looking into a mirror.
You'll recall that on Tuesday, equity prices peaked in late morning, and then struggled through the afternoon only to sell off rather sharply into the closing bell. On Wednesday, prices bottomed prior to noon, then struggled through the afternoon, only to see a rush of algorithmic demand as that final bell approached.
The information technology sector was the main attraction on Wednesday, as both software and semiconductor type names broadly outperformed the market in general. Cherry pickers might also note that internet stocks buoyed the communications services sector, and that the financial sector actually put in a nice session. One might also want to note that the banks for the most part badly underperformed the sector.
Bear in mind also, that though breadth was generally positive, trading volumes declined from the previous day yet again. While there is obviously still some demand for equity at these levels, there also appears to be something of a "sellers' strike" going on. In other words, the big money is quiet so far this week.
From 10,000 feet, readers will see an index run wild. The Nasdaq Composite smashed through a 100% retracement of the March selloff back in mid-June on the second attempt. The index has now moved more than 10% beyond its own 50-day simple moving average, and nearly 20% beyond the 200-day SMA level. Understand just how unique that is.
We now zoom in on the most recent action.
Readers should see at the extreme right, Tuesday's "Outside Day," which probably should have signaled growing volatility, especially since the day included a reversal to the downside and closed at the lows. However, what does Wednesday bring? Incredibly, an "Inside Day," which signals declining volatility, that included a reversal in the direction of market trend (which has been to the upside).
Technicians will read this as what is known as a continuation pattern. I read this, as a mixing of signals.
What I am trying to say is simple. Financial markets have been warped by policy. This was necessary, but has also severed price discovery from underlying economic performance.
Equities are a winner in this environment as, other than in precious metals, there are not a lot of places to go for wealth creation. As specific sectors have become favored as either growth or even value, those sectors that more directly rely upon actual economic growth have fallen to the side of the road. Growth has become defensive. This capital chase has resulted in severing equity performance from corporate performance.
Run for the hills? Well, you really can't if you want to participate. You can understand that markets remain in a serious uptrend. This has not changed since early April. This is also dangerous.
Know your tolerance for risk at these levels. Know where the exit doors are along the way, as the big money will hit the first couple of exits far more quickly than you can.
Out and About
The Fed was out in force on Wednesday. Opinions vary, but one thing they all seem concerned about is just what all of us are worried about. The short of it? What growing community spread of this virus does to an economy trying to recover from an awful shock to both sides of all markets including labor markets.
Atlanta Fed President Raphael Bostic stated. "I think some of the response to the ability to reopen has been done in a way that has probably less caution than I would have liked, and is introducing the possibility for higher infection rates." Bostic added, "I do worry significantly about what those things do to the collective psyche of the consumer."
St. Louis Fed President James Bullard showed up on financial television, and seemed a bit more optimistic. Bullard said he was "still pretty optimistic in my base case about the recovery." He went on to say that he sees U.S. businesses adapting to what they have to and calling back workers at a rather brisk pace over the second half of the year, mentioning a year-end unemployment rate between 7% and 8%.
However, it was Boston Fed President Eric Rosengren who I think was most pragmatic in his approach. Rosengren expressed fear that community spread would hamper the economy and that "there are going to be more firms that start worrying about whether they have sufficient financing." This is that other shoe that we discussed in Wednesday's Market Recon. Rosengren sees demand for the Fed's "Main Street Lending Program," which to this point has been light, not only growing, possibly being extended beyond the stated September termination date.
On that note, United Airlines (UAL) sent 36,000 employees notice that mass furloughs may become necessary this autumn.
It was with sad resignation, but certainly not surprise, that I read about the Ivy league cancelling all inter-collegiate athletic competition until at least the new year. Makes sense. If a school has decided to forego in-person classroom instruction, or is still wrestling with such decisions, how on earth can it be expected to put a hundred or more athletic kids together and have them train hard with an intent to compete? Sweating. Panting. Tackling. Heck, I throw on my mask and go well off of the trail on my walk through the park if I see a jogger coming.
Will the bigger conferences follow suit? USC versus Alabama comes awfully quick (Sept. 5). Football and basketball support these athletic departments, not to mention Saturday afternoons on ESPN. Another potential blow to the fortunes of the Walt Disney (DIS) Company. Though the shares barely noticed on Wednesday.
What then of the National Football League? At least the professional league has the flexibility to move games around or delay the entire season, without questions around enrollment or semesters. Don't be surprised if football is a spring sport this year.
Did see Nvidia (NVDA) surpass Intel (INTC) on Wednesday in terms of market cap? Recent gains are being credited to dominance in the market for GPUs ahead this autumn's next-generation gaming console releases.
Nvidia's +74% year-to-date performance makes the firm the largest U.S. maker of semiconductors (third globally) based on market cap. By comparison, Intel is now -2% YTD, while the PHLX Semiconductor Index, at +11%, has underperformed the Nasdaq Composite, which is now up a cool 17% for 2020.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 1.427M.
08:30 - Continuing Jobless Claims (Weekly): Last 19.29M.
10:00 - Wholesale Inventories (May-rev): Flashed -1.2% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +65B cf.
13:00 - Thirty Year Bond Auction: $19B.
The Fed (All Times Eastern)
No public appearances scheduled.