Want vs. need. Sometimes it can be as plain as day versus night.
We have all either raised or been an adolescent ourselves who "needs" this or that for the holidays based upon what is "cool" right now. We have all watched our favorite sports teams, "needing" a turnover, or a "double play." Even though we know that this is just a game.
But sometimes the differences between wants and needs are less easily distinguishable. The line between what is dire necessity and truly just luxury becomes blurred. We hope and pray for a loved one to pull through not sure if it is best for them, keenly aware that we'll do better with them existing on this side of the dirt. That's as blurry as it gets.
Speaking broadly, I think almost all of us "want" what's best for this nation, though over a "friendly" cup of coffee we might "respectfully" disagree on what this nation "needs" in terms of policy implementation.
Where Am I Going With This?
The time? Zero dark thirty. Tuesday morning. Readers are well aware that equity markets roared on Monday. From the major large-cap indices through the mid-caps down to the small-caps. In fact, the 1.5% gain enjoyed by the Dow Jones Industrial Average was rather smallish relative to gains made further down the ladder of market capitalization (or up the ladder of technological exposure for that matter). All 11 S&P sectors (by virtue of making use of sector select SPDR ETFs) showed gains for the day, led by the "odd couple" as both the Financials and Energy lit the path. Utilities, as a bond proxy type sector, finished a distant last place for the day.
Now, Information Technology is probably what I watch the most these days for many reasons. That would be due to the sector's versatility. Not only does this sector more or less control the Nasdaq Composite, which has in recent years gained a market status very close to that of the S&P 500, but it exerts even more control over the Nasdaq 100 (QQQ) , which for traders has become much more focused upon now than it was even just a few years ago.
Heck, it is this simple. There are "stay-at-home" stocks, there are "work remotely" stocks, and there are "economic recovery" stocks. There are tech stocks in all of these groupings. I mean single tech stocks that will do well in all of these environments.
Understand my thinking. The economy flops? I'll probably need to be in tech. This current "existence" drags on indefinitely? I'll probably need to be in tech. The pandemic ends and economies recover / normalize? Oh, capital flows will certainly broaden, but still, I'll probably need to be in tech.
This is why I focus as much as I do on the Nasdaq-centric indices even though the financial world sees me (if they still think of me at all) working on the trading floor of the NYSE with badge "986" pinned on my lapel.
This is the deal. The market got what it wanted on Monday. I am not sure that the market got what it needed. That said, there was undeniably important progress made from a technical perspective, thanks to a fundamentally based reason. The fact that Speaker Pelosi and Secretary Mnuchin appear to be playing nice for the moment.
Let's go to the Nasdaq first.
I cleaned up the chart, to make sure readers see what is important here. The index retook the all-important 50-day simple moving average, and it did not just hold the line, it closed at the top of the day's range. Ditto for the Nasdaq 100. Very key.
There are a couple of "not so fast" type catches wrong with the chart. First, Monday's moves left a gap that may have to be retested. Second, while winners beat losers 3 to 1 at the Nasdaq Market Site, and advancing volume beat declining volume by more than 4 to 1, aggregate trading volume at the Nasdaq itself decreased 5% from Friday. Normally, this would be a red flag. Let us not forget that Monday was not just any old Monday. Monday was Yom Kippur on the Jewish calendar, not just a holy day, but the most solemn, holiest of days. There should be less participation in financial markets on such a day as less folks are present.
So, how much do we take the reduced volume at the Nasdaq with a grain of salt?
The truth is that I don't know, and the fact that trading volume on the New York Stock Exchange actually increased on Monday from Friday on similar strength confounds. The suggestion there would be that less people traded more stock. That would certainly be powerful, except that both the Dow Industrials and the S&P 500 closed almost precisely on top of their 50-day SMAs, or close enough to neither declare the level taken nor failed at. Interesting?
Let's see what happens today with everyone in. No doubt. By the way, though fewer of you focus on the mid-caps, the S&P 400 not only retook the 200-day SMA, on a 2.4% run, that index ran about half way back toward an attempt to retest the 50-day line.
Just take a look at this beauty.
From all appearances it would seem that House Democrats have made the next move, even though they made the last move. Knock knock... you guys on the other side of the aisle there?
While the Speaker and the Secretary have agreed to keep talking, the House unveiled a $2.2 trillion proposal (down from $2.4 trillion, which was down from $3.4 trillion) for a fiscal relief package that would be a sort of Cares Act Part 2 if enacted into law.
Now, regular readers know that I am not a Democrat nor a Republican. I tend to hate all politicians almost equally, but I am a fiscally conservative thinker at my core, which would make me very unpopular as a politician, Good thing I am not. (Though my all-time record is 2-1 in town-level political races, I have not held any office in over two decades.)
Why then does it seem that I root for looser policies, across both fiscal and monetary realms? No secret there. I'm here to make money. I don't have an employer. I only eat if I am able to kill, and it is easier to kill in a loose environment. Simple as that.
This proposal would reinstate the $600 per week federal stipend that had been added to state-level unemployment benefits while also launching a second round of $1,200 in helicopter money at households. Sounds like a lot? It is, but it does keep the consumer in the game, and probably keep some families sheltered. There is a renewal for the small business Paycheck Protection Program, as well as money for schools, restaurants and the airlines.
Where will the administration or Senate Republicans balk? The $436 billion provision for state and local governments will be a sticking point. One side will claim pandemic damage, the other will see mismanagement. They are both correct. We all know that urban areas have been hit hard by Covid. We also all know that so many of these states and municipalities have been (very, very) badly mismanaged for decades. If I put my home in the burbs up for sale today, I would have six to 10 bids from folks trying to get their families out of New York City within days.
Regardless, it is time for movement toward the center from the right. Before everyone on both sides goes home to hit the campaign trail. I have mentioned a $2 trillion price tag. I have also heard smart people talk about $1.9 trillion. Just inch along.
Many people can not work in this environment. Others are justifiably afraid to. This is not a normal recession/depression. As if there is such a thing. This was not part of the business cycle. We have to be smart. We also have to have a heart.
Buried under far more interesting headlines on Monday was the Federal Reserve's report of household finances. This report is published once every three years. What it showed was that household median net worth in this country had increased 18% from 2016 to 2019. What was also shown was that median household income increased 5% to $58,600 before taxes (adjusted for inflation). In other words, the economy, growing an average of 2.5% over those years truly was in very good shape at the personal and household levels going into this pandemic.
What has been lost? How much can be recovered? It all cannot come back, at least not in a timely fashion unless there is a bridge. We have already built that bridge you say? Yet, our bridge will not allow for passage unless builders from both sides can meet in the middle. Seems elementary. No?
Tonight's the Night
What you can expect is ratings. I hope I can stay up to be honest. Since I got sick last spring, I have to fight just to make it to 8:30 p.m. at night just so my wife has a friend. Choosing a career where workdays start at 03:30 every day had created a lifestyle where I never went to bed late anyway, but sticking it out for a 90-minute debate that starts at 9 p.m.? Eek.
What to look for tonight. I think a verbal, virtual fistfight quite frankly. The debate, to be moderated by Chris Wallace, is supposedly to be focused upon six core topics. These would be Covid-19, the Supreme Court nomination, the economy, election integrity, social unrest, and the political records of both the president and the former vice president. That leaves out the just published New York Times story about the president's taxes, which is also sure to come up.
This first debate, unlike in years past, will likely be the most important. Early voting starts soon in many states, and more folks will vote through the mail than ever before in an attempt to avoid crowds. There will be no "comeback" kid as played by President Obama who appeared to lose the first debate rather badly versus Republican challenger Mitt Romney only to come back and win the next two. As well as re-election. There will be two more debates this year in October, but these guys have to really come out swinging tonight.
As we go into this heavyweight bout, an average of national polls has the former vice president leading by roughly 7%. Is that meaningful? They say that former Secretary Clinton had a lead in the polls in 2016. The polls were not as wrong as people claim. She did win the popular vote. This is a republic, which many folks fail to recognize.
According to RealClearPolitics, which is keeping tabs on presidential betting odds, Biden currently has a 54.6% chance at victory. Electoral victory. That's up from 50% about a month ago.
Markets may have favorites, and they probably do not like a sweep of the executive and legislative branches either way. What markets like even less is a contested election that gets dragged into the courts. Equity markets fell into correction territory in the wake of the 2000 election as officials in Florida tried to decipher voter intention from among thousands of hanging chads.
Economics (All Times Eastern)
08:30 - Goods Trade Balance (Aug-adv): Expecting $-81.8B, Last $-79.32B.
08:30 - Wholesale Inventories (Aug-adv): Expecting -0.1% m/m, Last -0.3% m/m.
08:55 - Redbook (Weekly): Last 1.5% y/y.
09:00 - Case-Shiller HPI (July): Expecting 3.7% y/y, Last 3.5% y/y.
10:00 - CB Consumer Confidence (Sep): Expecting 89.2, Last 84.8.
16:30 - API Oil Inventories (Weekly): Last +691K.
The Fed & Politics (All Times Eastern)
09:15 - Speaker: New York Fed Pres. John Williams.
09:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
13:00 - Speaker: New York Fed Pres. John Williams.
13:00 - Speaker: Reserve Board Gov. Randal Quarles.
15:00 - Speaker: Reserve Board Gov. Randal Quarles.
21:00 - Speakers: Presidential Debate.