The Beat Goes On
Two "up" days in a row. Seemed so unlikely, even if it had not only happened as recently as last week, but also seemed to be the permanent state of existence for our equity marketplace this past summer.
Two days earlier, the president used the announcement of the termination of negotiations over fiscal support/stimulus, oddly enough, as a tool of negotiation. The markets (led by keyword readers) went for it. Equities tanked on Tuesday.
It became quite apparent by late Tuesday into early Wednesday that the administration not only still wants something to show the public in this regard, but was very willing to go the "skinny" route in order to get targeted money into damaged parts of the economy. In short, everyone on both sides was still working toward doing something. Markets roared on Wednesday, taking back more ground than was lost the day prior.
Just one thing. House Democrats were still dangling a less-targeted package on one side, with a net price tag of $2.2 trillion, while the administration was bidding a more focused $1.6 trillion on the other side, with a murky, opaquish kind of support from Senate Republicans. No real movement. No one had stormed off into the mist (this time), either. Markets edged higher yet again on Thursday morning. Then it happened. Almost. Sort of.
Speaker Nancy Pelosi took the podium just before 11:30 a.m. ET. She would not accept the idea of piecemeal aid to troubled employers such as the airlines in the absence of a broader fiscal package. The market took a temporary dive, but this time was different. This time, the averages took back more than half of that mini-selloff by lunch, and moved beyond where they had been that morning by late afternoon. The S&P 500 and the Dow Jones Industrials both closed at the top of their respective daily ranges, and at their highest levels since Sept. 2. The Nasdaq Composite? Highest close since Sept. 3.
So, what gives? Why did Nancy Pelosi take a hard stance on Thursday, and why did the markets not really buy what she was selling, or if they did, why did they move the way they did? First. Why is the Speaker playing hardball? That's the easy question. She can see the polls. The polls were wrong in 2016? No, no, they really were not. Not nationally, anyway. This year the polls are not as close as they were in 2016. Even Rasmussen, which always seems to show a tighter race than some of the other services, now shows the former vice president well ahead of the incumbent president. Even in swing states. The Speaker likely feels that she is dealing from strength. My bet?
She can wait for a blue wave, in her opinion. Then a fiscal package likely becomes larger. Then you are not just saving 30,000 airline jobs, but who knows how many local, regional and state-level civil service jobs that are also riding on the razor's edge. Certain fiscal hawks among the Senate majority are not wrong when they point to mismanagement in some cities. It's as plain as the nose on your face. Still, we are talking about saving a lot of jobs. That matters.
What I am trying to write is that the Speaker likely feels that the administration needs a deal more than her side does, at least a deal done within what is now a three-week (plus) window. The markets? I think they see the same scenario. The right needs a deal sooner. Axios reported last evening that in a phone call between the president and House Minority Leader Kevin McCarthy a "big deal" was mentioned favorably. Something is going to give.
The monetary base is going to expand. Short-term rates are going to stay put. Vaccines and therapeutics are obviously very close to an elevated level of availability. Fiscal support either comes within the next three weeks, in between (reluctantly) Nov. 3 and Jan. 20, or after Jan. 20... but it comes. Expect growth, but expect growth that might bring with it an uncomfortable level of inflation should labor markets find support through artificial means for too long. That will be a different kind of headache, but that is not this year's story.
Has far to go? The way markets closed, let us hope so. For a second consecutive day, market breadth was strong, though gains made at the headline level were rather modest. Winners beat losers by more than three to one downtown (NYSE) and by more than two to one uptown (Nasdaq Market Site). Advancing volume crushed declining volume at both of New York's primary equity exchanges. This brings us to the one point that keeps getting in our way. Aggregate trading volume is not growing day over day, on "up" days.
Thursday trading volume decreased from Wednesday up at Times Square, while moving merely sideways at 11 Wall Street. Keep in mind that this market was led by Energy partially due to a storm, and bond proxies (Utilities & REITs), not by mega-cap tech, not by the Internet, and not by biotechs. Election-related rotation? That is likely an underlying factor, but if that were the force behind Thursday's action I would expect there to be more volume-related conviction.
Trading volume decreased on successive days (both "up" days) across constituent membership of both the S&P 500 and the Nasdaq Composite. Hence, with the markets obviously in rally mode for two weeks now, by my own code of discipline I am forced to play "small ball," which we all know is the right way to do things anyway. Choppy markets. Incremental purchases on dips. Incremental outs on spikes. Pay close attention to daily MACD crossovers for names traded. Patience. Act on technical breakouts when recognizable. Keep it simple.
In a MarketWatch interview with Moncef Slaoui, who is head of the administration's "Operation Warp Speed," the immunologist and former GlaxoSmithKline GSK executive went over a number of issues regarding the efficacy, logistics and timing of vaccine candidates currently in Phase 3 clinical trials. On the bright side, Slaoui discusses the Food and Drug Administration's guidance for minimal efficacy of 50%. Slaoui explains that when one or more of these candidates are ready to apply for "Emergency Use '' authorization that he would be "negatively surprised" should efficacy scores not run closer to 80% to 90% than toward the minimum.
Slaoui discusses the logistical side of what will be vastly different levels of required refrigeration for either of the two leading (on a timeline) candidates in this country, those under development at Pfizer (PFE) and Moderna (MRNA) , where Slaoui had served on the board.
The most important takeaway, at least to me, came midway through the interview when Sloaui said, "We will know if a vaccine works... anytime in late October, or November, or in December." He is of course referring to Phase 3 data results. He expects, should results support, that an emergency use authorization will be applied for three to four weeks beyond the release of those results. This would explain Health and Human Services Secretary Alex Azar's optimism that every American seeking immunization from this virus will have that opportunity by late March into April. That's really fast, and if it works will be the single greatest accomplishment made by this administration, whether or not there is a change made in leadership by then. Getting the vaccine out to the masses will be reliant upon the precision execution of both the U.S. Army and medical supply company McKesson (MCK) .
News broke late Thursday -- I believe The Wall Street Journal had it first -- that Advanced Micro Devices (AMD) was in advanced talks to acquire rival Xilinx (XLNX) in a deal possibly valued beyond $30 billion. Talks had supposedly stalled at some time in the past and have started heating up again of late. This may be a lead story by the time the pre-opening bell financial news shows get going.
Even with the restructuring news and expected cost reductions (to include layoffs), I do not see AT&T (T) as an add at this time. Yes, I am still long 10% of what I would call a core position, and that's really of the firm's status as a dividend payer. The firm has a lot to prove before I lay out capital meaningfully on what they do or say.
Economics (All Times Eastern)
10:00 - Wholesale Inventories (Aug-rev): Flashed 0.5% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 189.
The Fed (All Times Eastern)
No Public Appearances Scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No Significant Quarterly Earnings Scheduled For Release