Our financial markets react to just about everything. Reaction and especially overreaction in price discovery, at least from this corner of the world, appear to have become normal (almost expected) in this world.
Should that surprise? Probably not.
Those who have engineered the current marketplace, have intentionally moved toward speed of execution based on such triggers as "keywords," while simultaneously moving further and further away from what had built these markets into pillars of efficiency, what had made them core to both cognitive collection of idea production as well as a method to raise capital if one could convince others.
The result, even if not purposefully, is to force volatile shares further than they should go in thin markets before the size and speed of that move could either wake up interest on the other side, or even worse, add to undeserved momentum. Understand that in this market, slowing things down in order to build a book of buy and sell interest based upon relationship building in a given name and to try to gauge the size of interest at different levels, which should be the primary purpose for any publicly traded company listed anywhere, seems to be the art lost in the shuffle.
Domestic equity markets showed some strength on Wednesday. There was good reason, I think.
Earnings, expected to be poor, have been for the most part, less poor than previously expected. Some big tech names (we'll take a look) appeared (kind of) on Capitol Hill. Antitrust hearings? Sure. Hour after hour. Coming just ahead of earnings, the stocks were not wounded. In fact, there is talk that shareholders would benefit were break-ups to occur. That said, nobody sees this happening anytime soon.
The FOMC made that committee's last scheduled (because you never know in 2020) policy decision until September. Outcome? The Fed will remain aggressively accommodative, using its "full range of tools." Huzzah.
The "take 'em" crowd showed up, and aside from some last half hour profit-taking, stayed the course. The rally was broad-based. All eleven sectors shaded green. Transportation stocks showed great support despite a lack of participation from the airlines. Small-caps were just as lively.
Votes cast for future economic strength? Well, if it's economic strength we're after, it's going to have to be forward looking. Remember, though improved, trading volume remains quite paltry. Aggregate trading volume for S&P 500 membership, though tilted toward accumulation, once again failed to reach what would be its own 50-day trading volume simple moving average. Last time that happened? June 30.
Why then, if markets have been granted most of what could be asked for, is there an overnight risk-off ambiance in the air we breathe. While we never know overnight where U..S shares will actually open, equity markets are weaker overseas, long-dated U.S. Treasury yields are collapsing further, and domestic equity index futures appear mired in some early distribution. Though Federal Reserve Chair Jerome Powell did come off decisively dovish, in my opinion, his honest assessment of where the U.S. economy is and where it is headed is blunt.
There was, as readers well know by now, no significant changes made to monetary policy. None were expected. One sentence, taken from the official statement rings like a school bell, unmistakable in both meaning and clarity. "The path of the economy will depend significantly on the course of the virus." Yes, it is that simple. The statement goes on to explain more specifically, impacts upon activity, employment and inflation, as well as future risks to the ongoing outlook. Remember the "half-way back" or "reverse square root symbol" models that we discussed in this space at the onset of these mandated economic shutdowns? Well, this is what those models look like in real life. Q2 GDP prints at 08:30 ET.
Certain industries cannot open fully unless human interaction can also fully open. Unspoken, but certainly under discussion across the economics community on Wednesday night, was just how aggressive the Fed might be in using the balance sheet come the next expected policy decision on September 16. Should viral spread force the economy to continue moving sideways to lower over the next six weeks, the FOMC may see increased asset purchases, and anywhere from partial to full yield curve control, as well as the already underway extension of many ending facilities, as the only ways to prop up the weight of reduced breadth of velocity.
In other words, the Fed has done a lot, and is willing to do even more, but for now, is watching Congress. The fiscal side is where the next shoe falls. The direction of that step? Of course. Controlled by the virus. Headline risk? At the least.
Several vaccine candidates may be well ahead of what one might be called developmental schedule. Several show "robust" early results. See Johnson & Johnson (JNJ) this morning. Still, at best this means that some first responders might be vaccinated and benefit from some level of production later this year. That's the best case. As for the rest of us, all 7 billion of us, we'll have to wait, and behave as if we really do give a darn. About each other. This shows up, at least statistically as both smaller U.S. and global economies. They have to be smaller. We have to embrace that. Better to rebuild than to not get that chance. Don't you think?
Better Lucky Than Good
There was a time. A time where I used to carry one of those $8 disposable cameras everywhere I ended up, because wherever I was usually turned out to be if sometimes dangerous, truly beautiful in an aesthetic kind of way.
Those cameras, and the cheap film inside were the products of the old Eastman Kodak (KODK) , which has very little to do with that older firm outside of lineage. By the way, that camera died in a Panamanian swamp, despite being wrapped in a plastic bag that I apparently had not tied tight enough.
The short of it is that Eastman Kodak will receive a $765 million loan to start manufacturing key pharmaceutical ingredients under the Defense Production Act. The stock, which I had owned personally way back in the day under the old symbol of "EK" ran 203% on Tuesday, and another 318% on Wednesday after being up as much as 656%. In other words, on Wednesday, KODK closed at $33.20, after trading as high as $60, and as low as $17.50. These shares traded below $2.25 for much of the day on Monday.
Speaking of shorts, I'll admit it. Don't know how many other professionals will. I could not get the borrow. On Tuesday, with the shares trading between $10 and $11 in the morning, I tried to short this name, and was unable. Nice miss? You know it. It's always good to be "good," and on occasion... it's better to be lucky than good.
Tonight's the Night
They'll come over the hill this afternoon. Almost all at once. One day after, the CEOs of Alphabet (GOOGL) , Apple (AAPL) , Facebook (FB) , and Amazon (AMZN) were all questioned over various competitive or anticompetitive practices seemingly all day on Wednesday, all four will report quarterly earnings on Thursday afternoon.
I don't think it will come as a surprise to any readers that my favorite across this grouping is Amazon. All four have seen their stocks move sideways for some time now, after incredible runs as markets have broadened, if not in trading volume, at least in performance. Still, there has been a reluctance across the community of portfolio managers to truly take a sizable slice of risk out growth stocks beyond the perception of necessary housekeeping. Certainly there has been of late, greater distribution. This may be the day that recent patterns change, or really that may come after you hear today's second bell.
While my opinion is that Amazon remains best set up across this group to perform well regardless of economic, or political outcome as well as through unwelcome challenge, there is a good chance that at least in response, these names trade one way or the other. Together, thanks to the wonders of algorithmic, passive investment styles of trading. Will I add?
For Amazon, I think I need something below $2,800. As for Apple, I am going to need to see prices below the 50-day simple moving average (currently $354). I have never been the biggest fan of either Facebook or Alphabet.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 1.416M.
08:30 - Continuing Jobless Claims (Weekly): Last 16.197M.
08:30 - GDP Growth (Q2-adv): Expecting -34.7%% q/q, Last -5.0% q/q SAAR.
10:30 - Natural Gas Inventories (Weekly): Last +37B cf.
The Fed (All Times Eastern)
No Public Appearances Scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AMT) (1.94), (BUD) (0.36), (AZN) (0.91), (CI) (5.12), (CMCSA) (0.55), (DD) (0.58), (K) (0.94), (KHC) (0.65), (MMC) (1.13), (MA) (1.18), (NOC) (5.28), (PG) (1.02), (RDS.A) (-0.12), (UPS) (1.09), (WM) (0.79)
(Amazon, Waste Management, Dupont, Alphabet, Apple, Facebook, Mastercard and Johnson & Johnson are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)