The reflex is a lonely child, who's waiting by the park
The reflex is in charge of finding treasure in the dark
And watching over lucky clover, isn't that bizarre?
And every little thing the reflex does
Leaves you answered with a question mark.
-- " The Reflex" Rhodes, Taylor, Le Bon, Taylor, Taylor (Duran Duran), 1984
Questions
Are you here or there? Are you in or are you out? Chop, chop, chop. Almost on a daily basis, financial markets seem to latch onto something, and unlike the days when dinosaurs roamed the earth, or when traders in colored jackets factored heavily into price discovery, there is little day-to-day memory involved in sentiment.
Don't get me wrong. Capital flows still determine trend, we just explained how that whole ball of wax works in Wednesday's Market Recon. I fear losing you, the early morning reader, should I get too far out in the weeds on a regular basis. That, I do not want. I don't think the small to mid-sized investor wants what this has become either.
Think you've figured "it" out? Think again. NYSE floor trader Art Cashin is famous for telling fellow traders, and later a TV audience to "stay nimble" on mornings of days that he felt the ice wore thin. How correct Arthur is.
Financial agility. One either has to be hands on, or hands off. The very lack of market stability under a microscope, yet a seemingly quite stable marketplace, from 10,000 feet has turned a game of wisdom (and luck) into just a game. Period. I do not mean that in a derogatory way. For there is always a way to win in every game.
There is a special talent to "gaming" these markets. Investment is still a challenge involving both an analytical kind of intellect, and a certain kind of faith in developed outcomes. This kind of short-term trading, though, requires a quick recognition of what the fast money is doing, and a reflexive ability to be at levels in names traded (played) well ahead of the "high-freaks" who we cannot beat in a fair sprint.
The speed and overshoot game. The "all or none" game. The sensationalism of what is from above -- a quiet period before one kind of storm or another. That's the way "they" wanted it. That's their game. So, we'll play.
Let it be written that in the end it was by their own hand they were defeated. Defeated by those who understood cover and concealment. Who understood them better than they do themselves. Who recognize algorithmic traders (who are snoozing at the wheel) in real time when they see them. Who understood that through their own creation, they lost focus, they forgot how to (or laid off the guys who knew how to) work all day every day.
All hail the mighty warriors who rage against the machines. The last of their kind. Financial guerillas. Survivors in an uninhabitable environment. The almost automatic but not quite unconscious reaction to stimulus. Nothing more than cognitive reflex. So let "them" figure" us out. Good luck with that, for we are humans. Humans rule.
Unpacking Wednesday
From big bank earnings that were quite good, to a Fed Chair consciously jawboning reaction to monetary policy, to a day of "space" to consume both higher, but expected consumer level inflation, coupled with troubling news regarding one of the three COVID-19 vaccines that had been available here in the U.S. it was quite a day. For on Wednesday, market participants rotated out of the un-rotation that had been in vogue for most of April.
Winners beat losers at both the NYSE as well as the Nasdaq Market Site. The difference, though, as cyclical sectors outperformed both defensive and growth-based sectors, was that at the NYSE, advancing volume clobbered declining volume as aggregate trading volume increased from Tuesday. All while, at the Nasdaq, declining volume handily outnumbered advancing volume as aggregate trading volume contracted from Tuesday's level.
How interesting. Almost as if there was indeed a simultaneous lack of conviction in both the weakness that hit the Nasdaq Composite, and Nasdaq 100, but also in the strength that moved into the small to mid-cap space.
Driven
Literally.
At least a significant part of this re-rotation had been triggered by the Paris-based International Energy Agency's (IEA) upward revision to expected global demand for oil to 5.7 million barrels per day. This came ahead of oil inventories in the U.S. that showed a third consecutive weekly decline.
This would be why Wednesday's move into the cyclicals was led by Energy. That and a weaker U.S. dollar that did place a bid under the entire commodity complex.
Careful traders may need to keep in mind that OPEC+ has already decided to increase production starting in May by more than 2 million barrels per day. The Saudis are done with this spit.
About Those Banks
I do not subscribe to the theory that the banks set the tone for earnings season. That said, the earliest of returns from the bankers have been outstanding. Perhaps the catch is that the best of internal performance across the space is being seen in elite corners of the business that require great skill, and not so much across what we consider to be traditional banking.
Goldman Sachs (GS) and JPMorgan Chase (JPM) alike experienced an incredible burst in trading revenues led by the equity space. Both banks also crushed expectations for investment banking fees, just in case anyone thought that SPAC-mania was going to somehow do away with what it is that investment bankers can provide to clients in need of raising capital.
I think we all have to be impressed with Wells Fargo (WFC) , and the turnaround that now becomes quite obvious despite limitations imposed by regulators. We told you here that once CEO Charles Scharf had taken the helm that WFC had made the right hire. So far so good. We remain long that name, which rocketed off of its own 21-day exponential moving average (EMA) on Wednesday.
The drawback, if it is a drawback, would be a decline in total loans at both Wells Fargo and JPMorgan. The product of decreasing demand for credit at the household and small business levels? Lost market share to those start-ups that might disrupt the world of traditional bankers? Perhaps both.
Perhaps also, there is just less demand for credit as Presidents Trump and Biden have showered the public with cash, and the U.S. Treasury/Federal Reserve have acted similarly with countless programs aimed at keeping small businesses/Main Street afloat.
We'll need to see as this year progresses if this reduced demand for credit at the big banks is more than "transitory."
More Than a Couple of Days
It appears, as I sit at my desk very early on Thursday morning, that after the Advisory Committee for Immunization Practices met on Wednesday, that it may be some time before the CDC and FDA are comfortable with issuing a follow-up statement to the original call on Tuesday to the states and to healthcare workers to stop using the Johnson & Johnson (JNJ) COVID-19 one shot, and easier top handle vaccine for an indefinite period.
Members of that advisory committee asked for more time to gather and evaluate evidence so as to be able to make a better estimate risk versus reward based on demographics such as age, and gender, as well as to determine if other risk factors might be considered. This committee does not meet again for a week unless an unscheduled meeting is called.
Hot, Hot, Hot?
Not sure what to expect from debt markets once March Retail Sales, March Industrial Production, and April manufacturing surveys from the New York and Philadelphia Feds hit the tape this morning. There is a real chance that all four come in hot. Our projections are below. Now, do markets rejoice should all four reports come in nicely? Or do pricing pressures in the manufacturing surveys on top of Wednesday's moves in commodity markets broadly or more acutely crude markets reignite an inflationary scare that had abated at least in Treasury markets this week?
If any jawboning needs to be done, we really only have Atlanta Fed's Raphael Bostic later this morning and San Francisco's Mary Daly this afternoon. Cleveland's Loretta Mester speaks after the closing bell, and she has been walking the walk of late, but she is a hawk by nature. Whatever it is that she says, though not a voting member of the FOMC this year, may be the most revealing/impactful.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 744K.
08:30 - Continuing Claims (Weekly): Last 3.734M.
08:30 - Retail Sales (Mar): Expecting 5.5% m/m, Last -3.0% m/m.
08:30 - Core Retail Sales (Mar): Expecting 5.1% m/m, Last -2.7% m/m.
08:30 - Empire State Manufacturing Index (Apr): Expecting 17.7, Last 17.4.
08:30 - Philadelphia Fed Manufacturing Index (Apr): Expecting 42.0, Last 51.8.
09:15 - Industrial Production (Mar): Expecting 2.7% m/m, Last -2.2% m/m.
09:15 - Capacity Utilization (Mar): Expecting 75.6%, Last 73.8%.
10:00 - NAHB Housing Market index (Apr): Expecting 83, Last 82.
10:00 - Business Inventories (Feb): Expecting 0.5% m/m, Last 0.3% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +20B cf.
14:00 - Net Long-Term TIC Flows (Feb): Last $90.8B.
The Fed (All Times Eastern)
11:30 - Speaker: Atlanta Fed Pres. Raphael Bostic.
14:00 - Speaker: San Francisco Fed Pres. Mary Daly.
16:00 - Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (BAC) (0.62), (BLK) (8.24), (SCHW) (0.75), (C) (2.18), (DAL) (-2.75), (PEP) (1.12), (PGR) (1.72), (TSM) (5.25), (USB) (0.94), (UNH) (4.37)
After the Close: (JBHT) (1.23), (PPG) (1.55)
(Wells Fargo is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells WFC? Learn more now.)
