When there's nothing to lose, and there's nothing to prove
Well. I'm dancing with myself
Ah, oh, oh-oh.
Billy Idol / Tony James (1985)
Wednesday morning. I walked my usual walk. After writing Market Recon and before doing anything else. So, it's an early walk, but the sun is up. The critters of the night had disappeared, and those of the day had begun their routines.
This day, I immediately noticed, just how quiet the streets and then the park near my home were. There are about a dozen other folks who roam my neighborhood endlessly since the pandemic began. I saw none of them. Not even "walking girl" or "walking girl's husband," who I wave to every morning. They are the two most dedicated of that dozen or so. They live on the next block, they walk together most days, but when he doesn't walk, she still does, hence the monikers.
"Old jogging guy" was not in the park, which is unusual on a nice day. I noticed that the birds were missing too. Even the water fowl had taken leave of the pond that I walk past every morning.
Traffic was light on the only main street that I must pass. Then I saw a man on a bicycle in the distance. I could now relax. The apocalypse had not taken place while I had been in my own little world, writing my morning note. As the "bicycle man" closed in, from about 200 yards out, before turning down a side street, he waved. He must have noticed the bizarre local silence as well. I kept moving.
I moved over a hill just beyond the edges of a baseball field and bocce court. Whoa. There they were. Hidden from view just behind the ridge, just as Wellington had concealed the true strength of his forces from Napoleon at Waterloo, more Canadian Geese than I had seen in one place at one time all winter and spring.
They were highly organized. As soon as the scouts noticed me, the honking started. The 15 or 20 hatchlings were herded into the center. The adults formed a defensive perimeter around the chicks, and the two largest birds came right for me, making all kinds of noisy, and threatening moves. In no mood to do battle with a group of 75 or so geese, who were clearly already agitated, I moved well around the two aggressors who seemed only willing to get so far away from the "gaggle."
Beauty. Satisfied that all was well in the world, I headed for my home office where everything has been done for far too long, and thought about the wondrous order of nature. The precision with which such a large group of birds could communicate, and even behave aggressively. The children. The caregivers. The warriors. Beauty. For there would be no battle on Wednesday, April 7. Just an old man in a denim jacket wearing a Mets cap. Haven't changed my look with age. Have been that kid from Queens in the Mets cap for over 50 years now. I will head for that spot again today. Poetry expressed through mathematics developed through instinct probably over millennia.
Nature? Order? Faith? Faith. For one never really walks alone when one walks by themselves. Not really. This I know.
Equity markets remained eerily quiet on Wednesday, though there was indeed a certain order to what did transpire, which does offer at least more takeaway from the session.
For all intents and purposes, the Dow Industrials (+0.05%), S&P 500 (+0.15%) and Nasdaq Composite (-0.07%) all closed at what passes for "unchanged" in 2021. There was only some mild leadership, and that leadership came from "growthy" type groups.
The Communication Services sector SPDR ETF (XLC) led the day's performance tables, with Technology (XLK) in second place. The first group led by internet-type names such as Snap (SNAP) , Twitter (TWTR) and Facebook (FB) , the second not by the semiconductors or software but by those actually selling hardware like Dell (DELL) and Apple (AAPL) .
There surely were losers, and while the Materials (XLB) as a sector took a nasty tumble, it was the dour-looking performance of our marketplace's small-to mid-caps that put their stamp on the day.
The MidCap S&P 400 gave up 0.7%, while the small-cap focused S&P 600 (-1.4%) and Russell 2000 (-1.6%) dominated breadth, which was notably poor. Losers beat winners at the NYSE by roughly 9-7, which was also the margin by which declining volume beat advancing volume at the big board.
The action was notably worse up at the Nasdaq Marketsite. Yes, we often refer to the Nasdaq Composite or Nasdaq 100 as being "tech-heavy," however, the realm of Nasdaq-listed names is also very heavy with less than large-cap type stocks. Hence, losers beat winners up at Times Square by almost 2 to 1, with declining volume trouncing advancing volume by the same margin.
Was the day meaningful? If you lost money, of course it was. Broadly though, not really. Aggregate trading volume remained quite paltry, increasing just slightly at the NYSE, and moving even lower at the Nasdaq, which is seeing its lightest trading sessions, excluding the two half days that occur every year during the holiday season, in five months this week.
Something to keep an eye on: the Russell 2000 did close below both its own 21-day exponential moving average (EMA), and its own 50-day simple moving average (SMA) on Wednesday, but just by a hair as the two are running together. I would not call the level broken, more like pierced. There will either be support for small-caps found right here, right now, or the level will indeed break.
The R2K may just offer a hint as to how frightened portfolio managers are going into earnings season this morning (Thursday). The most significant market development of the week, may just be whether or not the U.S. 10-Year Note moves off of where it has become comfortable of late, yielding close to 1.65%.
Minutia in The Minutes
Sometimes we mock the Fed. Sometimes we give them too much credit or blame. The fact is that policy makers do impact capital flows more so than the business cycle, not just recently during this pandemic, but for decades. That's why we parse their words so closely, even though often they sound no more educated on matters of economics than a serious student of the discipline.
Understandable? Perhaps. Excusable? I am not sure. For I think we all know that economics is art, not science. In science, the same experiment under the same conditions renders the same outcome. Every time. There is no variation unless there is variation in the equation. Art is left to be interpreted by the end-user. Hence, you and I may look at a painting by Renoir side by side. You see beauty. I check my watch. The same is true with economic policy. The idea is to drive the herd through changes in perceptions of both surplus and scarcity, be it at the consumer or producer levels or even in the plumbing. What could provide more impact than a perception of scarcity or surplus in liquidity?
It was with great amusement that I listened to the Fed's talking heads on Wednesday, and then scanned through the Fed Minutes (check out Tom Graff's deep dive on Real Money here).
We now know that Chicago Fed President Charles Evans expects inflation to rise short-term but then have trouble maintaining a 2% average at the consumer level. We now know Dallas Fed President Robert Kaplan sees the possibility of this inflation rising "well in excess" of 2.5%, but then settling down. This is helpful, because it tells traders that much of the Fed is on board with Chair Powell's narrative that coming bouts with inflation will be transitory in nature. They show no fear.
Then there was San Francisco Fed President Mary Daly who on Wednesday indicated that she sees the Fed's now $7 trillion balance sheet as being a long way from hitting any limits. Daly also seems unsure that the central bank has influenced market pricing in a way that they would not want to, due to the size of their participation. Hold you laughter. Not commenting on Daly, but this too shows a lack of fear. Helpful.
From the Minutes: "A couple of participants expressed concern that highly accommodative financial conditions could lead to excessive risk-taking and the buildup of financial imbalances." Big smile. Now, you can laugh. Where do we file this? Under "Duh"? Under "No spit, Sherlock"? At least we'll always have each other.
Powell speaks today at noon. Stay alert.
Don't push me
Cause I'm close to the edge
I'm trying not to lose my head
-- Robinson, Glover, Fletcher, Chase (Grandmaster Flash & The Furious Five) 1982
Facts & Figures
1) The Federal Reserve published its February results for changes in Consumer Credit on Wednesday afternoon. Growth of $27.6 billion blew away expectations for something close to $5 billion. February became the largest one month growth in consumer credit since November 2017, led of course by $19.5 billion in non-revolving credit, which is representative of things like auto loans and student debt. The federal government lent students $5.7 billion in February, so my guess is that your local dealership on top of a shortage in automotive semiconductors probably does not have to offer you such a hot deal right now. Revolving credit (credit cards) popped for an $8.1 billion print in February, which is also very strong. We are told that savings are piling up. Yet, for consumers, the plastic is wearing thin. Food for thought.
2) The Financial Industry Regulatory Authority (FINRA) reported that as of late February, investors had borrowed roughly $814 billion against their portfolios, up 49% year over year from February 2020. That 49% is the fastest acceleration in (not necessarily) margin buying since 2007. At least nothing came of that 2007 surge in such action. Right? Probably nothing to worry about. Have I ever told you that I got in big trouble with my Mom when I was a kid for getting involved (as a spectator) in a shell game on the corner? Those guys seemed really nice. No idea what got Mom so riled.
3) On Wednesday, Advanced Micro Devices (AMD) and Xilinx (XLNX) both announced that their respective shareholders had approved the all-stock acquisition of the latter by the former. The deal, announced last October, still needs regulatory approval, and could close later this year. AMD CEO Lisa Su expects the acquisition to be immediately accretive to AMD's margins, cash flow, and earnings upon closing. I am admittedly biased, but I am buying whatever Su is selling.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 719K.
08:30 - Continuing Claims (Weekly): Last 3.794M.
10:30 - Natural Gas Inventories (Weekly): Last +14B cf.
The Fed (All Times Eastern)
11:00 - Speaker: St. Louis Fed Pres. James Bullard.
12:00 - Speaker: Federal Reserve Chair Jerome Powell.