Perhaps readers already know just who or what Woden is. Never heard of him? The middle day of our work week was named for him.
Woden is/was a pagan god, the Anglo-Saxon equivalent of the Roman Mercury. Mercury was a sky god, a god of wisdom, a god of commerce, a god of science. How fitting. How fitting is it, too, that Mercury was also known as the messenger of the Roman gods. Indeed.
While equities, at surface level, did very little on Wednesday, there is surely a tale to be told, that if not sung by the old ones, or told for generations by countless descendents, still needs to be told, or at least interpreted by those of us who wade into the economy every day, and must come back with more than we went in with.
Wednesday's child is said to be full of woe. This tells us nothing, unless one believes more in Mother Goose than in Saxon or Roman mythology. For, if Tuesday's child is truly full of grace, then Thursday's child must have far to go. Is it all nonsense? If one walks the park listening to music, does not one miss the jogger coming from behind? Does one not recognize danger before danger recognizes the individual? For Wednesday was truly full of woe. The president of the United States, this president of the United States, has now been impeached by the House of Representatives for a second time, a first in U.S. history, by a vote of 232 to 197.
Ten Republicans crossed over to vote with their Democratic party colleagues. Seems pointless this late in this president's term. Unless the point is to leave President Trump unable to run for office ever again. His successor will be sworn in next Wednesday. Let us hope that next Wednesday is more the Wednesday of Mercury or Woden than of Mother Goose. I do not see this impeachment of this president as a market event unless increased violence becomes of it. That would be most unfortunate. For all of us.
Waves Upon the Beach
They crash with a vengeance. Full of energy. Over time, the most powerful force on Earth, yet each wave ebbs after pounding the sand, and recedes quietly back out to sea. Casual observers will see an S&P 500 that eked out a small gain, a Dow 30 that essentially closed flat, and a Nasdaq Composite that outperformed them both, but not with any great elan among the investing public. Most interestingly, down at 11 Wall Street, winners just edged losers, and trading volume in aggregate receded. Declining volume managed to beat advancing volume. Remember the S&P 500 closed slightly higher.
Now, we hop on the 2 train, and head up to Times Square. Before going in, we stop and say "Hi" to Father Duffy. Why? Because we always stop by and pay respect to "The Fighting Chaplain" when in that neck of the woods. Yes, of course I'm Irish Catholic, why do you ask? Remember now, that the Nasdaq Composite outperformed the S&P 500, and the Nasdaq 100 on Wednesday outperformed the Nasdaq Composite. Yet, losers beat winners up in midtown. Maybe the Information Technology Sector SPDR (XLK) finally got hot again? Not exactly. Advancing volume did easily beat declining volume at the Nasdaq, but not necessarily in the stocks you would think.
Sure, the U.S. Computer Hardware Index scored an increase of 1.43%, but that would largely be because Apple (AAPL) ran 1.62%. The Philadelphia Semiconductor Index only saw a gain of 0.13%, despite Intel (INTC) soaring nearly 7% after it was announced CEO Bob Swan would step down. (On that note, INTC closed at the bottom of the day's range, and left a giant gap in its wake. Definitely a "sell idea" on any Thursday strength. Cancel the word "definitely", and replace with "I think.") The U.S. Software Index performed in line with the semis.
More broadly, investors bought the Utilities and REITs for a change, while selling the cyclicals. Down went the Financials, Energy, Industrial, and Materials sectors. Why would "they" do that?
Opposing Forces
The U.S. dollar, now off of the overnight highs, caught a fairly significant and persistent bid on Wednesday, reversing some recent weakness. The U.S. Treasury Department went to market with $24 billion in new 30-year paper. Demand was strong. Just like the 10-year auction the prior day. In fact, indirect bidders (foreign accounts) took down more than 68% of the issue, after taking down more than 62% of the $38 billion issued on Tuesday.
Remember, I have told you that I have been expecting foreign demand for U.S. paper to dwindle given that there are better real yields available elsewhere versus local rates of inflation in local currencies. Think the U.S. government seems unstable right now? Maybe not so much, if one is Italian, which is one of those larger economic nations sporting positive real yields. The mess in Italy has not only added a bit of volatility to Italian sovereign debt prices, but also took the shine off of the euro on Wednesday. Following?
Hence, foreign accounts seeking safe haven in U.S. assets forced longer-dated yields lower, and the U.S. dollar higher. Hence (love that word), dividend payers became more attractive than cyclicals. Hence, investors actually sold small to mid-caps. Does this last? You may not have to look to Italy or Europe for the answer.
President-elect Joe Biden will unveil his fiscal spending plan on today. Expectations are for increased helicopter payments to individuals and households, and a significant boost to federal support for states and municipalities. The price tag is expected to be a lofty $2 trillion more than has already been passed. My guess, and this is just a guess, is that the president-elect and his team are starting out especially high on the offer side of this market in order to provoke a higher middle once the bid side comes in from Republicans in the legislature as well as fiscally conscious Democrats. West Virginia Senator Joe Manchin, a Democrat, has already flashed concern, and in a 50/50 Senate, Vice President-elect Harris only has a say if neither side loses a vote.
If this plan for increased fiscal support is seen as passable, equities should rally, cyclicals in particular, the U.S. dollar should soften, commodities will go higher, longer-dated yields will rise and expand yield spreads with them. Now, if the market does not see the plan as realistic, or even in the ballpark, that January correction that I have been telling you about? Yeah, that.
Science
According to data drawn from a Phase 1/2a and published at the New England Journal of Medicine, the single-dose vaccine candidate under development at Johnson & Johnson (JNJ) appears to be capable of generating a positive immune response to the SARS-Cov-2 virus that causes Covid, and does so with a reasonable safety profile.
This early to mid-stage clinical trial evaluated 805 participants, and produced neutralizing antibodies in 90% or more of patients by day 29, and 100% of patients by day 57. (A smaller group was given a second dose.) Fever was the most frequent adverse side effect, and the adverse effect was more common in those given either a higher dose or a second dose.
In short, the JNJ vaccine has passed its first test. Results of the Phase 3 study involving 45,000 participants are expected sometime later this month. Help is on the way.
I am sure you all noticed that Jimmy Chill got his first Moderna (MRNA) jab on Wednesday. My parents got their shots over the weekend. We are going to live again. Someday. Maybe sooner than you fear. You will dance in the aisle at some concert whose performer I have never heard of, and you will cheer for your favorite team in person again. maybe, just maybe you will go into a store in your neighborhood, and not worry about having to hold your breath if you have to pass another human being on your way from one end of the store to the other.
Economics
From Wednesday's Beige Book:"Almost all districts saw modest price increases since the last report, with growth in input prices continuing to outpace that of finished goods and services." This, my friends, is called a margin squeeze. It either forces consumer prices higher, or forces merchants to close the doors.
Trading Notes
After Tesla (TSLA) reversed higher on Wednesday, all of FATMAN, or FATMAANN closed higher for the day. Mega-cap stocks overall headed in the right direction together, which has not happened like it used to just a few months ago. FATMAANN, for the uninitiated is the elongated replacement for FANG or FAANG. Facebook (FB) , Amazon (AMZN) , Tesla, Microsoft (MSFT) , Alphabet (GOOGL) , Apple, Netflix (NFLX) , and Nvidia (NVDA) .
Wall Street generally sees Intel's selection of VMWare (VMW) CEO Pat Gelsinger as a long-term positive. The short to medium-term negative, in my opinion, would be that Gelsinger is a 30-year Intel veteran. The firm still faces significant headwinds that will go nowhere anytime soon, and two of those headwinds are named Lisa Su of Advanced Micro Devices (AMD) , and Jensen Huang of Nvidia. There is concern on Wall Street, however, that as an Intel veteran, Gelsinger may be slow to outsource at least some manufacturing and try to engineer the firm's way out of the hole that has been dug.
I just bought this stock two weeks ago. Up over 15% after Wednesday, I must just take my football and go home, or at least part of my football. I am already in AMD, NVDA, and Micron (MU) . I don't need the exposure. This one is on watch for a sale, especially if "they" buy it again today.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 787K.
08:30 - Continuing Jobless Claims (Weekly): Last 5.072M.
08:30 - Import Prices (Dec): Expecting 0.6% m/m, Last 0.1% m/m.
08:30 - Export Prices (Dec): Expecting 0.5% m/m, Last 0.6% m/m.
10:30 - Natural Gas Inventories (Weekly): Last -130B cf.
13:00 - Baker Hughes Oil Rig Count (Weekly): Expecting 806, Last 804.
The Fed (All Times Eastern)
11:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
12:30 - Speaker: Federal Reserve Chair Jerome Powell.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (BLK) (8.26), (DAL) (-2.41), (FRC) (1.51), (TSM) (0.94)
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