The plan. Thirty-three years. My plan changed. Seems like yesterday. You know that sharp selloff that our markets experienced over the final hour of the regular session this past Friday? We had one of those on another Friday, thirty-three years ago. That one was far more terrifying (We all knew over that agonizing weekend, that the market was going to crash on Monday)... at least for this young trader's assistant. For one, the market model was still auction based, still open-outcry. Even odd-lot trades (trades smaller than 100 shares) were taken over the phone and executed by hand, so trading volumes may have been far smaller in size, but as an individual, every share was felt. Secondly, I was not really supposed to be there. I had taken the NYPD entrance examination, and had done all of the peripheral testing required to enter the academy. Rookie cops made 28K per annum in 1987. Junior traders on Wall Street made far less. I even knew my academy entrance date. I was all set.
Just one thing. I personally handled 1.6% of all New York Stock Exchange trading volume on October 19, 1987. That day, and the entire week, were just awful. Working 6 am until 11 pm all week just to try to keep up with the paperwork (while commuting 90 minutes each way out to Queens). I did keep up. I even did well under that pressure. I was very proud of how much of the NYSE's total volume that day was executed on orders taken in my handwriting for years. My wife was nervous about my wanting to join New York's finest. That said, I had the higher pay for police work on my side. Until the "Crash." Then, the firm that I was working for at the time, could not afford to lose me with markets in chaos. They threw me a large enough raise to keep me from leaving Wall Street. To this day, I often think that maybe I missed my calling. I think I would have been a very good police officer. I would also be retired for over a decade by now with a pension. That would be nice. Still, finding out that one could provide for one's family simply by excelling under pressure was very interesting indeed. I owed it to myself to find out if I could earn a seat at that table. I may have already been working on Wall Street, but my career was born on Black Monday. That was the day that I proved that I could play at a higher level. 986.
I have to ask. Did not you feel after that second bell rang aloud on Friday, that the markets (at the headline) had gone through a "down" week? I know I did. The mid-week losing streak? That last hour melt-down? Sure, Monday was grand, but grand enough to get the nose of the football over the goal line? Apparently. What was for me, at least, the most surprising was the weekly performance of both the Nasdaq Composite and the Nasdaq 100. While the Dow Jones Industrials and S&P 500 both might have ended the week with a green candlestick, to call their performance for the week "pedestrian" would be kind.
Both the Nasdaq Composite and the Nasdaq 100 may have closed out last week with four day losing streaks intact, but the fact is that the "100" gained 1.07% for the week, while the "Composite" (which includes financials) scored a weekly increase of 0.79%. Did it not also seem like the "Transports" and "small-caps" were having a terrific week at times? Well, the Dow Transports, S&P 600 and Russell 2000 all closed in the red for the week. No joke.
Another surprise? The Information Technology sector had a pretty decent week, finishing in third place of the 11 sectors, led higher by both hardware, which was an Apple (AAPL) centric occurrence, and software. What beat out tech? The Utilities placed second. Okay, that's flight to the perception of dividend paying safety, but the top spot among sectors went to the industrials, but not the usual industrials. Sure, the rails did okay for the week, but truckers did not. They often dance together. Aerospace and Defense did fine. I believe that this will be a volatile group going into and quite possibly well beyond the presidential election. Leadership among Industrials came from what we call "diversified industrials." Firms that can be, but do not have to be conglomerates. They just have to be jacks of many trades. In percentage terms, we are speaking of General Electric (GE) , Roper Technologies (ROP) , and 3M (MMM) .
I think it quite possibly important to point out that trading volumes expanded for NYSE listed names on Friday (an "up" day for related indices) after three days (all "down" days) of light trading. Now, this gets even more interesting for trading volume in names listed on the Nasdaq. After gapping higher on explosive trading volume last Monday, trading volume was not only light over the week's balance (four losing days), but this volume dwindled successively on each of those days from the day prior. This past week, for both the Nasdaq Composite and Nasdaq 100 was the fourth consecutive week of positive yardage. Just the third such week for the S&P 500.
What does this mixed action on lighter trading volume tell the thinking investor? This requires allowing some smoke to clear. A negative take-away might be to see some stalling. Okay, I see that case, but I also see a clear lack of conviction on any downward move. There is no (at least not yet) drive to broadly take profits. No "behavioral distribution" if you will. They (portfolio managers) are sitting on their hands.
Now think. New infections of Covid-19 are spiking quite aggressively across western style democracies including our own. Both Johnson & Johnson (JNJ) and Eli Lilly (LLY) had to pause either vaccines/therapeutics that had reached late stage clinical trials due to safety concerns. Some macro still looks good but labor markets do not. Initial jobless claims are back on the rise, while continuing claims are in decline but not for the right reasons. On that note, a next phase fiscal support package seems so close yet so far every other day. This with the election now just two weeks out. That's a lot to be negative about. Unless...
Portfolio managers are starting to see a very strong 2021 for both markets and the economy regardless of electoral results, or perhaps because of them. Put it this way. If we are to believe what we hear, the Democrats should do well in this election. There has now been three times the level of early voting than there was four years ago. Forget that early voting will likely skew blue, and election day voting will likely skew red. The fact that folks are getting these votes early is working to reduce the probability of a contested election. That potential uncertainty is being priced out right now. This really depends on whether early voting is pulling the blue vote forward, or is indicative in increased blue voter turnout.
Now, also consider this. Biden wins, and the Senate turns blue. Short-term? No fiscal help until January. That stinks, but also means that the package will likely be enormous. Wouldn't a blue sweep likely bring with it economically harmful changes to the tax and regulatory environments? Almost surely. Unless it's understood that the economy has to get on it's feet first. That could take years. Even if this basic Eco 101 stuff is not understood, those changes are probably not a 2021 story. That's a tax year 2022 story. You have a year, at least. (Just my opinion.)
Now consider a Trump upset, and a Senate that stays red. Well, that probably reduces the size of the fiscal package but there still will be one, and the pro-business environment that did work quite well for both the market and the economy from 2017 through early 2020 would still be there once society restarts functioning more normally post-pandemic. The point is that there will be ways for the thoughtful investor to navigate whatever presents to our front.
The greatest danger, and it is inevitable... though probably not something that can be timed, will be the consequence of the fiscal set-up, regardless of who is president and how the legislature lines up. When that crisis of confidence in the currency arises, and someday it will... it will be imperative to maintain the US dollar's position as not just a reserve currency, but "the" reserve currency. This is the stuff that wars are fought over. Just buy some gold if you haven't already.
Need To Know One & Two
Speaker Pelosi and Secretary Mnuchin have continued to speak, and negotiate. The two are scheduled to meet today (Monday). The House has already come down to a net $2.2 trillion, while the administration seems willing to possibly move beyond the $1.8 trillion that they have already offered. The major differences between the two sides seems to be on the how and where of such spending. Meanwhile, the Senate under majority leader Mitch McConnell prepares to vote on an extremely narrow $500 billion relief package this week. Can the administration get the Senate behind a $2 trillion package? I don't know.
Incredibly, the Wall Street Journal reported on Sunday that according to Fair Isaac (FICO), the average credit score increased to 711 in July, which is up from April and up from a year earlier. Apparently, the elevated average credit score has been able to hold at this level from July through October, as other data shows trouble in labor markets, and reduced credit card spending, but strength in retails sales. Don't ask me. I just work here. Actually, this is proof that the CARES act was extremely successful in its purpose. So were policies of forced mortgage/loan payment holidays. No new fiscal package? This stuff falls apart fast.
Economics (All Times Eastern)
10:00 - NAHB Housing Market Index (Oct): Expecting 83, Last 83.
The Fed (All Times Eastern)
08:00 - Speaker: Federal Reserve Chair Jerome Powell.
09:00 - Speaker: New York Fed Pres. John Williams.
11:45 - Speaker: Federal Reserve Vice Chair Richard Clarida.
14:20 - Speaker: Atlanta Fed Pres. Raphael Bostic.
15:00 - Speaker: Philadelphia Fed Pres. Patrick Harker.
Today's Earnings Highlights (Consensus EPS Expectations)