Just what was needed? Perhaps. This nation has a habit of finding just the right fit for the situation, regardless of what that situation might be. Former Vice President Biden for all intents and purposes became President-Elect Biden over the weekend. At least out in my neck of the woods, there was both jubilation as well as despair publicly visible. I am not necessarily a fan, but his speech on Saturday night was excellent. In short, he offered an olive branch to the other side, while asking his own side to back off a bit. That was important. It showed leadership at a time when leadership is and will be required at an elevated and sustained level.
Just as a Joe Biden might be what a nation needs in 2020, President Trump may very well be just what the nation needed in 2016, though some could not see it at the time. General George S. Patton was necessary, rising to prominence exactly when and where his type was necessary. President Lincoln came along precisely when needed. My thought process here doesn't just apply to humans, the forces of nature have responded to the needs of this nation as well. Almost as if coordinated from above. Almost inexplicably, a dense fog moves into New York Harbor and covers the retreat of Washington's army just as that army by all rights appears to be on the brink of extinction.
A hurricane strikes out of nowhere as an occupying army tries to burn down Washington, DC. A sudden change in currents carries enemy forces well past their planned point of disembarkation at New Orleans, forcing their infantry to cross a swamp out in the open, so that a small semi-organized force of U.S. soldiers, pirates, native Americans and escaped slaves could stop them in their tracks. What we needed when we needed it. The pages of history are littered with moments of despair that were met either by accident or by being in the right place at the right time, with just enough, when enough was all that we needed.
In 2016, there was a severe public reaction to the election of a president with a different kind of temperament. He knew how to use the bully pulpit and then he over used it. He picked fights and then he picked some more. The economy remained on track, even picked up acceleration in spots over his first three years. Then, the pandemic. President Trump may not have been a gentleman, and he may have set a poor example in terms of visible mitigation as the virus spread, but one thing he did do well, was mobilize the U.S. manufacturing base, mobilize big pharma, mobilize the biotech industry, and lay out the logistical capabilities of the greatest military on earth.
I don't know how the pandemic story plays out in the end. None of us do, but I do know that historically, pandemics last something like three to four years. President Trump's "Operation Warp Speed", if it works out as planned, would have cut the last two to three years off of a pandemic that is still badly injuring the people and the economy of not only the nation, but this planet. The truth is that if this pandemic starts to run out of steam or victims in under a year, then this operation will have been an incredible success, and to not place credit where due when due... would be disingenuous. Maybe that was the being where needed when needed part of the story came in. I don't know, I am but a man, who thinks a lot, and the good Lord knows that I am not always right.
I do know this. Perhaps, that one (very significant) need superseded by circumstance all of the not so positive aspects of an otherwise controversial presidency. Perhaps that mission is now close to completion, or as close as he could take it. The need, from a national perspective at this point, is perhaps an older gentleman who remembers and knows how to cooperate with the other side. Perhaps what is needed now, is someone generally well-liked by leaders on both sides of the aisle. Zealots will scoff at these thoughts. They did on Friday, as I used historical metaphor for the situation that I felt the sitting president to be in.
The fact is that this nation one way or another... gets "it" done. That may be just what happened in 2016, and that may be just what happened in 2020. Some will never understand. Most will. This will not be easy. Transition never is, but this nation is better at it than most. I try to be non-partisan though I am often accused of supporting both sides. I support the United States of America. I have worn the flag on my shoulder (literally) and on my clothing since I was a much younger man. It is in my own (and yours) best interest if the president does a good job, so root for him, even if he is not your guy. President-Elect Biden told the nation on Saturday night to (paraphrasing) "hear each other", so let's do that. You people on the right all liked President Reagan. You people on the left all liked President Clinton. What did they both have in common? The ability to make their political enemies like them personally. I think this guy might share that quality. Or you could cry for four years. That serves no purpose at all. We have lives, families, businesses, and economies... local, regional, and national to save. The bus is about to leave. My hand is open and offered. Take a chance. Take that hand. Even if you think you already hate me.
Lay Of The Land
What we know is this. Equity markets roared last week in response to electoral results that appear to have replaced protectionism with globalism at the top to the ticket, but without coattails. In other words, the red undercard had a better election than the blue undercard. The result? Probably policy direction that nudges back toward where it was four years ago, whereas it can be impacted by Executive Order. Think climate change, think improved trade relations which would likely be a big plus sign for multinational large cap corporations. Don't think about a $3 trillion fiscal support package, nor about aggressively increasing taxes. These ideas will not fly unless the Dems take both Senate races in Georgia.
This is what developed before your eyes last week as the Nasdaq 100 and Nasdaq Composite both ran more than 9%, the S&P 500 a cool 7.3%, and the most closely followed small to mid-cap indices 5% to 6% apiece. All 11 S&P select sector SPDR ETFs gained ground for the week, as the U.S. dollar index not only sold off, but threatened the lows of late August/early September. This put a bid under not just equities, but gold, silver, and yes, even crude oil despite an uncertain future. The Energy sector SPDR (XLE) did finish last for the week, badly underperforming broader markets.
Investors also bought back the long end of the Treasury yield curve as it became obvious that the next fiscal support package will be closer to $1 trillion than to the $3 trillion that probably would have been reality had there been more support for the undercard from the blue side (Less supply). Not that the Treasury Department is not already borrowing heavily. This Tuesday (tomorrow), the Treasury goes to auction with $41 billion worth of 10 year paper, and then on Thursday, with $27 billion worth of 30 year bonds. These numbers are already incredible. Understand that if new to this game.
Quite incredible as well, was the performance of the bull market's former leaders. While broadly, to grow the marketplace... earnings must grow, and that growth must be supported by economic growth. That said, economic growth in the wake of the pandemic's impact has been surprisingly stellar. Recent data for Durable Goods Orders, and Private Employment, New Orders for Manufactured goods, as well as consumer based surveys have all surprised to the upside.
The fact is that we can probably either sustain the trajectory of recent economic growth the best we can, or slow the spread of this awful virus. Probably not both for now. If by chance you still don't know how awful this virus is, choose not the road of arrogance, but instead maybe say a humble prayer of thanksgiving for your good fortune.
This expectation of an impacted trajectory for growth, as well as a change in some policy initiatives have placed the Information Technology SPDR (+9.7), and Health Care SPDR (+8.1%), well above the pack for the week past. Within that technology group, the Philadelphia Semiconductor Index ran 12.6% on the hopes of a more globalist future, and the Dow Jones US Software Index ran 10.1% as more Americans are likely to work remotely for longer if possible. As for Health Care, this was all about the Providers, both insurance and hospital stocks. As the president-elect has made no secret of his intention to expand on the ACA (ObamaCare), these are the kinds of names that will benefit most, should a Republican controlled Senate cooperate in exchange for something along the lines of less regulatory change in key areas impacting national employment. The Dow Jones US Health Care Providers Index screamed an even 13% higher over the past five trading sessions.
Are Equity Markets Overbought?
The short answer is "not yet." The next sentence is that "we'll get there, though." According to FactSet (Most readers are well aware that for me this is the source for broad earnings related data.), the third quarter numbers just keep improving. Eight-Nine percent of the S&P 500 has now gone to the tape. At this point, 86% of S&P 500 constituent corporations have beaten expectations for earnings, while 79% have generated revenue above what had been consensus view. Over the past five days, the S&P 500's 12 month forward looking PE ratio has moved dramatically higher, from 20.6 times to 21.6 times.
This has come about as analysts have largely scurried about increasing Q4 earnings expectations. Earnings projections for the current quarter have improved steadily to just -10.9% year over year at this point. There is now a chance that revenues will grow for the quarter over last year, with consensus view for revenue generation now at just -0.3%.
Can corporate America grow sales for the fourth quarter? Answer a question with a question. Will people be smart enough and mentally tough enough to tone down the holiday festivities this year? Say yes to this, then you can say yes to that. Tell me it's your right not to wear a mask, and you're right. It is. You also need to check your sense of self importance. You may have just bought milk from a 65 year old cashier with diabetes who will feel ill later this week, and die by December. But, hey man, at least you did not wear your mask. You showed 'em. Will it dawn on you next week when someone else is working the register?
Fun With Charts
The good news is that surely we are no longer looking at a potential "double top" formation. That would have potentially bearish (maybe very bearish) implications. Now, suddenly the Nasdaq Composite threatens to break pivot from below which could be extremely bullish.
The most interesting take-away for me is the gigantic trading volume on the two big down days (Oct 28th & Oct 30th), followed by last week's rally in higher trading volume each and everyday. I really can not stop laughing looking at this development. You do understand that this likely means that there was broad professional distribution at the pre-election lows followed by a board professional panic to chase themselves back into the shares that had been sold, but at much higher prices. LOLOL !! People still ask me why I work for myself. Maybe because I know these guys. Some of them are very good. The rest are part of the clown show.
The action is less obvious for the S&P 500. That low on October 30th still came on elevated trading volume, but note that the close that day came more than halfway up the candlestick (range). This suggests a pre-election hope for a "blue wave" fiscal package that would have benefited more cyclical type names. Now, not how there is far less volume based enthusiasm post-election for this index as there was over at the Nasdaq. At least Friday's down day came on very little volume, meaning that while less robust than what we see up at Times Square, the rally downtown is still very much intact.
Economics (All Times Eastern)
No significant domestic macroeconomic data-points scheduled for release.
The Fed (All Times Eastern)
13:30 - Speaker: Cleveland Fed Pres. Loretta Mester.
14:20 - Speaker: Philadelphia Fed Pres. Patrick Harker.
Today's Earnings Highlights (Consensus EPS Expectations)