It was Tuesday morning. Market Recon was already written, and in the hands of the editorial staff. Equity index futures were indicating a higher opening, though that bell would not ring for another two hours or so. There was real warmth in the air. Temperatures were already in the mid-50's as I headed out on my early walk. Only a denim jacket was necessary. On my way to the park, I passed "Walking Mom", and once there I passed "Jogging Old Man". Since the pandemic changed our lives, my mind has applied simplistic nicknames to faces now familiar enough to at least nod at in passing. Since the weather had become colder, I still see "Walking Mom" sometimes, but I had not seen "Jogging Old Man" in a while. I was glad to note that he must be healthy, because... in these times, you never know... and you wonder.
December apparently was off to an optimistic start. Upon returning to my home, one of my sons was on the porch. He works outdoors. I told him... "Enjoy this day, son... it won't be this warm and dry at the same time again until March." By the time I took my afternoon walk, there was the slightest bit of a nip in the air. On that walk, I was hoping to see "Yankee Hat Guy", and "Bicycle Siblings" as they usually roam the neighborhood at that time of day. Nobody was out and about by then. Something had changed. The sky was raw. Fast forward to Tuesday morning. Zero-dark thirty. Not quite winter weather, but a lot more like it. The only positive of not seeing others on my walks, is allowing myself to walk around with my mask down around my wrist. For a few months, I could at least count the campaign lawn signs. Now we don't even have that. I'd prefer to mask up, if it means warmer weather, and even just a little human interaction at the most basic of levels. For now, I guess I'll talk to the Geese near the pond. They do talk back in their native tongue. I don't understand them though. They're Canadian. (Smile)
Out of the gate, December roared. Financial markets had already tackled the November month end rebalancing and come out of it almost precisely as we expected. This was a good thing. Progress was being made on the Covid-19 vaccine front. Pfizer (PFE) , collaborator BioNTech (BNTX) , and Moderna (MRNA) had applied for some kind of emergency authorizations for their two candidates in the U.S., the UK, and the EU. There was also enough talk circulating around Washington, DC to stoke the algorithmic fires in the name of proposed fiscal support. There would be mention made of a bi-partisan package put together in the Senate. There would be talk of contact between outgoing Treasury Secretary Steven Mnuchin, and Speaker Nancy Pelosi. There was even casual support for the idea offered from Fed Chair Jerome Powell's testimony on the CARES Act.
My son returned from work early. Another shortened day. He said... "I hear I may be getting another $1200." I told him when you are counting on Mitch McConnell and Nancy Pelosi, that you might as well understand that you are truly on your own.
The worm turned for the worse sometime around 14:45 ET, when the above mentioned Senate Majority Leader Mitch McConnell apparently rejected the bi-partisan plan that had been batted around earlier in the day. That worm, while not turning markets negative for the day, did take the shine off of the rally after new highs had been set across the large-cap landscape, and helped raise questions about the immediate future heading into the overnight. Trading volume was lower on Tuesday than it was on Monday, but Monday's volume was to some degree the product of mandate. Trading volume was still very heavy on Tuesday, and appeared to be close to evenly split between the power lifting prior to the McConnel news, and the profit taking that took place after.
There were indeed, some clearly positive takeaways for the session, as well as some oddities such as the Nasdaq 100 and Nasdaq Composite leading large cap indices higher despite the fact that breadth was overwhelmingly more broadly positive at the New York Stock Exchange. Winners did beat losers at the Nasdaq Market Site, but declining volume beat advancing volume up at Times Square. Most optimistically, 10 of 11 sectors closed in the green. Of the Sector Select SPDR ETFs, only the Industrials (XLI) closed down for the day (-0.25%), despite the Dow Industrials gaining 0.63% for the very same session.
Market leadership on Tuesday was drawn from Internet type names, semiconductors, tech hardware (driven by Apple (AAPL) ), and the banks. Yes, the banks. The KBW Bank Index (+2.4%), the KBW Regional Banking Index (+2.2%), and the Dow Jones US Bank Index (+2.0%) all ran higher for the day as bond traders punished the long end of the U.S. Treasury yield curve. (Don't you just giggle when folks in financial media call this behavior a "yield rally"? You know you heard it on a prominent financial television network from folks who should know better, and you know that you laughed out loud when you did.) This price action put the "whammy" on the Fed's (and our) most closely watched yield spread, the 3 month/10 year)...
Talk of stimulus/vaccine inspired economic growth also put the VIX in the position of testing the 20 level from above, and took the CBOE Total Put/Call Ratio close enough to three month lows for the second time in about a week.
Out Of The Woods?
Of course not. For one, sentiment is too bullish as measured across nearly every metric that we use to follow it. There are positives out there on Wednesday morning. For one, the UK has now become the first nation to authorize the Pfizer/BioNTech vaccine in any way, and I believe the first western nation to authorize any vaccine. Rollout across the UK could begin as soon as next week. Secondly, where there is smoke, there could at least be some kind of smoldering fire. Any headline using the word "fiscal" in any way will draw algorithmic response. In addition, Salesforce (CRM) topped a successful quarter with the announced acquisition of Slack (WORK) , probably as a means to effectively take on Microsoft (MSFT) . Market top? Or just the beginning? This story is too big to cover as part of Market Recon. I expect to cover this for Real Money in a few hours unless an even bigger story pops up prior.
Risks? Oh, we certainly do have risks. Suddenly, Brexit negotiations between London and Brussels appear to be down to a very critical point. Suddenly, OPEC+ appears less united as global oil supplies on both land and sea mount and as demand dwindles. Suddenly, President-elect Joe Biden appears to back President Trump's trade policies in regards to China, all while U.S. legislators consider a bill this week that would force Chinese companies listed at U..S exchanges to play by the same rules in terms of financial oversight as their U.S. counterparts. Should foreign companies be held to the same rules as U.S. firms? Of course. No brainer. How anything else was ever permitted, I don't understand. I wasn't in charge, though I am starting to believe that I should be. Still, there will be a compliance window, and while any delistings that might come of this down the road would be initially viewed as a market negative, such activity would actually exacerbate an already existent scarcity of equity in this country and probably wind up supportive longer term of elevated valuation due to potential reallocation. I have no problem with that.
Did You Notice?
1) That Micron (MU) increased current quarter guidance? Significantly? For both the top and bottom lines. Memory may have been hit harder than say CPUs or GPUs, or AI, and may have recovered later at that, but memory is apparently in demand. Do we hear anything from Western Digital (WDC) anytime soon? That would be the clincher.
2) That Facebook (FB) has rebranded the much maligned digital currency idea that had been long ago shelved, as "Diem". Don't call it Libra. That idea no longer exists. As for the Libra Association? Who knows? The idea of launching several digital currencies? Probably not. However, Facebook could roll out a new digital currency as a single coin backed by the U.S. dollar in some kind of limited fashion as soon as January. Does this backing ultimately make Diem more desirable for alternative asset investors than other crypro-currencies already in circulation? I don't know. As I am well-known as someone not very high on Facebook management in general, this may be the best idea they have had, and could be the one thing that could get me behind the name. It all depends on the Facebook controlled digital wallet, and the Facebook controlled marketplace. Other cryptos have found use as a store of wealth. Should Diem wind up in use by the public as a medium of exchange... then everything changes.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 778K.
08:30 - Continuing Jobless Claims (Weekly): Last 6.071M.
09:45 - Markit Services PMI (Nov-rev): Flashed 57.5.
10:00 - ISM Non-Manufacturing Index (Nov): Expecting 56.0, Last 56.6.
10:30 - Natural Gas Inventories (Weekly): Last -18B cf.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
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