1. Moving the markets

The futures markets pointed to higher equity prices, as AstraZeneca became the latest competitor in the Covid-19 vaccine creation fest saying its product would be 90% effective.

News over the weekend that the first vaccine could be available within weeks after the anticipated FDA approval in mid-December helped the market continue its northerly path during the regular session.

A mid-day sell-off was the result of suggestions from the Biden administration that there would be no compromise on stimulus, which caused the US Dollar to spike and gold getting hammered. I expect this condition to be ephemeral in nature and look for a reversal by sometime next week.

The main beneficiary of today’s vaccine news was Small Caps, which soared to a record high, as the result of a gigantic short-squeeze and a bulletin that Biden’s primary pick for Treasury Secretary would be stimulus-hungry Janet Yellen.   

In the end, the Dow lead the major indexes, with the Nasdaq lagging, as Apple got clobbered and lost some 3%, in the process breaking below its 50-day M/A.

ZH noted that hard (real economy) and soft (survey) data have massively decoupled on nothing but a sea of hope:

Sooner or later, I expect a recoupling to occur.

Could it be the forced selling of up to $310 billion by year-end due to the upcoming pension rebalancing of their 60/40 equity/bonds split, as JP Morgan claims?

We will have to wait to find out…

1. Moving the markets

The tech sector, which had been lagging the major indexes for a few weeks, staged a comeback today, as traders suddenly considered it to be some sort of safety play in the face of mounting Covid-19 incidents. As a result, the Nasdaq outperformed the Dow and S&P 500 by a substantial margin.

For most of the session, the S&P 500 trod water, but a sudden shift in sentiment caused by a headline pointing to a resumption of negotiations by Democrats and Republicans, was labeled by Politico’s Sherman as follows:

“Republicans are describing the meeting this afternoon as being about government spending ahead of the Dec. 11 deadline while “Democrats are describing the meeting as being about Covid relief/government spending.”

While these are pretty meaningless statements, there apparently was enough meet on the bone to send the algos into overdrive with the indexes suddenly showing signs of life. Though this took the US Dollar down, it was not enough to pump gold back into the green.

Economic data were mixed with Existing Home Sales soaring to its highest in 15 years, but a re-acceleration of Initial Jobless Claims showing that “only” 742,000 Americans filed for first time unemployment claims last week, offset that news. This broke a 4-week streak of drops, according to ZH, causing fears of more fallout from the second-wave lockdown to become evident.

John Hussman talked about the valuations in US Stocks, which has never been more extreme, even at the 1929 and 2000 market peaks:

He continues to expect the S&P 500 Index to lose two-thirds of its value over the completion of the current market cycle. That loss would not even breach historical valuation norms, but it would at least bring estimates of long-term expected S&P 500 returns closer to their historical average…

As I pointed out yesterday, never become complacent.

1. Moving the markets

The tug-of-war between vaccine giants Pfizer and Moderna shifted into overdrive with the former now besting the latter by pointing to its final analysis, which verified a 95% effective rate vs. Moderna’s previous 92%. I am sure that we have not heard the last of it.

The news of that advancement was offset by rising Covid-19 cases and coast-to-coast lockdowns and restrictions, some of which are worrisome due to their open-ended nature.

For sure, the markets had gotten ahead of themselves after the initial vaccine news with the question now being “when” regarding availability. Still, some of the long-term uncertainty has been removed.  

An early rally bit the dust, and the bears took the opportunity to drive the indexes into the red, in the process losing all their week’s gains, and closing at the day’s lows.

Chimed in BofAs CIO Michael Hartnett:

“It’s time to turn bearish for the near-term and “sell the vaccine” because Wall Street has gone “full bull.”

With the election outcome still undecided, ZeroHedge dug in a little deeper into Wall Street’s admission that “Civil Unrest” could crash markets:

… what we found remarkable is that after “tech bubble” in 2nd place in the list of biggest tail risks, “Civil Unrest” suddenly popped into 3rd place, after not being cited as a notable risk in any of the previous BofA surveys.

What that means is that despite reckless money printing and creation of liquidity coupled with the lowest interest rates ever, a Black Swan event could appear out of nowhere and take the markets down—big time.

Hence my continuous and unending insistence that you never expose yourself to equities without an adequate exit strategy that addresses your risk tolerance. Complacency and hope are not viable investment approaches.