1. Moving the markets

The global rally fizzled out with only one of the major indexes making some headway, namely the Dow, as the S&P 500 slipped slightly into the red, while the Nasdaq sell-off continued, albeit at a lesser pace leaving the index down -1.37% for the day.

Pfizer’s vaccine stock fest hit some reality today with skepticism emerging as to the true efficacy of this vaccine and the ability to deliver it within a reasonable time frame.

The sector rotation persisted out of high-tech and into the Russell 2000 with small-caps and cyclicals anticipated to be the main beneficiaries of an economy recovering from the pandemic. Of course, this is only wishful thinking right now, as the pendulum could quickly swing back the other way.

“The ‘stay at home’ trade, which has led the market higher for most of this year, may be falling out of favor,” said Lindsey Bell, chief investment strategist at Ally Invest. “There’s still a good long-term case for tech, but it may not outpace the rest of the market like it has since March.”

In the meantime, the election uncertainties go on, despite some of the media already having decided who won. The fact is, however, they are not the decisionmaker, so we’ll have to wait and see until this challenge get legally resolved.

Gold managed to bounce back as the US dollar went sideways, while bond yields again spiked with the 10-year closing within striking distance of the 1% level.

In my view, gold remains a “safe haven” in an environment where politically and monetarily things could turn on a dime.

Analyst Peter Schiff had a similar view of gold’s role:

“It’s a safe haven from the monetary and fiscal policy mistakes that were made in reaction to COVID. That’s why gold was going up [during the pandemic]. And it’s because the government is going to continue to make the same monetary policy and fiscal policy mistakes after COVID, that’s why gold is going to keep going up. And in fact, because of all the money they printed before COVID, because of all the extra debt that we accumulated during COVID, that’s why the Fed can’t dial it back. That’s why if the economy recovers from COVID, it can never recover from the addiction to stimulus. That’s why the stimulus has to continue long after the disease it was meant to cure goes away. That means inflation is going to run out of control.”

For sure, until this election is decided, the days and weeks ahead will be anything but boring.

1. Moving the markets

If you were looking for wild and whacky market behavior, look no further, you found it today. Not only were futures up across the board, including gold, and led by the technology sector, things reversed once the regular session opened.

With the Dow being up some 1,500 points, and losing almost half of it by day’s end, the overnight leader, the Nasdaq, hit the skids and ended down some -1.5%. Despite a dive into the close, the Dow and S&P 500 managed to hang on to now sharply reduced gains.

You could almost think about it as “opposite” day. Consider that some sectors (not tech) rallied in the face of sharply rising bond yields with the 10-year (not shown) now in striking distance of the 1% level. The 20-year bond ETF TLT dropped -2.23% and looked like a penny stock.

The US dollar index rallied sharply thereby pulling the rug out from gold’s recent gains and sending the precious metal back below the $1,900 level.

Causing the relentless surge in equities, in the face of rising bond yields, were indications by drug makers Pfizer and BioNTech that their Covid-19 vaccine is more than 90% effective.

Added CNBC:

The 90% effective rate from Pfizer and Germany’s BioNTech was better than what the market was expecting. Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, has said that a vaccine that was 50% to 60% effective would be acceptable.

Of course, hope suddenly reigns supreme about getting the old life back, at some point in the future, returning to normal, people going back outside, the economy reopening, and masks being ditched.

Who knows what the reality will look like and if the above drug maker announcements really have merit?

Technically speaking, it will now be interesting to see what happens to the S&P 500, which has reached the top end of its wide megaphone pattern, as Bloomberg demonstrates in this chart. Breakout or retracement, that is the big question.  

1. Moving the markets

The “buy everything” mantra continued today extending the election week rally on beliefs that the current dilemma might result in a divided government, with the powers of the president/congress being offset by the opposing party controlling the senate.

The bullish reaction to the results so far “may have been due to the fact that Republicans appear likely to retain a majority in the Senate, something that will make it hard for Biden to proceed with the tax increases and stricter regulations he promised,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.

Even though analysts had originally claimed that a “blue wave” sweep of the White House and the congress was being priced in the market, when, suddenly the possibility of a split government seemed “market pleasing” giving power to the bullish cause.

Despite the WH outcome far from being certain, traders are confident that much of the election uncertainty has passed, and the worst possible outcomes seem to have been avoided. At least for the moment, this viewpoint prevails, yet it could change in a hurry.

ZH added this succinct spot-on tweet:

A disputed election is bad for stocks

Legislative gridlock is bad for stocks.

But the combination of the two is great for stocks

In the end, stocks soared led by the Nasdaq, bond yields tanked, and the US dollar got clobbered. The combination of lower bond yields and a declining dollar was like pouring fuel on the fire for gold, which ripped higher with spot gold actually outperforming the major indexes for the session.

Of course, as great as this rally feels, we must be aware that much is hype and not based on economic fundamentals, as this separation of “soft” vs. “hard” survey data shows. Additionally, the SMART money is not participating at all, and has not since August, which is demonstrated in this chart.   

That’s why our exit strategy will always be an ever-present component of our Trend Tracking strategy.