1. Moving the markets

One look at the above chart tells you that an early excursion above the unchanged line came to a sudden halt, when the bottom dropped out with the major indexes doing their best imitation of a swan dive.

Even the Nasdaq, up early by +1.3% lost it all, crashed into the red, but managed to recover almost half of it, as the afternoon levitation pulled the major indexes out of the doldrums and towards green territory, with only the Dow failing to reach it.

Stimulus plan optimism fizzled somewhat after news that a bipartisan consortium was attempting to cut down the proposed $1.9 trillion figure. Adding to the sour mood were rising Covid cases and delays in vaccines supplies and distribution logistics.

Still, I have to wonder if something broke in the markets this morning, since there was no known major event that might have caused the indexes to react like this and the 10-year yield plummeting like shown here.  

Adding to this debacle were reports of investors having difficulty accessing their accounts with ZH summarizing it as follows:

• Robinhood is experiencing issues with crypto trading
• Vanguard tweeted it understands some clients are experiencing issues accessing their accounts
• TD Ameritrade says it is aware of an issue impacting a small number of clients on the thinkorswim platform, a company spokesperson said
• Charles Schwab announced it worked to resolve an issue
• There was a slowdown in Merrill logins earlier Monday, but the situation has been resolved, according to a Bank of America spokesperson
• E*Trade users reported problems Monday, according to Downdetector

Despite all that, the early trapdoor closed again, and the steady afternoon comeback pushed the S&P 500 up by +0.36%, a small margin, but large enough to register a new record.

However, contributing to today’s volatility was a company called GME, which experienced an insane short squeeze leaving both, shorts and longs, scratching their head and wondering what happened. This chart shows the ride.

In terms of earnings, CNBC summed it up like this:

Companies kicked off the earnings season on a strong note. Of the S&P 500 components that have already reported earnings, 73% have beaten on both sales and EPS, according to data from Bank of America. The firm said this is tracking similar to last quarter when the number of companies beating hit a record.

I have talked about the dangers of sudden volatility before, and I am sure we have not seen the last of it.

1. Moving the markets

After yesterday’s euphoric dash to all-time highs, the futures continued their relentless march higher, still boosted by optimism that a giant wave of fiscal spending will not only power corporate earnings but also revive, or rather rescue, economic growth.

However, that reckless enthusiasm was tempered somewhat during the regular session with the major indexes riding the range and closing just about unchanged. Despite clinging to the unchanged line, the Nasdaq and S&P managed to eke out another record.

The tech sector has been the big dog over the past couple of sessions, with the Nasdaq powering ahead by +0.55%, thereby clearly outperforming SmallCaps (IWO), which surrendered -0.81% on the day.

Of course, the vaccine story remains in the headlines:

Equities closed at record highs in the previous session as President Joe Biden was sworn into office, ushering in hope that an improved vaccine rollout will ensure a smoother and faster reopening. Some on Wall Street are optimistic that Biden’s plans to combat the pandemic will give the stock market a further boost through 2021.

On the economic front, things continue to look dicey in the employment arena. We learned that 900k Americans filed for first-time unemployment benefits last week, which is at 4-month highs. While that is below the expected 935k number, it is nevertheless a horrific stat.

It’s hard to say whether theses consistently bad numbers point to trouble on the horizon, but they pretty much assure us ongoing central bank interventions and more stimulus programs.

Tweeted my favorite analyst Sven Henrich:

And there you have it from a different viewpoint. It’s not the economy that determines market direction—it’s the creation of “free” money, also known as global liquidity, which powers the investment universe.

1. Moving the markets

The futures markets bounced around in record territory supported by positive earnings and continued prospects of much more stimulus as Biden prepared to take charge.

This bullish bias was sustained from the opening bell and, after a smooth transition of power, the major indexes shifted into overdrive and never looked back.

The top gainers in the ETF arena changed a bit when, after an early strong surge, SmallCaps (IWO) lost their momentum and closed off their highs but still with a respectable +0.41%, especially given recent stunning advances.  

The Nasdaq ruled with a strong finish of +1.97%, but it was bested by one of our holdings, namely SCHG, which rose a chest pounding +2.63%. Even GLD, which traveled a roller-coaster all day, thanks to swings in the US Dollar, ended the day +1.62% but still short of its $1,900 level.

Of course, it’s all about the stimulus and hopes for a speedy recovery, no matter what the cost, however caution is warranted:

“The market is rallying on hopes for a speedier recovery,” Peter Cardillio, chief market economist at Spartan Capital, told MarketWatch.

But Cardillio also views equity market as “somewhat overbought” and likely due for a pullback, potentially once markets are confronted with the prospects of at least a partial rollback of Trump-era corporate tax cuts and a tighter regulatory environment. “There will come a point in time when the market will reflect on the new administration’s policies,” he said.

Still, traders were still clinging to Tuesday’s news, during which Janet Yellen, Biden’s designated nominee for Treasury Secretary, endorsed higher aid spending and urged lawmakers to “act big.” Maybe that was the true reason gold to take off today?

So far, earnings season has been viewed as a positive with solid quarterly results, but that is not such a big deal, if you consider that we are merely rebounding off the pandemic lows.

In the end, the eagerly awaited inauguration day came and went without interruption, so today’s ramp higher could certainly be interpreted as a relief rally.

It’ll be interesting to see if there is more follow through to the upside coming our way.