1. Moving the markets

This morning, we saw another weak opening with the major indexes zigzagging and being pulled into the red before another magic last hour ramp pushed equities to a green close.  

Mid-day, stocks obliterated some of their gains, as House Speaker Pelosi announced that she “doesn’t think there will be a deal this week,” referring to the endless back and forth about the size of the planned stimulus package.

She raised the ante to $3.4 trillion from $3 trillion, which is a far cry away from the Republican’s proposal of $1 trillion. This has the feeling as if someone wants to crash the markets.

While that did not happen today, we saw a pullback in stocks, Treasury yields tumbling to a record closing low, while gold rocketed to new record highs, with the spot price braking the $2,000 level by a wide margin.

News headlines were confusing, as ZH pointed out:

1142ET Pelosi: “doesn’t think there will be a deal this week.”

1415ET *SEN. PERDUE SAYS SENATE STIMULUS TALKS MAY TAKE ANOTHER 2 WEEKS

1425ET *MCCONNEL: WILL NOT FIND TOTAL GOP CONSENSUS ON VIRUS RELIEF

1450ET *SCHUMER SAYS NOT GOING TO STRIKE A DEAL JUST FOR THE SAKE OF IT

1455ET *SCHUMER SAYS HE IS HOPEFUL, TALKS MOVING FORWARD BIT BY BIT

The Nasdaq was trailing the indexes today, which is to be expected after the sizzling run up, we have seen. The reason is in part that its big component, namely the FANG stocks, have been stuck in a trading range over the past three days, as Bloomberg demonstrates here.

Until a breakout occurs, big tech maybe treading water for a while.

1. Moving the markets

Friday’s last hour rebound served as a foundation for further advances, as the major indexes did not skip a beat, opened to the upside, never looked back, and ended up scoring another green close, which greatly benefitted our current positions. Helping matters was the impact of another strong short squeeze.

As we’ve seen in the past, the tech sector (Nasdaq) ruled by showing the strongest gains and surging to another high, while the S&P 500 placed 3^rd among the major indexes.

After a solidly higher opening, GLD bounced around aimlessly, slipped into the red but managed a nice bounce back into the close. It seems that the $2k glass ceiling appears to present formidable overhead resistance, but it will be broken eventually. Today, gold’s weakness was caused by a rallying dollar.

In economic news we learned that a manufacturing gauge rose while new orders jumped better than had been expected, which helped the bullish cause but still raised questions about its sustainability. Similar positive numbers in Europe and China supported their markets as well.

In terms of a new stimulus package, MarketWatch reported:

Market participants were also focused on the fact that there are no signs of a stimulus package between Democrats and Republicans after negotiations over the weekend failed to yield a replacement for a $600-a-week boost to unemployment benefits that expired Friday.

At issue for Democrats and Republicans is the amount of unemployment assistance for Americans. The White House has come out in favor of reducing the federal assistance to $200 a week, Democrats have called for keeping it at $600 a week. However, the parties appear to both support a fresh round of stimulus checks of $1,200 for workers.

Right now, upward momentum continues, and we will stay on board subject our exit strategy.

1. Moving the markets

Early this morning, the Dow was down some 500 points, and other major indexes showed similar weakness, as the US economy plunged an enormous as well as unprecedented -32.9% in the second quarter confirming what I have said before: There is no V-shape recovery on the horizon. At best, we can hope for a drawn-out version.

ZH provided these details:

And while the drop – which was generally priced in – was some 5 times worse than the adjusted Q1 GDP of -6.9%, it was just fractionally better than the -34.5% expected. Then again, with a third of the US economy effectively going offline in Q2, a worse outcome than during the great depression, a few percent here and there doesn’t really matter.

The second-quarter decrease in real GDP reflected decreases in consumer spending, exports, inventory investment, business investment, and housing investment that were partially offset by an increase in government spending. Imports, a subtraction in the calculation of GDP, decreased.

That said, the biggest contributor to the overall GDP drop was the crash in consumption – the decrease in consumer spending reflected decreases in services (led by health care) and goods (led by clothing and footwear).

As if that was not bad enough, a rise in initial jobless claims for the second straight week indicated that economic activity has slowed down as opposed to satisfying the prospects of growth. Continuing jobless claims disappointed as well, as they rose for the first time in 8 weeks from 16.15 million to 17.02 million, according to ZH.

That means, a total of 54.13 million Americans has now applied for jobless benefits for the first time since the lockdowns began. That equates to almost 1/3 of the working population. Ouch!

The markets headed south in a hurry but managed to climb out of that initial hole and recovered most of the early losses. The Nasdaq ended up in the green by a comfortable margin, with the Dow and S&P 500 remaining in the red, as the former lagged all indexes.

In the end, the sell-off could have been far worse, so it’s now up the after-hours tech earnings to determine whether we will see red or green numbers tomorrow.