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.

1. Moving the markets

The constant vaccine hype ran out of steam today, with concerns turning to rapidly accelerating economic shutdowns coast-to-coast, which for sure will hammer the US economy and others as well.

As a result, the markets fizzled, but the pullback, while broad, was modest in scope.  After all, a pause after the recent ramp into record territory is a normal occurrence.

Contributing to the weakness were poor econ data, as October retail sales disappointed—most likely because of the fading stimulus. However, while the goods and services sales growth slowed YoY, they remain relatively high.   

Yesterday’s spike in 10-year bond yields reversed with traders interpreting this as anxieties increasing more about the near-term pandemic challenges than any potential boost from newly developed vaccines.

The US Dollar index slipped a tad, but it was not enough to lend support to gold, which skidded -0.37%.

Fed head Powell took part in a moderated discussion in California and commented as follows:

“The fact that the retail sales were a little weaker in October reinforces the idea that if the pandemic gets worse and there’s more shutdowns and restrictions, that the November data, which we haven’t gotten yet, will be even softer.”

“The near-term risk that we’re most focused on is the spread of COVID these days.”

“We’re not going back to the same economy. We’re going back to a different economy, the time for fiscal discipline is not now.“

Especially his last sentence should be a wake-up call for investors because it is the main reason, I believe gold should be a part of anyone’s portfolio.

1. Moving the markets

The futures were again directing the way via an ecstatic “hope” move in the markets with ZH narrating it this way:

Last night, when discussing the euphoric surge in Sunday markets, we said that the move is on expectations that the “Moderna covid vaccine may hit as early as tomorrow, and a favorable outcome would have a similar result to last Monday’s Pfizer surprise which sent the S&P as high as 3,668 before fading much of the losses.”

This observation was spot on, and today we saw Moderna pick up the baton handed to them by Pfizer, which pushed futures higher. The theme continued in the regular session with the major indexes heading north without looking back.

The Dow lead the way but fell short of claiming the $30k level, the S&P 500 placed 2^nd and the Nasdaq lagged a little. Both, the Dow and S&P closed in record territory.

Shattering Pfizer’s effectiveness claim of 92%, Moderna upped the ante via an effective rate of 94%, so the tug-of-war will continue. However, the ever-optimistic traders see the Covid crises now as something that might be more manageable, thereby assisting future earnings and justifying elevated stock prices.  

The 10-year bond yield inched higher, while the US dollar index also climbed, both of which took the steam out of an early bounce in gold.

With all that enthusiasm, one group of investors, surely and quietly continue to exit the markets, namely the “Smart Money:”

It makes me wonder what these people know that traders don’t.