[Chart courtesy of MarketWatch.com]

1. Moving the markets

Expectations and reality were at odds this morning when the Labor Market Index weakened yet Bond yields spiked with the 10-year trading just above 0.95% and approaching critical resistance.

Sure, the weakening Labor Market Index was the result of the latest miss on ADP employment with data coming in at a disappointing 307k additions as opposed to 440k expected. But bond yields rising where they should have been falling makes me go “hmm,” and is just another sign of the upside-down world we’re living in.

The futures dropped, and the major indexes listlessly attempted to climb out of an early hole with traders ignoring the latest vaccine news, as it appeared that a new catalyst was needed to drive the markets.

The much-needed assist came via a mid-day headline that Pelosi and Schumer were backing a bipartisan $908 billion relief plan. That was enough to send bond yields soaring and equities rallying despite the counter parties Mnuchin and McConnell not having voiced any support.

But those details do not matter, stocks got their initial catalyst, and up we went with the S&P 500 eking out a record close. There was no broad participation with Small and MidCaps dropping, while GLD held up well in the face of rising rates by gaining +0.79%, a move that was supported by a falling US dollar.

In the end, the biggest threat to equities right now are rising bond yields. Should the 10-year cross the 1% level to the upside, I am pondering whether that will shorten the lifespan of the current bull and favor a return to bearish sentiment?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early rally got cut down, especially in the Dow, but the major indexes managed to eke out solid gains to start the December by continuing the bullish theme of November. The S&P 500 and Nasdaq scored new record closing highs, but the Dow was not able to remain above its 30k level.

The US Dollar got slammed, which for a change helped gold to stage a rebound back above its recently lost $1,800 level. The victim from the dollar dump were bonds, which slipped as yields spiked severely with the 20-year ETF TLT losing -1.61%.

Market sentiment got a boost after the unveiling of a $908 billion stimulus plan, which assisted stocks early on and propelled the 10-year Treasury yield above 0.9%. However, all the hype evaporated, as the lawmakers engaged in their tug-of-war without any agreement, thereby continuing the stalemate.   

Hope that the rally has legs and will last through the end of the year flourishes:

“December looks like it will be a very strong finish for 2020,” wrote Tom Lee of Fundstrat Global Advisors, who cited data that showed during bull markets when the S&P 500 was up more than 10% through November for the year, it always added to that gain in December.

Only time will tell if history repeats itself.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite the Dow having had its best month since 1987, the last day of November proved to be a downer with the major indexes slumping led by the Dow with the Nasdaq holding up the best.

This pretty much reflects this year’s performance when, despite the hype accompanying the Dow reaching the $30k level, the Nasdaq (QQQ) proved to be far superior by gaining +41.57% vs. the rather meager +3.86% of the Dow.

Opined JJ Kinahan, chief market strategist at TD Ameritrade:

“What’s really taken most people by surprise is that if anybody said to you in March, ‘Hey we’re going to have a year where really most businesses are working at not-full capacity, most restaurants may not even be open, people aren’t going to the office, and oh yeah, by the way, we’ll hit all-time highs,’ people would have thought you were nuts.”

“It’s been amazing.”

Yes, it has been JJ. But let’s not forget that the reason for this levitation has absolutely nothing to do with businesses working at full capacity or not, nor any other fundamentals, but it has everything to do with the $15 trillion rise in global liquidity, as I have posted ad nauseum:

Because, if the reason for the rally had been one of improving fundamentals, we would not have seen the total disconnect between rising global stocks and tumbling bond yields, as Bloomberg shows in this chart. Increased liquidity and collapsing bond yields have made it possible to see stock markets rally in the face of sharply declining economies.

The oddity to me was that, despite the pummeling of the US Dollar, a corresponding rise in gold prices did not occur, which may be temporary but also could be troublesome. In my advisor practice, I have therefore reduced our gold holdings until such time that a new major uptrend can be established.

As far as the upcoming month of December is concerned, uncertainty will reign, and all options are on the table ranging from a melt-up in equities to a collapse. It’s important to have an exit strategy in place, should the latter occur.  

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

As could be expected, trading volumes slowed to a crawl ahead of the Thanksgiving holiday. The Nasdaq finally managed to score a winning session, handily beating the S&P 500, after having lagged over the past few weeks.

On the economic side, things don’t show much improvement with the Labor Department reporting that Initial Jobless Claims rose for the second week at a rate of 778k vs. expected 730k, which was worse than the prior week’s reading of 742k.

Add to this yesterday’s disappointing drop in consumer confidence and today’s mixed sentiment survey, none of which are awe inspiring, which leads me again to the primary reason for having seen the stock market bubble inflate at such a rapid pace, which is represented in this chart:

If it had not been for the creation of some $14 trillion of liquidity over the past few months, the Dow $30k level might only be a wishful number, while the other indexes would be sharply lower.

However, such is the environment we are living in and have to deal with, but I can assure you that this reckless approach to propping up markets, while devaluing the US dollar, will not end well—but it can go one for a while longer.

I will be out on Friday, so there will be no report, but I will post the StatSheet later today and the “ETFs on the Cutline” on Saturday.

Have a great Thanksgiving.

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