1. Moving the markets

More positive vaccine news coupled with newfound hope for a strong economic recovery next year and some easing of political uncertainty, although the election has not been decided yet, combined forces to propel the markets higher. A well-timed short-squeeze lent an assist again.

This weighed heavily:

Traders also cheered on Tuesday the increasing political clarity after General Services Administration chief Emily Murphy told President-elect Joe Biden that the Trump administration is making federal resources available for his transition into office.

Low volume, due to most traders being out for this Holiday week, made it easy for the bulls to shove the indexes higher, despite tumbling Consumer Confidence, rocketing Covid cases and humiliating business lockdowns. We will find out next week whether this levitation, which has now been called a blow-off top, really has legs when Wall Street is fully staffed again.

“We have seen a post-election plunge in fear and surge in greed,” as Nomura’s McElligott called it. The Volatility Index (VIX) has collapsed with incredible speed, as a result of “US conditions having hit all-time easiest levels.”  That has promoted reckless buying with both hands and feet, however, the strange anomaly is that insiders have been selling. Who will be right in the end? No one knows, but when this bubble unwinds, it will be painful.

Be that as it may, during these post election “risk-on” times, gold has been slammed as has been the tech sector, however, the latter has been holding up better than the former. I will take the upcoming long weekend as an opportunity to re-evaluate our current holdings and adjust next week when everyone is back at their computers ready to push the buy and sell buttons.

1. Moving the markets

The futures markets pointed to higher equity prices, as AstraZeneca became the latest competitor in the Covid-19 vaccine creation fest saying its product would be 90% effective.

News over the weekend that the first vaccine could be available within weeks after the anticipated FDA approval in mid-December helped the market continue its northerly path during the regular session.

A mid-day sell-off was the result of suggestions from the Biden administration that there would be no compromise on stimulus, which caused the US Dollar to spike and gold getting hammered. I expect this condition to be ephemeral in nature and look for a reversal by sometime next week.

The main beneficiary of today’s vaccine news was Small Caps, which soared to a record high, as the result of a gigantic short-squeeze and a bulletin that Biden’s primary pick for Treasury Secretary would be stimulus-hungry Janet Yellen.   

In the end, the Dow lead the major indexes, with the Nasdaq lagging, as Apple got clobbered and lost some 3%, in the process breaking below its 50-day M/A.

ZH noted that hard (real economy) and soft (survey) data have massively decoupled on nothing but a sea of hope:

Sooner or later, I expect a recoupling to occur.

Could it be the forced selling of up to $310 billion by year-end due to the upcoming pension rebalancing of their 60/40 equity/bonds split, as JP Morgan claims?

We will have to wait to find out…

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.