[Chart courtesy of MarketWatch.com]

1. Moving the markets

This session turned out to be very similar to the last two, with the major indexes looking for direction but ending up getting stuck in a sideways pattern with not much won and not much lost.

The S&P 500 and Nasdaq eked out some small gains while the Dow slipped a tad into the red. Even this year’s powerhouse, SmallCaps (IWO), could not muster any strength, but closed in the green by a meager +0.08% and were outperformed by MidCaps (IWP), which sported a +0.72% gain.

It appears that the strong February rally has hit a flat spot and is need of a new driver to pick up the recently lost momentum. Fiscal and monetary stimulus have been priced in the markets, with all eyes now being on a broader economic recovery, along with a broader reopening of businesses and an improved distribution of the vaccine.

Not helping matters today was a worse-than-expected reading of weekly jobless claims. First time filers totaled 793k, which was higher than the expected 760k. Those week numbers go along with Fed head Powell’s assessment yesterday that “in real terms, unemployment remains around 10%, as bad as at the peak of the financial crises.”

He then added:

“Published unemployment rates during COVID have dramatically understated the deterioration in the labor market.”

Also increasing uncertainty was the rise in bond yields during the 30-year auction, which left some traders scratching their head, as yields spiked after their recent easing, demonstrated in this chart by Bloomberg.

The US Dollar continued on its southerly path, but it was not enough, given spiking bond yields, to support gold, which subsequently surrendered -0.88%.

ZH featured another analog comparison to the 1929-1932 period asking this question:

“It’s different this time…but will it end the same?”

Just food for thought.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Up—down—sideways—up, and down pretty much describes the journey the major indexes took today with the result being an unchanged outcome. However, the Dow squeezed out a tiny gain of +0.20%, but that move was sufficient for the index to eke out another record closing high.

Not even SmallCaps, the winner YTD, were able to gather any momentum and ended lower by -1.07%. Saving the day to a small degree were MidCaps (IWO) with +0.16% and GLD, which again managed a green close by adding another +0.39%.

All eyes were on the outcome of a Fed speech with CNBC describing it like this:

Federal Reserve Chairman Jerome Powell said Wednesday monetary policy needs to stay “patiently accommodative” to support the economy that still faces challenges in the labor market. The employment picture is “a long way” from where it needs to be, the central bank chief told the Economic Club of New York.

Despite the past 2 days having been non-events in terms of performance, keep in mind that so far this has been a strong February with the S&P 500 having gained some 5%, mainly because of continued optimism about the massive Covid-19 stimulus package with more on deck, according to CNBC:

House Democrats unveiled the details of a relief proposal that included $1,400 direct checks with faster phase-outs than previous bills.  President Joe Biden and Treasury Secretary Janet Yellen met with CEOs of JPMorgan, Walmart and Gap Tuesday to discuss additional economic relief.

All the above, if executed as planned, will be exactly the kind of accommodation the markets are looking for and should keep equities moving higher—until the day they won’t. But that moment in time is an unknown date in the future. It also is the main reason why I continue to pounce on the importance of having an exit strategy.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After the relentless march higher over the past 6 trading days, it was time for a pause. That is exactly what we saw today, as the major indexes dropped early on, recovered, and then hung around their respective unchanged lines. Only the Nasdaq was able to eke out a green close, albeit a tiny one, as the chart above shows.

Yet, despite this trip to nowhere, some of our holdings bucked the trend thereby turning this day into a positive one. Given its YTD history, you will not be surprised to hear that SmallCaps (IWO) ruled with another solid showing of +0.72%, which was closely followed by MidCaps (IWP) with +0.54%.

Even GLD managed a green close for the second day in a row by adding +0.34%, supported by a sliding US Dollar and lower bond yields.

With market optimism continuing unabated, BofA Research had this to say:

“Among the pillars of this unprecedented bullish sentiment is the market’s pricing in of perfection on the policy front (maximal Fed accommodation, smooth fiscal passage of $1.9tn and more, and a steady vaccine rollout) while improvement from economic data may already be “as good as it gets”.

Then this word of caution and a suggestion:

Bank of America said a market correction could be on the horizon as the recent runup has shown signs of overheating, but it will be a buying opportunity for equity investors.

If all else fails, that’s how you cover both sides of the equation.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

While spending the day in the green, the major indexes vacillated but managed to find more upward momentum during the last hour of the session and ramped into the close.

The gains were solid with the Nasdaq leading the pack with +0.95%, yet it was outperformed by SmallCaps (IWO), showing again who the top dog is with an astonishing +2.38%.

A rare but not unexpected advance came from the precious metals sector, as Gold finally managed to put up a good number by adding +1.11%, thanks to in part of the US Dollar’s dive.

Today’s bullish mood came on the heels of last week’s outstanding showing with traders remaining optimistic about additional Covid stimulus and an ongoing nascent economic recovery.

The Dow and the S&P 500 scored record highs with both indexes now having risen for six days straight, which represents their longest streak since August. However, SmallCaps deserve most of the attention, as its benchmark has now surged some +15% in 2021.

Adding to economic hopes, strategist Tony Dwyer of Canaccord Genuity noted:

“While the economy is likely in a short-term stall as vaccinations roll through the population, it would take an epic unforeseen failure in the rollout of the various vaccines to prevent the domestic and economic engine from ramping greater than most expect.”

However, let’s not forget the main contributor to the relentless upswing in equities, namely the mind boggling trillions of dollars in liquidity sloshing into the markets, as ZH called it.

One analyst, Larry MacDonald, described that phenomenon like this:

“The combo of a near $1 trillion check and $120 billion monthly QE is the monetary equivalent of eating a banana split after downing an Italian hero sandwich. The market will be stuffed with reserves.”