[Chart courtesy of MarketWatch.com]

1. Moving the markets

Traders and algos were in a buying mood based on continued hopes that a stimulus deal will be agreed upon before the end of 2020. This enthusiasm has been the main driver with congressional leaders homing in on a $900 billion package that would include direct payments to individuals.

Even worsening Initial Jobless Claims, which soared from an upwardly revised 862k to 885k, their highest in almost 4 months, could not dampen the spirit of the bulls who relentlessly pushed the indexes higher and into record territory. However, the dream of a V-shape recovery has long vanished, as more claims in the future will be a direct result of the widespread lockdowns.

Leading the charge today were SmallCaps (+1.65%), MidCaps (+1.61%) and GLD (+1.05%). The latter has been on a nice rebound as of late most likely due to ever growing concerns that reckless fiscal and monetary stimulus will wreak havoc with the US Dollar with the eventual result being runaway inflation.

The US Dollar has now reached a point where it is at the verge of breaking down to its lowest in 6 years, which Bloomberg demonstrates in this chart. As ZH points out, the dollar dump has caused dollar-based assets to surge, such as lumber, copper, crude oil and, of course, the above mentioned SmallCaps.

It will be interesting to see, if these gains can hold up during tomorrow’s quadruple witching hour, during which some unintended volatility could occur due to Index Funds having to sell $50 billion of S&P to buy Tesla, which was just made part of the index.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After some aimless meandering early on, the major indexes found some footing, because of Fed’s latest promise to keep supporting the economy with whatever means necessary.

Added CNBC:

The U.S. central bank said it will buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” The Fed declined to make any changes to the duration of its bond-buying program, but Chairman Jerome Powell said the central bank would increase its asset purchases if the economic recovery slows.

Also lending support to the afternoon ramp was apparent progress in the fiscal stimulus discussions:

“I’m optimistic that we’re going to be able to complete an understanding sometime soon,” McConnell said Tuesday night after the meeting. Schumer said the leaders are “making progress, and hopefully we can come to an agreement soon.”  

Some weakness in the economy kept the afternoon rebound in check, as retail sales dropped -1.1% in November, which was considerably more than the expected -0.3% decline. I think we will see more weakness in future economic numbers simply because of the enhanced shutdowns and consistently high unemployment claims, both of which are an indication of a sputtering economy and not of one on a path to recovery.

Bond yields took on a life of their own by pumping and dumping twice in a row but fading in the end, while the US Dollar index followed a similar pattern. On the equity side, the Nasdaq managed to outperform SmallCaps for the first time in a while. Gold zigzagged all day but spiked higher in the end.   

This volatility is likely to continue, especially in the face of Friday’s upcoming quadruple witching hour.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Optimism reigned supreme that Congress will finally pass another economic relief bill after wrangling with it for weeks. Apparently, the warring parties are growing wary and concerned about an economic fallout if no agreement is being attained.

House Speaker Nancy Pelosi invited congressional leaders, including Senate Majority Mitch McConnell, to discuss government funding and coronavirus relief, a source told CNBC. Pelosi’s outreach came after a bipartisan group of lawmakers released a proposal for another round of economic relief on Monday evening, splitting a previous measure into two parts.

Just the mere fact that one party reached out to the other was enough of a reason for the computer algos to shift out of the stagnation mode of the past few days and into overdrive by propelling the major indexes solidly higher. While the stimulus deal is not done yet, it appears to have moved out of gridlock offering some solution to the widely held gloomy near-term outlook.

Though SmallCaps (IWO) led the ramp higher with a chest pounding +2.19% gain, the broad market participated as well and, thanks to the US Dollar collapsing, Gold had a great day by advancing +1.41%.

While all this sounds hunky dory, the Smart Money is not participating in this rally, as Bloomberg’s chart shows causing ZH to warn that last time things were so out of whack, this reversal happened.  

While no one knows if it’s different this time, it’s wise to not only have an exit strategy in place but to also execute it, should the major trend hit the skids.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

As solid early rally hit the skids, as the Dow performed a 330-point U-turn with two of the three major indexes closing in the red leaving only the Nasdaq above its unchanged line and sporting a +0.50% advance. As has been the case lately, SmallCaps outperformed but even that sector gave up part of a substantial early gain of over 2% to close with a more modest +0.84%.

While the vaccine rollout (V-day) continued full force to hundreds of distribution centers across the country, the first official dose was administered in New York. Offsetting that news were global and domestic headlines announcing and implementing the most stringent “full shutdowns” referred to as level 3.

For sure, the economic impact will be widely felt, with business closures accelerating, and eventually affecting markets, but some see the fallout to be modest:

“It is abundantly clear the economy is slowing as local shutdowns continue, but any impact on the equity market has been limited so far. Whether this continues into 1Q is unclear, but our guess is pullbacks will be limited unless something materially changes in the vaccine story,” Tavis McCourt, institutional equity strategist at Raymond James, told clients in a note.

In the meantime, the battle over a new stimulus package goes on, as key disagreements, such as state and local government aid, remain and have been the primary sticking points.

The flight to safety was on late in the session with the 30-year bond yield melting after an early rise, while the US Dollar dumped at the beginning and then spiked towards the close.  

Tomorrow starts the second half of the month, which has been seasonally very strong, as Morgan Stanley points to in this 70-year chart.

We’ll have to wait and see if this time will be different—or not.