1. Moving the markets

A choppy but nevertheless positive follow through rally from yesterday’s rebound ran into a brick wall, reversed, and nosedived during the last hour of the session.

This would have not been a surprise had the usual suspects, like Covid-19 or the always headline-worthy tug-of-war stimulus battles been the cause, but today was different.

It was none other than President Trump, who prides himself as a contributor to the ever-bullish stock markets, who pulled the plug on the bulls by announcing that “stimulus talks are halted until after the election.”

Here’s what he tweeted:

Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19.

We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith.

I am rejecting their request and looking to the future of our Country. I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.

I have asked Mitch McConnell not to delay, but to instead focus full time on approving my outstanding nominee to the United States Supreme Court, Amy Coney Barrett.

Our Economy is doing very well. The Stock Market is at record levels, JOBS and unemployment also coming back in record numbers. We are leading the World in Economic Recovery, and THE BEST IS YET TO COME!

To no surprise, the fallout in the markets was swift and immediate, as the chart above shows. Other than oil, the major indexes tumbled, as did gold, but the US dollar rallied along with bonds (lower yields).

There was no place to hide. FANG stocks got hammered, Growth, Value and Cyclicals all were smacked. It remains to be seen whether today’s drop was simply an outlier or a sign of things to come.

More interesting and somewhat concerting is the sudden divergence that appeared on this chart, which ZH pointed to:

Makes me wonder if this relationship has finally stopped working and liquidity’s role as the primary pump for the markets is ending.

1. Moving the markets

After the markets ended last week with a whimper, there was none of that left today, as the major indexes jumped out of the gate, never looked back, and shifted into overdrive during the last hour.

The result was a solid and broad advance supported by various news headlines. One was the announcement that President Trump would be released from the hospital tonight, which eased concerns about election worries.

The other came from the on-off stimulus negotiations with traders growing hopeful that lawmakers can reach a compromise deal—soon. The importance of that was highlighted by Friday’s jobs report, which showed decent numbers but well below expectations.

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin held an hourlong phone call Monday and discussed “the justifications for various numbers” and “plan to exchange paper” in preparation for further discussions on Tuesday, Pelosi’s chief of staff said.

At least for today, election uncertainty took a backseat, as not only stocks jumped but gold as well, while the dollar tanked along with bonds, due to rising yields.

This week looks to be a quiet one, besides the VP debate on Wednesday night, but there will be FED and ECB meetings and subsequent announcements, any of which could be market moving events.

1. Moving the markets

The futures market already fluctuated between stimulus pessimism and optimism causing the S&P to oscillate wildly, as this chart shows.

The regular session continued with that volatile theme when, similarly to yesterday, an early rally hit a brick wall with the indexes resembling a roller-coaster ride. The exception was the Nasdaq, which continued its northerly path without interruption, while the Dow dipped in and out of the red during the last couple of hours.

A buying surge into the close assured green numbers all around, with especially Gold sporting a nice comeback.

The sudden plunge mid-day occurred because of house stimulus headlines with Pelosi declaring the difference is ‘not dollars, but value’…

Added ZH:

AS a reminder, yesterday the House had delayed the vote by one day as a concession to the ongoing dialog between Secretary Mnuchin and Nancy Pelosi. However, the fact that the House speaker now plans to ram through the vote confirms what should have been obvious weeks ago- that no agreement has been reached and that no agreement will likely be reached until after the election.

On the economic front, the picture remains mixed at best with the US Manufacturing Survey suggesting that “The Outlook Has Darkened,” according to ZH. The filing for First-Time Jobless Benefits, while slightly improved from last week, still shows an economic environment in trouble. The fly in the ointment is that California announced a two-week pause in the processing of initial claims. Hmmm…

All these questionable numbers have not been lost on Dr. Copper, the metal which often acts as a proxy for the economy, but its latest plunge could serve notice that not all is well, and that it has a long way to fall to catch up with the reality of bonds. Hat tip goes to Bloomberg for this graph.