[Chart courtesy of MarketWatch.com]

1. Moving the markets

At least for this session, we saw a change in leadership with the Dow racing ahead +1.35% leaving the S&P 500 trailing with only a +1% gain. Lagging the major indexes, despite an early solid jump, was the Nasdaq, which dropped into the red at one point but managed to eke out a relatively meager +0.60%.

Gold fell early on, rallied sharply back above its unchanged line but sold off in the end failing again to reclaim its magic $2k level.

The upbeat mood was the result of renewed hopes for a Covid-19 treatment, after the FDA said “it approved the use of convalescent plasma, the antibody-rich component of blood taken from recovered Covid-19 patients, as a treatment for serious coronavirus cases.”

Commented MarketWatch:

The new bout of optimism helped beaten-down cyclical sectors, including shares of energy and industrials, areas that would benefit from a faster economic rebound. Energy shares led the S&P 500’s gains in afternoon trade.

Taking front and center this week will be the Kansas City Federal Reserve Bank’s annual symposium. The event is usually held in Jackson Hole, WY, but it will be conducted via webcast this year. Fed chair Powell is scheduled to speak Thursday on “how the central bank plans to achieve its twin goals of stable prices and maximum employment once the coronavirus pandemic has ended.”

The symposium’s title for this year is “Navigating the Decade Ahead: Implications for Monetary Policy,” which left Bloomberg’s Richard Breslow somewhat dumbfounded:

I have to admit, that leaves me cold and, somewhat worryingly, uninterested. To think they know anything about the decade ahead, let alone intend to act upon any conclusions based on the forecasts, seems devoid of any ideas to do something about the here and now.

Again, today’s advance lacked “breadth,” which has created a lack of correlation, as Bloomberg points to in this chart. While such divergences can last a while, sooner or later a recoupling is in order.

There is no guesswork here; we need to wait and observe how it plays out to see if the major bullish trend gets interrupted to a point that would trigger our exit strategy.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An initial dip for all major indexes turnout to be a non-event, as they dug themselves out of that early hole and closed in the green, with especially the Nasdaq showing a strong +1.06% gain.

The rebound from yesterday’s loss happened in the face of two economic reports that kept concerns about the sluggish recovery on the front burner. However, it motivated traders to continue with the time-tested strategy of buying tech, an approach that has served them well during the pandemic.

Despite hopes to the contrary, the number of people filing for unemployment rose again above the psychologically important 1 million mark:

It dashed expectations of a lower number, namely 920k. However, with PPP having expired, this should not really be a surprise. On the positive side, Continuing Claims improved and settled back below 15 million.

The second econ report showed that a reading of business conditions fell to 17.2 in August from 24.1 in July, which should have tanked the markets—but did not.

Again, it seems that bad news is good news again and, while Congress still battles with stimulus issues, the markets simply rallied on the conviction that the Fed is committed to continue buying bonds and therefore keeping yields below a specific yet unknown level.

In the end, the major indexes recovered from yesterday’s pullback and even GLD managed a positive close after Wednesday’s spanking. Still, without further fiscal and monetary stimulus this economy is dead in the water, which means markets will need a new driver to continue ramping equities higher.

What could that be? Hmm, today I heard rumors that trade talks with China could be on deck again…

[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early upswing ran into a brick wall, as the Fed minutes created uncertainty across the board. The Fed’s shying away from Yield Curve Control (YCC), where they allow interest rates to vacillate within a predetermined range, raises the risk of a potential hike in bond yields, which is not a positive for equities.

This also caused investors to dump bonds as yields rose, though not by huge amount but enough to reflect the disappointment due to YCC more or less having been expected.

As yields rose, the US dollar showed signs of life as well and rallied, while gold dropped sharply on the possibility of less monetary easing in the future. With that type of back and forth, gold has been riding the roller coaster recently depending on the latest news, but that can change in a hurry once the Fed money printers shift into overdrive.

ZH summed up the Fed’s minutes like this:

First, the Fed’s assessment of the economy was more downbeat than many had expected; second, the fact that the Fed appeared to cool substantially on any imminent (or even medium-term) implementation of yield curve control; third, the FOMC was silent on the prospect of changes to the size or composition of the central bank’s purchases of Treasury securities.

In other words, nothing was positive for any market, but tomorrow is another day and another chance for the S&P 500 to reclaim its old highs.

In the meantime, more volatility is likely, and we will rely on our trailing stops to determine if and when to exit a particular position.