Hey Folks, as we come into the home stretch of a really crazy and surprising year I suspect we still have even more unexpected events that could occur. In fact, looking at the November and December Volatility Futures, markets are expecting some possible disturbances in price action, although it has lessened a bit…but the dangers are still lingering. Get my current take on the markets below.
WEEKLY SOUND BITES;
The S&P 500 Index had its best weekly gain in 3 months, as investors seemed to grow more optimistic about a new round of fiscal stimulus, as well as treatments for the coronavirus. The small-cap Russell 2000 Index surged over 6%, pulling it out of correction territory, or within 10% of its 2018 peak. Utilities and energy stocks outperformed, with the latter boosted by a rise in oil prices after OPEC Secretary General Barkindo claimed that “the worst is over” for producers. Communication services shares lagged, weighed down by weakness in video gaming and cable stocks.
Trump’s seemingly rapid recovery following his COVID-19 diagnosis the previous week also seemed to boost sentiment. The consensus seemed to grow that monoclonal antibodies held substantial promise in treating the disease and perhaps even preventing infection.
This past week’s market rally has broadened out to create a market event called a “breadth thrust”, a term used to describe a 10-day period in which advancing stocks outnumbered decliners by at least 2-to-1. This does not happen very often – just 29 times since 1990- and this signals a lot of buying pressure in the markets…when a breadth thrust occurs the S&P has been higher 12 months later 96% of the time for an average gain of 13%.
On Monday, Markit and the Institute for Supply Management (ISM) released several purchasing managers’ indexes (PMIs) for September, which generally met or modestly exceeded consensus expectations. In particular, the ISM’s gauge of service sector activity rose unexpectedly and marked the fourth straight month of solid expansion. Weekly jobless claims fell less than expected, but continuing claims fell sharply, from 12 million to 11 million.
The yield on the benchmark 10-year Treasury note surged during the week and hit its highest level in four months with rising stimulus hopes were partly behind the increase. High yield bonds tracked equities higher, as flows into the asset class provided technical support, and credit spreads tightened across all rating tiers. This increase in rates on the longer end of the curve elicited a torrent of inflows into fixed income funds, or about $25.9 billion for the week, the second largest on record.
3rd Qtr. GDP Est. are coming in around 35.2% annualized according to the Atlanta Fed, however we can expect lower growth expectations for forward quarters. We are also seeing Volatility Futures coming in a bit in the post-election months of November and December. As a reminder we will officially kick off Q3 Earnings this week with the banks leading the way…Up first will be Citi and JPM on Tues followed by BAC and WFC on Wed and MS on Thurs and rounding out the week for banks on Fri are BNY, Citizens and State Street…
Enjoy this week’s Weekly Round-Up
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