The silence is deafening... no Trump tweets, no press conferences, no chats before boarding Navy1. Is this the calm before the storm? The FBI seems to think so. Markets took no notice of last week's insurance but I'm sure many have their finger on the sell button if things get out of hand again.
Well, I don't have a detailed EPS number or anything like that...Just anecdotal evidence that it will have been AMZN's busiest quarter ever with highest revenue, because of all the stay-at-home holiday shopping+$1200 stimulus money.
The initial part of Biden's speech (still ongoing), was comparing Wall St with the real economy, particularly the hardships of Mr average, a clear stab at the wealthy. Was he talking down the markets or setting-up his case for increased taxation? Perhaps both, the DOW fell 100pt on his opening statement despite also having announced an additional $1.9t for virus relief.
I've always looked at the Russell 2000 to get a pulse on the real economy as this index is not distorted by the mega-companies that dominate both the NQ & the S&P. However, Dec and Jan have seen a disproportionate rise in small caps reaching a level of 30% above the pre-covid highs. My view is that stimulus money has totally detached the small-cap index from reality, small investors have ploughed into small caps making investing in these listed companies now high risk. Very few small caps companies are making a profit, many more are existing on life support, not expected to survive when the support is withdrawn. We are indeed living in interesting times were all bad economic news is good for markets as it equates to certainty for more stimulus. Biden policies will not be driven by market reactions as were with Trump, we might well see some sanity returning to valuation during the Biden term, so some caution might be in order until we see exactly what Biden is thinking. I do believe that Biden is likely to target stimulus to areas that will help the economy rather than give helicopter money indiscreetly to all and keep supporting zombie companies.
Keep an eye on the spread between NASDAQ and NDX. It seems to have normalized again, with the NASDAQ being ~200 points above the NDX. All through the pandemic, they were inverted, and only reverted back to "normal" in the past 2 months.
Over the last 2 weeks, retail players have used social media (mainly Reddit) to co-ordinate action going head to head with fund managers. For sometime retail day-trades have been able to move markets but lately, hedge fund manages have conceded that the co-ordinated action is out-funding them possibly because of the slosh of disposable helicopter money in the hands of individuals. It appears that the retail players are randomly picking stocks that have been shorted by the fund managers and pushing those stock up, in some cases, by 700% intraday, forcing the funds to cover their shorts magnifying the up-move. As many of these stocks are being bought by new traders on RobbinHood and the likes, it would indicate that the retail players are millennials, not necessarily knowing what they are buying but just banding together in mass creating a short-squeeze and reaping profits. The action is notable enough to have Power mention it in his speech today.
Last week we saw bond yields risen from -.3% to +1.5% prompting some market players to sell stocks. This week it seems that inflation fears and possible Fed action to that have been forgotten as markets are again hovering at their all-time highs, however, many fund managers are coming out saying they think stock prices are too high. At this point, there still is too much helicopter money in the hands of retail players to call for a correction, but if the $1.9t stimulus gets rejected or Powell comes our talking about inflation, a correction is possible. A word on the misfortune of Texas. No doubt many are pointing the finger at Texas for getting caught with its pants down, however, the biggest debilitating factor was the loss of power. This has to be blamed on the greenies... before renewable energy, even Texas was well prepared with excess capacity to keep supplying uninterrupted power under all conditions. Now Texas and just about all state will face power shortages when the wind stops blowing and the sun stops shining. The greenies must come to terms that you can't have your cake and eat it too, if renewable power gets pushed further, power interruptions will become the new way of life, sadly hitting us at times when it is most needed, even our cars won't be able to take us out of harm's way as these will all be electric. I got nothing against nuclear and perhaps the nuclear option should be embraced by the greenies who can generate power with wind and solar in their backyards but let the grid work with uninterruptable options.
Powell testimony reiterated that the Fed is staying steady and will continue to do as it has done since the pandemic, this has reassured markets that QE & Rates are not changing giving players a reason to resume buying. However, the bond yields set by the market are now above the Fed rate. The bottom line is that Equity prices remain overvalued compared to all metrics except the Fed's rate, this is creating the continued high volatility (400 to 600 DOW points daily)
Despite Powell's reassurances, markets have pushed the T-Bond yields up to 1.6% continuing the tug-war between retail players relentless buying and fund managers unwinding positions in fear of higher inflation. The DOW had a 2nd day of >500 pt swings, again reaching new highs to then all but wipe out Feb gains. The VIX also jumped 5 whole unit and remains elevated a good 15 units above the pre-virus levels indicating nervousness amongst long-term investors holding long positions. A similar story for the NQ, having now wiped-out all of JAN & FEB gains but for different reasons... Big tech is believed to lose sales with the roll-out of the vaccine. The HSI continues to lead Asia down, the sell-off having being sparked by the increase in transaction taxes... Bad timing, in my opinion!