Mr. Powell Goes To Washington

A few bear case narratives were bounced around over the weekend, and now it seems the culprit for last week’s volatility is an overbought market, driven higher by millennial investors.

There is no doubt millennials are in the market like never before. While I’m sure many are buying and selling hot stocks, the market was bid higher for several reasons. One of the biggest reasons is that it was oversold in the first place.

The rebound has been one for the record books as well. Now, investors must wait to see the next wave of data. An interesting aspect of the market now is that we are back to that conundrum of wanting improvement in the economy. Not to be too great, or it would stall additional Fed accommodation and derail efforts for another economic package out of Congress.

May Retail Sales

• Estimate: +7.4% from -16.4% (prior report)
• Ex-autos: +4.0% from -16.2%

May Capacity Utilization

• Estimate: 66.8 from 64.9

June National Association of Home Builders (NAHB) Confidence

• Estimate: 43 from 37 in May

Mr. Powell Goes to Washington

Chairman Powell goes to Washington for his semiannual address to Congress, and it should be a barnburner. Politicians will play the usual game of trying to convince the Fed Chairman to endorse their ideas and denounce the other party. And some will simply rail against an unjust society made worse by the money-printing. There is some truth to that, but the notion of turning those same printing presses to enact the Modern Monetary Theory is a huge mistake. 

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There was always going to be a consolidation of the big bounce, but against the backdrop of nonstop fearmongering, it will be a major test to mitigate the downside to a correlation with fundamentals instead of hysteria.

Friday saw the market put up an impressive fight that fended off two waves of selling.

The first came after Richmond Fed President Tom Barkin talked about the long-term negative impact of the pandemic.

The second came after the Centers for Disease Control and Prevention (CDC) issued new face-covering guidelines, and mentioned more mitigation measures might be needed to arrest COVID-19.                                                                                             

The S&P 500 got under 3,100 overnight, so it’s important the index finds a way to defend that former staunch resistance point.

Today’s Session

There are several factors influencing pre-opening trading. 

• Still overbought
• Concerns about economy if states stall reopening (uptick in Beijing worth watching)
• Fed inaction
• Washington dithering

Recent gains must be consolidated, that's not unusual. In this environment, it will be more precarious than usual. I think the 50-day must hold for the S&P 500. Value is also at trendline support. 

S&P 500 50-day moving average

This is not time to panic.