There is an odd sense of foreboding in the market lately. I think there is a combination of reasons.
In Roman mythology, the Goddess of depression, worry, and mental illness was called Miseria, hence the word misery.
There is no doubt as we approach one year of partial and complete lockdowns, everyone feels signs of depression, coupled with grief over the deaths of loved ones and even strangers.
To a degree, the stock market has been a shield from the madness of our current condition. In its natural role, the stock market is a harbinger of the future, and we all know the future will be brighter.
And yet lately, real-time angst has begun to creep into the stock market.
Sure, there is natural apprehension, considering how far the market has come since the early days of last spring. Guessing market tops have become a sensation among the brilliant experts that missed the move in the first place.
Then there is all the cheerleading for the comeuppance of the individual investor. It is so unbecoming. -And yet, each day, it gets worse, calling for the death knell of Robinhood traders.
Asking if their siege on those mighty hedge funds is finally over. It’s not!
How long will it take to reload and give it another try? Meanwhile, cheering for the demise of small investors has created an aura of negativity that permeates the entire market. Rooting for the demise of others, especially the less fortunate, triggers its own kind of melancholy.
Plus, the market is a bit overbought and still digesting the latest leg of the rally.
Year-to- Date
- NASDAQ Composite: +6.2%
- Russell 2000: +5.6%
- S&P 500: +2.0%
- Dow Jones Industrial Average: +0.4%
For all the drama, it’s been a strong start to the year for the NASDAQ, which gave up big gains and actually closed close lower following the lead of Amazon (AMZN) and Apple (AAPL).
Market breadth continues to be very strong for the NASDAQ, but the number of new 52-week highs continue to languish. It is a sign of consolidation of gains, which means the rally only needs to find its next big spark.
Market Breadth | NYSE | NASDAQ |
Advancing | 1,854 | 2,391 |
Declining | 1,345 | 1,475 |
52 Week High | 138 | 262 |
52 Week Low | 0 | 4 |
Up Volume | 3.50B | 5.83B |
Down Volume | 1.38B | 1.58B |
Message from the Bond Market
Don’t look now, but the yield curve continues to steepen. While it only received a fraction of the coverage of the inverted yield curve in 2019, it’s time to consider some of the potential ramifications. The yield curve between the 5-Year and 30-Year Treasuries is now 146 basis points (BPS). Implications include:
- Strengthening economy
- A faster pace of inflation growth
Interestingly, St. Louis Fed President James Bullard predicted a “very strong” economy in the second half of the year as the virus wanes. Once vaccinations have made the rounds, households will be able to tap into “exceptionally high” levels of savings and financial resources.
In addition to saying, “Fed policy has been appropriate, given the crisis that we are in,” Ballard reminded everyone that the Fed has a long way to go before even thinking about adjusting their buying.
He also took a victory lap for the team, stating: “Monetary and fiscal policies have been especially aggressive, and the associated macroeconomic outcomes have been considerably better than expected.”
Not the Daddy
Ballard said the Fed policy (all that money sloshing around) is not the ‘daddy’ of hectic trading in this short squeeze scenario. He pointed the finger at the usual speculation around markets and new retail trading platforms.
Opportunity
The steep yield curve is supposed to be great for banks that can borrow cheap and lend high. Keep an eye on the sector, which continues to not live up to the hype. The Financial (XLF) sector recently pulled back from a perfect double top, so a breakout would be something investors want to ride.
Portfolio Review
Yesterday, we added to Technology in our Hotline Model Portfolio.
Today’s Session
Initial jobless claims fell for the third week to 779k from 812k prior week, beating consensus of 830k. While the number is still high, it appears that layoffs are easing.
To see the chart, click here.
Continuing claims also decreased to 4.59M from 4.79M last week, besting the consensus 4.7M. The largest increases were in Florida, Ohio, while the greatest decrease was in California, Kansas, and Georgia.
The major indices are positive at the open.
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