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Holding the Line



Chief Market Analyst

There were various life stages to yesterday’s trading that included bad, very bad, and good. The bad and very bad came early while the good came late as Apple (AAPL) powered back from a 3.5% decline to end the session with a 3.0% gain. That move, and the support of other technology shares, provided some needed repair work, but it still wasn’t enough to fix things fully.

The S&P 500 declined nearly 1.2% on Monday. Notably, it scraped 3229.10 at its low for the day, which marked a 10% decline from its intraday high on September 2. That pullback met the unofficial definition of a “correction,” so the rebound bid seemed a little more than coincidental.

We suspect computer algorithms sniffed the 10% line, held the line, and then acted on it as a buy-the-dip line. What better vehicle to move the line than Apple, which, at its intraday low on Monday, was down 25% from its intraday high on September 2?

So, things begin anew today, only it is tough to get a line on things. The futures for the major indices are mixed, but it appears that the growth stock trade — not the growth trade — is back on for the moment.

The Nasdaq 100 futures are up 60 points and are trading 0.7% above fair value. The S&P 500 futures are up five points and are trading 0.3% above fair value; and the Dow Jones Industrial Average futures are down 17 points and are trading close to fair value. (AMZN) is helping to drive the early separation. It is up 1.8% after being upgraded to Outperform from Market Perform at Bernstein, which put a $3400 price target on the stock. Apple is another driver. Shares of AAPL are also trading 1.8% higher.

That’s usually about all one needs to know to understand why the Nasdaq 100 is poised to exhibit relative strength. It would be even stronger if not for Tesla (TSLA), which is trading 4.1% lower.

After yesterday’s close, Tesla CEO Elon Musk sent a tweet that seemed to temper investors’ expectations about the company’s “Battery Day” today. In the tweet, he noted that the announcements to be unveiled today will affect long-term production and that what is announced will not reach “serious high-volume production until 2022.”

Given the discord in Congress, that might be about the time it reaches production of another coronavirus relief package. We jest, yet the market sees the prospect of any deal before the election looking less and less likely, particularly now that there is a Supreme Court nomination battle that will be fought before the election.

In any event, the recovery growth trade has been stymied by concerns that further fiscal stimulus will be forestalled and that rising coronavirus case counts will continue to stymie normal business activity. UK Prime Minster Johnson announced today that bars, pubs, and restaurants will need to close by 10:00 p.m.

Both Fed Chair Powell and Treasury Secretary Mnuchin are expected to press the case for more fiscal stimulus in their CARES Act testimony today before the House Financial Services Committee, which begins at 10:30 ET. We know from the Fed chair’s prepared testimony that he continues to press the idea that the Fed will do what it can, for as long as necessary, to support the recovery.

That was the party line he shared at his press conference last week following the FOMC meeting, so nothing really new there. The “newness” to it is that such proclamations aren’t whetting the market’s bullish-minded appetite like they used to.

Originally Posted on September 22, 2020 – Holding the line

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