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Indeterminate Feel Before the Open



Chief Market Analyst

Today is the last day of the second quarter. Anyone short the market will say “good riddance!” Anyone long the market will say “please don’t end.”

It has been a terrific quarter of returns alright. Entering today, the Nasdaq is up 28.2%, the Russell 2000 is up 23.3%, the S&P Midcap 400 is up 21.9%, the S&P 500 is up 18.1%, and the Dow Jones Industrial Average is up 16.8%.

Today’s start won’t have that kind of energy. In fact, it may not have any energy at all. Currently, the S&P futures are down five points and are trading in-line with fair value, the Nasdaq 100 futures are down 21 points and are trading slightly above fair value, and the Dow Jones Industrial Average futures are down 78 points and are trading slightly below fair value.

The slow start is going to follow on the heels of a fast start to the week yesterday, which followed a breakdown on Friday. The Dow Jones Industrial Average surged 2.3% on Monday, recouping a huge portion of  the 2.8% decline it suffered on Friday. 

Boeing (BA) had a monster day, gaining 14.4% on the news that the 737 MAX certification test flights have begun. The move seemed overdone to us considering the airline industry isn’t exactly beating down Boeing’s door at the moment to deliver new planes. To wit, after yesterday’s close, Norwegian Air canceled orders for 97 Boeing planes, including 92 737 MAX aircraft.

Shares of Boeing are down 2.5% in pre-market trading. 

On a better note, Micron (MU) shares are up 5.6% after the DRAM producer posted better-than-expected fiscal Q3 results and fiscal Q4 guidance. Industry peer Xilinx (XLNX) followed shortly thereafter with news that it sees revenues above consensus estimate for both the June and September quarters. XLNX is up 5.1%.

The semiconductor stocks, then, should be showing some relative strength at today’s open. That will be a source of support for the broader market along with some of the bank stocks, which said after yesterday’s close that they will be maintaining their dividend payments in the third quarter.

Wells Fargo (WFC) was a notable, but not entirely surprising, exception there. Following the stress test results, it expects to cut its dividend. Shares of WFC are down 1.1%.

Overall, the stock market has a bit of an indeterminate, and almost nervous, feel to it. Nervous in that there is no good feel for what will unfold today. It could be another 500-point up day for the Dow just as easily as it could be a 500-point down day.

That is the nature of a consolidation phase following a huge run that was driven by momentum more so than by fundamentals. It is also the nature of a market that is questioning if it came too far, too fast and ascribed too much optimism to the reopening prospects, especially now that some states are pausing or rolling back their reopening plans.

The coronavirus situation, and the fiscal and monetary response to it, will be in the spotlight today when Treasury Secretary Mnuchin and Fed Chair Powell testify before the House Financial Services Committee at 12:30 ET. Both officials released prepared remarks ahead of the testimony, with Mr. Mnuchin proclaiming his interest in working with Congress in a bipartisan way to deliver more stimulus if necessary, and Mr. Powell proclaiming a view that the path ahead is highly uncertain.

In other words, there was nothing particularly surprising in their prepared statements. 

China’s official manufacturing PMI for June was a little surprising, checking in at 50.9, versus 50.6 previously. A number above 50.0 is indicative of expansion, so that is good news in a post-COVID shutdown world. Still, it’s not exactly blockbuster growth momentum in a post-COVID shutdown world.

Originally Posted on June 30, 2020 – Indeterminate Feel Before the Open

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