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What A Mess



Chief Market Analyst

The market is a mess. Sometimes, it’s a beautiful mess. This time, it’s just a mess.

This characterization doesn’t even have so much to do with the standing of the futures market as it does with the tonality of market conditions, which include finger pointing over the short-squeeze mania, confusion over trading restrictions imposed because of the short-squeeze mania, anger over trading restrictions, vague explanations about trading restrictions, and sophomoric arguments between market participants on both sides of the short-squeeze mania.

For good measure, bitcoin has been pulled into this mess. It’s up 15.8% to $37,384, reportedly because Elon Musk simply tweeted #bitcoin. Well, CNBC reported a short time ago that Robinhood has placed restrictions on crypto trading due to “market conditions.”

On a related note, Robinhood and other brokers are lifting trading restrictions on heavily-shorted stocks like GameStop (GME) and AMC Entertainment (AMC). At last check, GME was up 78% in pre-market trading (it had been up more than 100%) and AMC was up 42%.

There is nothing fundamental behind those moves, other than that they are fundamentally a sign of the times that tend to turn into a mess of some kind when liquidity is flowing and interest rates are kept at/managed to artificially low levels.

Rest assured, though, Fed Chair Powell said earlier this week that financial stability risks are moderate. He should have said #moderate. It would have made him sound more hip.

Getting back to the futures market, it’s looking a little discombobulated. The S&P futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 59 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 160 points and are trading 0.5% below fair value.

That’s a considerable improvement from overnight lows when the S&P 500 futures were down as many as 57 points.

The latter weakness supposedly had to do with the news that trading restrictions were being lifted on heavily shorted stocks. The ostensible concern was that today could invite another day of forced selling of long positions to cover losses in stocks that had been sold short.

That was the narrative anyway, and as everyone is aware, the narrative is oftentimes more important than the actual story in driving this market and many stocks.

Anyhow, the overnight skittishness has abated some, aided in part by developments on the COVID vaccine front and some better than expected personal income and spending data for December.

Briefly, Johnson & Johnson (JNJ) said its highly anticipated vaccine candidate was 66% effective overall in preventing moderate to severe COVID-19, 28 days after vaccination; however, it had an 85% efficacy rate in preventing severe disease across all regions studied, 28 days after vaccination in all adults 18 years and older.

JNJ is down 3.7% in pre-market trading, presumably on some disappointment that the 66% number isn’t as successful as the 95%+ efficacy rates seen in vaccines from Moderna (MRNA), which is up 29%, and from Pfizer (PFE), which is up 4.1%. That said, the 85% efficacy rate in preventing severe disease is being heralded as a really encouraging outcome in the fight against COVID. Separately, Novavax (NVAX) reported last night that its vaccine candidate had an 89.3% efficacy rate in its Phase 3 trial in the UK. Shares of NVAX are up 59%. 

There is a lot to take in scientifically here that is outside your author’s expertise, yet the market is clearly casting its own judgment.

With respect to the data, personal income increased 0.6% m/m in December ( consensus 0.1%) and personal spending declined 0.2% ( consensus -0.5%). The PCE Price Index was up 0.4% m/m ( consensus 0.3%) and the core PCE Price Index was up 0.3% ( consensus 0.1%), leaving the yr/yr rates at 1.3% and 1.5%, respectively.

The key takeaway from the report is that it wasn’t as bad as feared, which qualifies as good news for a market that has seen a number of economic reports of late not live up to expectations.

On the earnings front, Visa (V) surpassed expectations and so did Caterpillar (CAT)Skyworks Solutions (SWKS), and Honeywell (HON)Chevron (CVX) came up short. This news, though, has gotten lost for the most part in this mess of a market.

Originally Posted on January 29, 2021 – What A Mess

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