May 29, 2020

Different Sameness

This has been both an interesting month as well as an interesting week. The traditional rail of selling in May and going away seems as archaic as the oil stocks that have remained under pressure, not so much from OPEC, but in my opinion, the most extensive pressure, the future.

This week was a good example of the above. Beginning with what seemed like a total rotation of equities from momentum sectors that have saved the market, and possibly the future, into cyclical sectors that were literally crushed by the national lockdown. What stood out though was the technical condition of the NASDAQ stocks, particularly those in in the NASDAQ 100, that a ‘time out’ was possible, although no clear reason for it to happen. Until reopening captured the narrative of the financial media and speculators, Algochums and probably a small number of massive institutions captured much of the volume and lo and behold, Disney (DIS) jumped over 4%, Goldman Sachs (GS) over 17% and United Airline (UAL) over 28%. Three companies that have tremendous potential, but no evidence that such potential will actually be realized. And while all of this was happening, our friends of the future went lower and the claim of the end of the tech rally ensued. Wrong. As one who watches the market nearly every waking moment the price action was more compatible with the aforementioned technical condition of the tech sector then with the notion that there were real sellers emerging. In fact, every time the aforementioned cyclical stocks took a breather, tech and its uncontrollable momentum emerged with its customary yawn and finished the week at respectable highs. Is the cyclical rally finished and tech back in control? Not necessarily yet, and I’m in no rush to add to my cyclical holdings, other than finance. But it was nice to see the first opportunity in a couple of volatile months to invest in some good names, such as NVidia (NVDA) and should it turn around and move lower, I’ll buy more. I prefer to bet on the future these days.

There isn’t much to grab on to when it comes the economy, from historical unemployment to the massive blow to the country’s largest cities. Although there is much to hope for in the face of clear ambitions to reopen and the more subtle predictions regarding a second wave if the virus coming from Dr. Fauci and the CDC. And not to forget welcome gains on the many virus therapies and vaccine trials. In short, the benefit to the economy is still in the data to come and although it may highly likely show less weakness, in my opinion, it’s probably better not to over interpret it as improvement. It’s also worth noting today Fed Chairmen Powell reiterated the Fed preparedness for continuing weakness and concern for a potential Fall re-occurrence of the virus and its impact on the economy. Lastly, the President today outlined some opinions on recent events in China, in particular Hong Kong. Still much to work out, but the markets didn’t seem to care. In short, there isn’t much to grab on to when it comes to the economy.

External Events
So much is said these days regarding the indifference suggested by stock investors in the face of the worst domestic economic condition since the Great Depression. But this is too easy an accusation to simply sweep away to the drunken media brewing their usual divisive narratives. One thing that has always stood out to me as an investor is how little local and national news has virtually no effect on the broad markets. Just as politics has little impact except for legislative actions, such as a new law, the reason for this disconnect is simply Main Street doesn’t widely care about the markets, when I would suggest Wall Street cares a lot about Main Street than wider opinion would guess. I know this, because everything I analyze is based on the economics, markets, politics and even pop culture, all of which are , in my opinion, the best way to gauge social mood, which I also believe to be the foundation on what the broader markets are expecting. If the future is what the markets expect, Main Street will be the beneficiary whether any other external events attempt to impede that, such as politics, remains the variable we know as risk.

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