Despite a Fed Warning, Investors Throw Caution to the Wind

Bostic raises concerns about the recovery
NQ gained 2.3% to start the week
Mega-techs now 25% of S&P 500 market cap
Social media stocks

Social media stocks

Monday's Close

E-mini S&P 500 Futures (September): Settled at 3172, up 43.00

E-mini Nasdaq-100 Futures (September): Settled at 10,598.50, up 242.75

After a boisterous start to the week, fresh warnings of a slower global economy have pushed U.S. benchmarks on their backfoot. With Covid-19 cases surging across the southern states, it throws cold water over reopening and the perceived economic recovery. The Chicago announced a travel advisory, requiring a 2-week quarantine for those traveling from 15, mostly southern states. In an interview yesterday, Atlanta Fed President Raphael Bostic, representing the heart of the region, made the case for the U.S. recovery to stall as cases rise. Across the pond, the European Commission downgraded their 2020 growth forecast by a whole percentage point to -8.7%. Bostic speaks again today at 8:00 a.m. CT, he is not a 2020 voter. Fed Governor Quarles, a 2020 voter, speaks at noon CT, Richmond Fed President Barkin and San Francisco’s Daly follows at 1:00 p.m. CT. 

The Nasdaq-100 gained 2.3% to start the week, finishing 8.5% above its February record prior to the pandemic. What an amazing run. The Shanghai Composite Index continued its surge early gaining more than 2% before paring back to +0.37%. It’s still up 12% on the month. To put some of this exuberance in perspective, SentimentTrader, who provides quantitative research via Sundial Capital, tweeted out, “We are seeing truly rare breadth readings. The percentage of emerging stocks above their upper Bollinger Band has spiked to the highest level ever! From Robinhood traders to tech stocks speculators to Chinese investors, people are throwing caution to the wind”.

Although a technical statistic, it appropriately highlights how irrational the stretch for yield amid zero interest rates has become. Apple, Amazon, Microsoft, Google and Facebook account for one quarter of the S&P 500’s market cap. We are strong believers in software companies, especially the likes of Salesforce and Adobe. However, there’s a lot of garbage rising from the depths of March and even the great stocks are surpassing levels of near-term sensibility.

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