E-mini S&P 500 Futures (December): Settled at 3544, up 43.25
E-mini Nasdaq-100 Futures (December): Settled at 11,820.50, down 254.50
The S&P set a record early yesterday but reversed sharply and failed to close out above its previous high as the risk-landscape digests a post-Covid world. For its vaccine, both Pfizer and Eli Lilly, for its antibody therapy, were granted Emergency Use Authorizations. The developments bring hope to a year-long pandemic battle, but the path to recovery is not so clear just yet. Although Pfizer’s vaccine has an above 90% success rate, questions on the length of its effectiveness persist. Furthermore, a Chinese vaccine, already used on hundreds of thousands of patients, was halted yesterday due to adverse effects, and this threw cold water over the enthusiasm.
President Trump promised an October surprise, but the developments came just one week removed from one of the tightest elections in history. We have been calling for a bull-run post-election, no matter who wins and as long as the country avoided a ‘blue wave,’ as it removes uncertainties from the risk-landscape. Last week, the S&P’s +7.2% was its best since April when it dug out of a 36% plunge at the onset of the pandemic. Let us not forget that the tailwind continued Sunday night before the Pfizer news, on the heels of a strong jobs report. So, why the sharp reversal?
Banks, Industrials, Energies, and the hardest-hit industries are holding strong, actually extending gains ahead of the bell. On the other side of the coin, Tech and Work-From-Home stocks see air come out of the balloon. Has the glimmer of light at the end of the Coronavirus tunnel brought the much-anticipated shift from growth to value? Throughout the year, we protested each time this notion surfaced. However, now more than ever, post-election and with that glimmer of light, it is optimal to anticipate some reversion to the mean. In fact, we have written in recent weeks that our investment advisor Blue Line Capital favors adding to Banks and Energies for this very reason; yesterday’s top two performing sectors. If this shift is real, we are in store for added volatility.
It also cannot be ignored that our next resistance level, 100 points out above the previous record high, a level that stocks were pricing in the most optimal scenarios of all optimal scenarios, was too overzealous after a 7.2% surge last week and given the earnings recession. Furthermore, it is not a coincidence that risk-assets pulled in sharply as GOP leaders refused to acknowledge former Vice President Biden’s win, and Attorney General Barr authorized the Justice Department to open inquiries to voting irregularities. Whether or not there is credence behind such irregularities, it prolongs the removal of uncertainties and the timeline for reinvigorating fiscal stimulus negotiations. All in all, it is another reason for added volatility.
On the economic calendar, JOLTs Job Openings is due at 9:00 am CT, there is a 10-year Note Auction at noon CT, Fed Governor Quarles speaks at 1:00 pm CT, and Fed Governor Brainard follows at 4:00 pm CT.
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