Wednesday, October 7, 2020

The Morning Call--The stock market disconnect


The Morning Call




The Market




            The Averages  (27772, 33360) were headed higher on the day only to get smashed following Trump’s instructions to republicans to halt stimulus bill negotiations (after seeing the impact on the Market, he revised his position saying he would entertain directed [like airline bailout] stimulus legislation) and the release by the house dems accusing big tech of possessing monopoly power. 



While both of the indices held above their very short term trend of higher lows, the two gap up opens down below remain---which, as you know, I believe will have to be filled.  I still believe that the Market’s long term bias is to the upside and will remain so as long as investors buy into QEInfinity/Forever.


            The fear barometer is not showing much fear.



Gold was off 1 1/8%, remaining within a short term trend of lower highs.  TLT  bounced off its 200 DMA (now support) but continues to trade in a trend of lower highs.  The dollar was also up, rebounding off the developing trend of higher lows.  Clearly, these indicators had no follow through to Monday’s dramatic performance, leaving me with directional uncertainty and wondering what investors are trying to discount.


            Is the spike in yields a sign of reflation?



            Tuesday in the charts.







              The Economy




Weekly mortgage applications rose 4.6% but purchase applications fell 1.5%.


The August job openings (JOLTS) report showed available jobs at 6.5 million versus projections of 6.7 million.





Preliminary August Japanese leading economic indicators came in at 88.8 versus estimates of 88.0.




                          WTO updates (lowers) its 2021 global trade forecast.



                          Dry bulk shipping rates hit 2020 high.




                        The Fed


I have repeatedly focused on the negative consequences of the Fed’s QEInfinity/Forever policy, one of which is increasing income inequality.  Here are two articles on the potential fallout if this issue is not addressed.


Whatever comes after Trump and Biden will be worse---a bit melodramatic but only a bit.



              Mohamed El Erian’s more circumspect take on the above issue. weakening-fundamentals-by-mohamed-a-el-erian-    2020-10


In a speech to the National Association of Business Economics, Powell argued for more fiscal stimulus. 



That is not new news, but it comes on a day that Trump shut down stimulus bill   negotiations.




            The coronavirus


              A curve ball is not an existential threat.



              Restaurant spending almost back to pre-coronavirus levels.



            Bottom line.  The stock market disconnect.



              Finding opportunity beyond the megacaps.



    News on Stocks in Our Portfolios


Paychex (NASDAQ:PAYX): FQ1 Non-GAAP EPS of $0.63 beats by $0.08; GAAP EPS of $0.59 beats by $0.08.

Revenue of $932.2M (-6.0% Y/Y) beats by $43.93M.



What I am reading today


            National Geographic’s best photos of the decade.




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