Cyclicals led a rousing post-Memorial Day surge in US equities, as a combination of reopening optimism and likely short covering/ forced buying, pushed stocks sharply higher, much to the delight of a delirious-sounding Donald Trump.
“Stock Market up BIG, DOW crosses 25,000”, the president proclaimed, for anyone who might be too busy prioritizing bills or dealing with some other COVID side effect to notice that equities were building on gains. “States should open up ASAP”, Trump went on to insist, before declaring that “The Transition to Greatness has started, ahead of schedule”. Phoenix from the ashes, and such.
Amid the celebrating, the US death toll from the virus neared 100,000.
Trump lambasted the media for its coverage on the way to effectively claiming that he personally saved as many as 1.5 million lives.
“For all of the political hacks out there, if I hadn’t done my job well, and early, we would have lost 1.5 to 2 Million People, as opposed to the 100,000 plus that looks like will be the number”, the president said.
Although the following visual isn’t perfect, it does a decent job of giving you some context for the scope of the catastrophe.
Whatever your assessment of the president’s performance during the worst public health crisis in a century, the bottom line is that it is a tragedy of historic proportions, and it isn’t over yet.
But, according to some, the worst of the economic damage may already be behind us. New home sales data on Tuesday was much better than expected, and Jamie Dimon did his best to talk things along.
“You could see a fairly rapid recovery”, Dimon remarked, during a virtual conference hosted by Deutsche Bank. “The government has been pretty responsive, large companies have the wherewithal, hopefully we’re keeping the small ones alive”.
Yes, “hopefully”. But there are no guarantees on that front, and the bankruptcies are likely to keep piling up.
Commenting on the Fed’s actions, Dimon rolled out the hyperbole.
“This wasn’t the bazooka”, he said. “The Fed took out the whole military and applied it. Just announcing these programs reduced spreads in the market. It’s going to save a lot of small businesses”.
He’s right. And even those who begrudge the Fed its foray into corporate credit will admit that without action, April may have turned into one of the darkest months in American history, assuming you don’t count it that way already due to the COVID death toll.
Also on Tuesday, Andrew Cuomo said his focus will now shift to reopening New York City. He held his press conference at the NYSE, where he rang the opening bell as floor trading resumed after a two month hiatus. New York had just 73 deaths on Monday, he said.
In a sign of the market mood, the Value factor ETF outperformed its Momentum counterpart by one of the widest margins on record.
As ever, I would note that the following isn’t the “cleanest” way to visualize these sudden rotations, but it is easy for most people to grasp given it uses widely-recognizable products (i.e., VLUE and MTUM).
The Russell 2000 outperformed the Nasdaq 100 by ~3% on the session.
It was the fourth consecutive day that small-caps have bested big-cap tech.
This recalls the discussion outlined here over the weekend in “The Only Debate That Matters“.
The curve steepened Tuesday by some 3bps, in keeping with the rotation within equities. You’re reminded that these are correlated.
These pro-cyclical shifts generally prove fleeting – some catalyst seems to always intervene to short-circuit things, flipping the scales back in favor of “slow-flation” plays and secular growth.
Sure enough, headed into the close, reports indicated the US is considering sanctions against Chinese officials for the planned imposition of mainland national security protocol in Hong Kong.
“The Treasury Department could impose controls on transactions and freeze assets of Chinese officials and businesses”, Bloomberg said, citing sources. “Inter-agency discussions are ongoing and no decision has been made on whether or how to employ the sanctions”.
Earlier in the session, Larry Kudlow had harsh words for Beijing. China is “making a big mistake” in Hong Kong, he chided, adding that the trade deal is still on “for now”. He also criticized Chinese companies for not conforming to US auditing standards, which is just another nod to the possible delisting of some Chinese firms from US exchanges.
Congress is weighing its own measures tied to a variety of grievances. Here’s a quick recap of everything that’s currently in play:
- US lawmakers have pressed for sanctions against Chinese officials in connection with human rights abuses in Xinjiang, and the House intends to consider legislation on Wednesday
- A separate piece of legislation championed by Lindsey Graham calls for additional sanctions in the event Beijing doesn’t provide a satisfactory account of COVID-19’s origins
- The White House moved forward with the first capital restrictions aimed at choking off investment to Chinese equities
- Both the Senate and the House are angling to pass legislation that cracks down on Chinese listings on US exchanges.
- The Senate is pushing legislation to sanction China in connection with new national security laws Beijing plans to impose on Hong Kong
- The Commerce department put new rules in place designed to further strangle Huawei
- Commerce also blacklisted multiple Chinese entities in connection with national security and human rights abuses
The offshore yuan trimmed gains on the latest sanctions news.
Weighing in on the outlook for… well, for everything, I suppose, Trump summed things up.
“There will be ups and downs, but next year will be one of the best ever!”, he shrieked, into the digital void.
There’s an election in November. Or at least there’s one scheduled.
China knows there’s an election in November. I hope their patience doesn’t run out while waiting to see if there will be a new leader they can talk to and hopefully we can step back from the edge and maybe even reach some workable solutions.