In what certainly felt like a combination of capitulation and forced buying, US equities accelerated into the close on Wednesday, adding to a historic rally and leaving bulls and bears alike incredulous.
The S&P logged its best day since early July, rising for a ninth session in 10, pushing further into overbought territory in the process.
Stocks haven’t been this extended since the halcyon days following the Trump tax cuts (or, put differently, since the eve of Vol-pocalypse).
Notably, it was another “SUVU” day — “stocks up, vol up”, that is.
Even as the S&P climbed more than 1.5%, the VIX rose. Similarly, VXN jumped even as the Nasdaq 100 gained. In fact, Wednesday was the third straight session in which big-cap tech rose with implied vol.
It’s a precarious setup, but Wednesday at least saw the S&P and the Dow outperform the Nasdaq. The equal-weight S&P hit the highest since late February. The Dow topped 29,000. On the surface of it, that suggests broader participation but frankly, it’s a little late for that. Big-cap tech now trades 30% wide to its 200-day moving average, double the premium seen on the S&P.
The gains came even as Mitch McConnell cast further doubt on the prospects for another virus relief bill. “I don’t know if there’ll be another package in the next few weeks or not”, McConnell told folks gathered to hear him speak at a hospital in Kentucky.
Earlier in the session, Larry Kudlow floated a piecemeal approach for the umpteenth time. “Where we agree, why not go for a targeted bill?” he wondered.
I can answer that. Because almost invariably, the GOP would not come back to the table once a smaller, “targeted” package is passed.
McConnell has made it abundantly clear that nearly two-dozen Republicans don’t support any additional stimulus at all. Given that, the idea that they’re going to come back and do more if it’s necessary (as Steve Mnuchin has variously suggested) seems laughable. Considering staunch GOP opposition to additional relief and Democratic opposition to half-measures, there is virtually no chance of anything getting through the Senate.
This would appear to doom the talks to a fate entangled with broader government funding discussions, which in turn raises the odds of what I’ve called a “grand fiscal failure”, although I suppose “grand” isn’t really the appropriate adjective.
For what it’s worth, Loretta Mester reiterated Wednesday that “it’s going to take some time to get into a sustainable recovery”. “We’re going to need support both on monetary policy and fiscal policy”, she insisted, during a virtual event.
Meanwhile, geopolitical tensions are on the boil, both with regard to China and, now, Russia.
The US on Wednesday placed additional restrictions on Chinese officials, curtailing their ability to move — literally. Mike Pompeo said senior US-based Chinese diplomats will need permission to go to American universities. Clearance will also be required for meetings with local government officials and even for cultural events involving 50 or more people outside of diplomatic missions. Pompeo called the move “a direct response to the excessive restraints already placed on our diplomats by the PRC”.
As for Russia, the Kremlin is poisoning people again, Germany said. Alexey Navalny — who fell ill on a plane last month and was eventually allowed to leave Russia to be treated in Berlin — was subjected to novichok, according to German officials. Angela Merkel is the furthest thing from amused.
Boris Johnson doesn’t like it either. “It’s outrageous”, he seethed. “The Russian government must explain what happened to Mr. Navalny”.
With all due respect to everyone involved, there’s nothing to “explain”. Navalny was, in all likelihood, poisoned for his politics. It’s just that simple. And even as it’s wholly unacceptable, it’s not at all surprising.
The ruble dropped the most in nearly three months as the market now fears (more) sanctions.
The NSC called the apparent poisoning “completely reprehensible” and promised the US “will work with allies and the international community to hold those in Russia accountable, wherever the evidence leads”.
Color me even more skeptical on that promise than I am on the notion that the S&P can continue to climb the wall of worry uninterrupted all the way into a disputed US election outcome.