Paranoia

US stocks ended off their best levels on Tuesday, giving up a portion of early gains as shares of JPMorgan fell on reports the bank sent some traders home after an employee contracted the coronavirus.

The infected (to channel 28 Days Later) was apparently working on the fifth floor, in equities trading. Workers were told on Sunday, just days after returning to the office. It’s not clear what this means for senior traders, who were instructed to come back to work by September 21. Earlier Tuesday, in remarks to a virtual summit, Jamie Dimon said “going back to work is a good thing”. At least he practices what he preaches. Bloomberg notes that Dimon has “been going into the bank’s offices since June”.

It didn’t help that JPMorgan cut its full-year net interest income forecast earlier in the session. On the bright side, the bank said Q3 trading revenue could rise 20% YoY and that loan loss reserves are likely to remain constant. One assumes Q4’s trading results will depend on whether traders are healthy enough to do their jobs. And yet, working from home saps productivity on Mondays and Fridays (according to Dimon) so this is a “damned if you do, damned if you don’t” scenario. The shares fell 3% on the session, logging the second worst day in months.

Elsewhere, Caterpillar slumped the most since the June 11 rout after the company reported another month of lackluster sales.

Rolling three-month retail machine sales dropped 20% in August, matching July’s 20% decline. “Retail sales continue in search of a steady bottom as catalysts for positive inflection remain elusive”, Jefferies remarked.

That doesn’t bode well for the global growth bellwether.

There was some good news after the bell Tuesday. FedEx turned in what, on a quick glance, looked like decent results, beating on both the top- and bottom-lines. The company is not providing an earnings outlook for fiscal 2021.

More broadly, the S&P managed a third day of gains even as the afternoon price action was less than inspiring. The Nasdaq outperformed for a second day, which will further placate nervous investors who feared the worst after world-beating US tech shares plunged into a correction earlier this month, when froth in the options market finally pushed things too far.

I’m compelled to repeat myself from Monday. There has been only one session in September during which the Nasdaq 100 didn’t move at least 1%.

To be sure, market participants are far from relaxed. Indeed, the latest installment of BofA’s Global Fund Manager survey describes a feeling of “paranoia” vis-à-vis crowded longs in the tech space.

“Long US tech” topped the “most crowded trade” list for the ninth month in 11. More to the point, 80% of respondents identified it as the most crowded trade, a record for the monthly survey going back nearly seven years (the full chart is included at the end of the post, and a more compressed version is below).

“[The] best FMS contrarian trade is long banks at a record undervaluation vs tech and short tech & healthcare”, BofA’s Michael Hartnett said.

The sense of “paranoia” around stretched tech shares isn’t deterring some folks, though. The triple-levered Nasdaq 100 ETF has enjoyed nine straight days of inflows.

And with that, attention will shift to the Fed on Wednesday. Absent some unforeseen turn, explicit outcome-based forward guidance and any tweak to the maturity composition of QE purchases will be left in reserve (no pun intended).

That means there are only two avenues down which the Fed can go to deliver a dovish surprise: the SEP or Powell’s press conference.

You can read a full September FOMC preview here.