Monday was a dark day on Wall Street. That may be a bit hyperbolic, but I suppose what I would note is that for an hour or so, things looked to be on the brink of unravelling in earnest, when the Dow was down more than 800 points.
A perfect storm of factors conspired to weigh heavily on sentiment with just a week to go until the most consequential election in modern US history.
Stocks trimmed their worst losses but still fell the most in weeks amid second wave virus concerns, geopolitical tensions, a burgeoning currency crisis in Turkey, and generalized angst around stalled stimulus talks. It was, in short, an inauspicious start to a data-heavy week. It looks as though the 50-day moving average will once again be called upon to do its patriotic duty.
“The increased case counts in Europe and the US suggest the second wave of the pandemic is well underway and the ramification for the real economy remain unknown – to put it diplomatically,” BMO’s Ian Lyngen, Ben Jeffery, and Jon Hill said, in a characteristically incisive and entertaining afternoon piece. “To suggest this is an unknowable unknown would be to emphasize the obvious and any attempt on our part to skew the odds in either direction would be more akin to snowballing down the slopes versus being out over our skis,” they added.
God bless them for their humility — being out over my analytical skis has never stopped me from prognosticating, that’s for sure.
Anyway, Treasurys rallied the most in roughly two weeks, bull flattening the curve and serving notice that crowded short bets and expensive hedges against higher yields may be, at the least, an example of the market becoming too confident in a narrative that assumes i) a return to pre-pandemic normalcy across developed economies, and ii) big, imminent fiscal stimulus in the US.
Naturally, the dollar rose as the risk-off mood proliferated, exacerbating the situation. Gold was not “your hedge” on Monday. Shiny yellow doorstops were essentially unchanged on the day, despite steep losses for risk assets.
The surge in US virus cases (which recently topped 83,000 in a single 24-hour period) is hitting counties with outsized 65-and-over populations. That’s bad news considering the elderly are the most at-risk demographic cohort.
As Bloomberg notes, citing the CDC data used to construct the simple chart above, “counties with the largest 65-and-over populations are now recording on average 18.9 daily cases per 100,000 residents, 67% higher than a month ago.”
Steve Mnuchin and Nancy Pelosi failed to reach a compromise (again) on Monday, underscoring the protracted stalemate inside the Beltway. Apparently, testing and tracing language is still an issue. “We continue to eagerly await the Administration’s acceptance of our health language,” Pelosi’s spokesman said, in a tweet.
“Today, we are waiting for an important response on several concerns, including on action to crush the virus,” Pelosi told colleagues, in a letter. “Ten days after Secretary Mnuchin went on CNBC to declare that he was accepting our testing plan, the Administration still refuses to do so.”
There’s not much to add here, so I’ll give the last word to (you guessed it) Stephanie Kelton…