New Quarter Long Weekend Pause?

I suppose window-dressing was the order of the day Tuesday as a flat open gave way to a more-or-less all-day rally with the exception of profit-taking the last 5 minutes.  The results were that the SPY gained 1.47%, the DIA gained 0.75%, and the QQQ gained 1.96%.  This capped the best quarter since 1998 as the rally has been strong off the March Lows. The VXX was down to 33.95 and T2122 remains in the mid-range at 65.91.  Oil (WTI) fell slightly to $39.35/barrel and the 10-year bond yields gained just a touch to 0.656%. 

Last night, the Senate unexpectedly approved an extension of the PPP loan/grant program as Democrats were granted a last-minute pushback on the expiration.  Republicans had resisted even discussing additional relief until after recess ("maybe it's not needed" grounds) until the surprise last-minute “unanimous consent” sought by Democrats was granted.  However, this move is largely symbolic, as the program was set to expire with over $130 billion in unrequested loan/grant money available.

The main story remains the virus.  In the US, the numbers show we have now had 2,727,996 confirmed cases and 130,123 deaths.  There were over 48,000 new cases on the day.  During his Senate testimony, Dr. Fauci (HHS) again sounded the alarm.  He said states probably opened too early and few followed the Task Force or CDC advice.  In particular, he noted that pushback against scientific advice is very concerning (referring to the government as well as public pushback).  He said that we now have over 40,000 new cases per day on average and he will not be surprised if we reach 100,000 new cases per day if changes aren’t made fast.

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Globally, the number of cases has reached 10,614,353 confirmed cases and 514,622 deaths.  In Europe, the last intra-EU border was opened as Spain-Portugal crossings reopened after a 3-month shutdown.  In Australia, Melbourne has locked down again after 2 weeks of double-digit percentage increase in new cases.  The IMF reported today that Asia’s economy will shrink this year (-1.6% projected decline) for the first time in living memory.  This came as both Japan and South Korea evaluate the next steps after new clusters were found in Tokyo and Seoul.

Overnight, Asian markets were mixed, with China and most of the smaller markets higher, but Japan South Korea and New Zealand lower.  In Europe, markets are red almost across the board.  (Greece being the lone green on the board.)  This comes despite better than expected Mfg. PMI data out of Germany.  However, it is worth noting that the DAX was also hit by a technical glitch that caused volume data to lag at the start of its session.  As of 7:30 am, US futures are all red, down from 0.45% (QQQ) to 1.00% (DIA)

The major economic news for Wednesday includes ADP Nonfarm Payroll (8:15 am), Jun Mfg. PMI (9:45 am), Jun ISM Mfg. PMI (10 am), Crude Oil Inventories (10:30 am), and FOMC Meeting Minutes (2 pm).  Major earnings reports include CPRI, GIS, M, SCHN, and STZ all before the open.

As we start the new quarter and ease into the long weekend ahead, it looks like markets may take a pause this morning.  We did break the downtrend yesterday but have not started a new short-term uptrend yet.  In addition, virus-related news will continue to be widespread, but Bulls have paid no notice so far.  Just don’t get too far out on the bullish limb yet.  Take some profits before the weekend, especially since it will be a long one.  As always, don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go).

Ed

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