Volatility Likely As Quarter Ends

Monday saw a half percent gap higher on higher than expected Pending Home Sales, but the gap was met with an immediate selloff back below flat. Then the bulls stepped in to take markets sharply higher into 11am.  After that a meandering, volatile grind sideways took over for the next few hours until there was another sharp rally the last 10 minutes of the day, causing all 3 major indices to close very near the highs.  At the close, the SPY was up 1.50%, the DIA up 2.29%, and the QQQ up 1.09%.  The VXX fell back to 35.68 and T2122 returned to the mid-range at 52.31.  10-year bond yields fell slightly to 0.635% and Oil (WTI) climbed back up to $39.63/barrel.

In the social media boycott story, CAG, CLX, DENN, EPC, F, HP, and MSFT all joined the boycott of FB advertising on Monday.  While this list now includes many (most?) major brands, it is worth noting that these were never among the top FB advertisers anyway.  So, the actual dollar impact of this boycott is limited.

After-hours it was reported the BAC, C, GS, JPM, and MS will keep their dividends for the quarter at the same level as before last week’s stress test.  However, WFC will cut its dividend based on the new Fed requirements.  No word yet on COF or USB (the 2 other major banks) dividends.

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Last night, Fed Chair Powell’s Tuesday House Testimony test was also leaked. In it, he says the recovery path is “extraordinarily uncertain” and will depend on the success of measures to contain the virus surge.  Powell is also expected to again urge Congress to continue Fiscal stimulus measures.  In unrelated news, the Fed also announced that its last (9th) virus lending program is now operational. The Primary Market Corporate Credit Facility will allow corporations to borrow at a much lower rate than the open market.

However, the main story remains the virus.  In the US, the count shows we have now had 2,682,011 confirmed cases and 128,788 deaths nationally. This includes 31 states with increasing rates on the 7-day average (10 of those being 50% worse than last week), with only 4 having decreasing averages.  14 states have paused their reopening with some even rolling back the process.  Ominously, CDC Deputy Dir. Schuchat told the Journal of the American Medical Assoc. that the US has reached the point where there are way too many cases and spread too widely to control the outbreak (as has been done in other countries who used stricter measures and had more compliant populations).

Globally, the number of cases has topped 10 million, at 10,433,289 confirmed and 508,804 deaths. In the UK, Leicester (330k residents) became the first city in the country to reimpose a lockdown.  In addition, the EU left the US off the “safe list” meaning that travelers from the US to Europe will still be required to quarantine for 14 days upon arrival.  In China, the Manufacturing PMI came in better than expected (into the expansion area).  However, a new strain of flu (a variation of swine flu) was also discovered that is widespread among pork populations.  This new virus has the characteristics to become another pandemic if not controlled.

Overnight, Asian markets were volatile, but green across the board, on news out of China.  In Europe, markets are mixed and volatile, but leaning toward the red side overall.  However, again these are smaller moves as the bourses stay close to flat. As of 7:30 am, US futures are all red, but only slightly on the down side of flat.

The major economic news for Tuesday is limited to June Chicago PMI (9:45 am) and Conf. Board Consumer Confidence (10 am).  However, there are 4 Fed speakers, including the previously mentioned Chair Powell House Testimony (12:30 pm).  The others are Williams (11 am), Brainard (11 am), and Kashkari (2 pm).  The only major earnings reports on the day are AYI and CAG before the open and FDX after the close.

Once again, it looks like a volatile day for markets.  We face fear from the coronavirus, Joe Biden saying he would roll-back tax cuts, and even a new potential viral threat from swine. On the plus side, the Fed is likely tell us they stand ready and there are even signs of China’s economy expanding.  Today is also quarter-end.  So, we may see window-dressing or rotation.  Keep your focus on the short-term chart and right now that chart says the trend remains bearish with potential support below.  As always, don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go).


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