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Markets on Friday did an eerie repeat of one of the most important days of the recovery yet.
Heres a quick post about some observations after this oddly bullish Friday, in which a premarket report about Gilead’s Remdesivir was apparently enough to stoke the flames for a bullish bounce into the weekend. As I said on the network this morning, I’m a bit surprised how much this was apparently able to move the market. Gilead’s intention with the drug has been well-telegraphed, the control group of the study is being criticized by some, but yet stocks, bonds and the dollar all reversed course and held that momentum throughout the session. That suggests less may be priced into the market than many think with respect to COVID treatments and vaccines.
In fact, the strength on Friday is practically identical to the action on May 15. In that session, financials and cyclical stocks led a turnaround in the S&P 500. It was right before equity markets broke out for a second leg higher that brought the Nasdaq
NDAQ
to a record, the S&P back above 3,000, and crucially sparked a month-long surge in companies and sectors tied to economic reopening.
- Bonds. The Treasury market was rejected right near the top of its post-Covid range, with the exact same candle as on May 15 in both the futures contract and long-term Treasury ETF TLT a strong open, followed by a fade. Coming after extraordinary demand for 30-year bonds in the auction on Thursday, Treasuries didnt get any follow-through. As stocks push up against the top of their range, bonds dropped from theirs.
- Momentum vs value. The markets preference for momentum stocks briefly peaked on May 15 as value shares took over the next three weeks of trading as investors became more confident about the recovery. Value shares led Fridays rally, the first time in eight sessions.
- High-beta vs low. Similar to the momentum-value dynamic, high-beta shares beat low-bet stocks. In the coronavirus world, that means travel stocks and companies that depend on reopening were in front. These stocks had been lagging in the stock market rebound after the bottom in March, until you guessed it, May 15. Thats when the relative strength turned around to favor high-beta companies. Over the next month, shares of airlines, cruise-lines and banks rallied. It was a day away from the bottom in the JETs ETF, which gained 83% over the next month.
- And of course, today was a financials-led rally, just like on May 15. Its hard to find a group of companies more hated than the banks, so anytime the market is energized about the economy enough to buy them, its notable.
It could all be a coincidence but it is quite strange, especially when the prevailing narrative is that the economy is approaching the breaking point for COVID toleration with consumer activity showing signs of slowing and fiscal stimulus running out at the end of the month. Next week should be exciting. Banks kick off earnings, and a string of beats could put the market well on its way to turning deja-vu into new highs.read more
