Morning Roundup

By Mark Masterson on August 20, 2021

Good morning,

Below are the news items moving markets today

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Executive Summary:

 

Last day of a busy week – and the Jackson Hole next week with Powell on tap……

 

Despite this week’s volatility, nothing is slowing down the equity inflow train……Equities continue to see big inflows:

• Despite the risk-off theme this week, equities have continued to see strong inflows. BofA’s Flow Show report noted that global equities attracted $23.9B in the week-ended 18-Aug, the most in nine weeks.
• In addition, US equities attracted $12.8B, also the largest in nine weeks.
• Fits with longstanding resilience surrounding the buy-the-dip and there-is-no-alternative mantras.
• Firm noted these themes underpinned by $4T in Fed asset purchases over the past 18 months and US government spending $87M every hour in 2021.
• Also supported by favorable corporate profit backdrop with companies across a range of industries (including retail this week) highlighted elevated levels of demand.
• Strong earnings have further boosted corporate cash piles and corporates expected to remain a key source of demand for US equities with $680B of buyback authorizations through July, the second highest since 2000.
• Capex ramp seen as another positive (WSJ).

This may have something to do with it……..All the taper talk, but zero action from the Fed.  In fact, the Fed increased its balance sheet by over $85 billion just last week.  It has now increased by over $4.6 trillion in just 2 years.

• Bloomberg

We have not seen easy conditions like this since…..2007

 

More on the markets below

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Articles of Interest:

• Covid:
  • US Covid hospital deaths at highest levels since February (Bloomberg)
  • WHO official says US booster plan make a “mockery of vaccine equity” (NY Times)
  • CDC director says may not need annual Covid boosters following third shot (CNBC)
• Economy:
  • Mortgage delinquencies hit pandemic low in Q2 (Bloomberg)
• Washington:
  • Biden administration says it is appropriate for extended jobless benefits to expire as scheduled (Bloomberg, The Hill)
• Commodities:
  • Bloomberg Commodity Index down 5% so far in August and heading for worst month since pandemic began (Bloomberg)
• Corporate:
  • Amazon planning to open large retail locations (WSJ)

 

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Charts of the day:

 

First – the S&P 500 is down less than 2% from the highs and is in the exact position it has seen several times since April.

We are back at the 50 day moving average.  This has stopped every decline since April.  Let’s see if we just stop here and move higher yet again.  It seems the Fed is already sending a message about a pivot possibly next week at the Jackson Hole meeting.  Economic weakness, Afghanistan, all play into the taper off the table message as a potential catalyst for markets…..

 

Another potential positive for markets is the slow melt down in sentiment from the dumb money confidence indicator.  The sideways grind has really turned investors cautious.  Perhaps we are seeing one of those sideways corrections before another rise….again, timed near the Jackson Hole meeting..

Sentimentrader.com

 

Yet – even if this is the second year of a new bull market – you can see that volatility always increases in the 2^nd year.  The drawdown ranges from -6.5% to -17%.  We have not seen anything close to 6% drawdowns yet.  So, keep that in mind.

 

Strategas

Wow…..Look at the chart of lumber.  At one point it was up 130% this year, and now down 30%.

 

Michael Batnick

 

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Quote of the day

“It’s amazing how intelligent it is to spend some time just sitting. A lot of people are way too active.”

 

— Charlie Munger