Market Briefing For Thursday, August 20

Health heaviness - holds the Fed to a defensive stance while they express concern indirectly about systemic stability, and even higher yields 'pulling' policy shifts later in the course of developments, or sort of hinted-at by their oblique comments.  

The Fed characterized the extraordinary uncertainty, less business improvement (no surprise), more stimulus needed (obviously), and there remains question as to Fed's warnings (reiterated to a degree) are getting more market attention..at these levels?  

Executive summary:

• Buybacks will help limit the downside; as internal corrections continue (weeks now) for the broad list, while the 'super-caps' were only cracking a tiny bit.

• Intel (INTC) announced a buyback after the close, and they have made enough buys (like MobilEye and Altera) that they can consolidate and eventually focus well on areas beyond semiconductors, which they have largely conceded to others.

• Speaking of; Nvidia (NVDA) reported ok numbers but sold-off sharply thereafter.

• All the talk about 5G and Apple's (AAPL) role or China or opportunities is dancing around the heart of the issue: and that is Apple is the single largest S&P influence;

• Markets are elevated, fundamentals aren't matched-up with the times, but that is not what this is about.

• This remains about 'market structure' (liquidity and FOMO) noted since March.

• So while I allow (and expect) more shakeout efforts, I am not anticipating a huge fiasco, although common sense says to be a bit cautious time time of year.

• Besides seasonality, you have a horrid political backdrop amid a pandemic, and you do not even have 'truly promising' treatments of Covid as of yet (which by the way suggests those who come-up with valid solutions will do even better).

• From the start I've suggested we need a treatment (ideally an antiviral cocktail or even just a pill) more than a vaccine, and that remains the case.

• One such candidate is the Treatment IND filed today (as suspected) by Sorrento (SRNE) for STI-1499, this is an antibody requiring low doses they say, and a late report indicates Rio de Janeiro will administer STI-1499 to patients. 

• STI-1499 is not a test (it's a treatment) and of course we need both treatments and tests, but there will be many competing tests (also plenty of room for all) at the same time as we don't have really compelling treatments 'yet'.

• Will this be a game-changer (?), sure if it works; we won't know that until some time yet; plus both Merck (MRK) and Sorrento have differing approaches to a 'pill'.

• Gilead (GILD) and Regeneron (REGN) both had disappointments with new drug 'apps', Gilead's technical patterns suggests it can work a bit lower, not new highs now.

• The FOMC Minutes affirmed the Fed's concerns about how long stimulus and/or their expansive policy can endure (translation: back to Covid, we need treatment options and enough of a handle on it so that people will resume lives more).

• While the market absorbed this, so far it appears to be little more than a pullback in the wake of record S&P highs, but the general idea is that resistance around S&P 3400 should restrain upside other than knee-jerk thrusts for now.

Sorrento is one circus, and every day seems to bring more drama. If it doesn't work of course the beat goes on, if it does work in Brazil before the US Trial even starts, well SRNE will soar anew, while bulls & bears of course again fight with contradictory anxiety-producing comments, instead of just working on the relief of humanity. Today I spoke with a friend in 'burning' Northern California, who owns a nice seaside condo I've visited in Puerto Vallarta. Nobody is going there now, but he tells me Mexico is a big mess beyond what the media says, people almost dropping in the streets, totally desperate for help. Whether it's Sorrento's drug or others, I of course pray they get relief. It's bad enough here in Florida, or Texas, both with first-rate hospitals.    

In-sum: Technology is what has worked, and probably dominates the future as well. It's still Apple, Amazon (AMZN) and Google (GOOGL) that determines where this market goes, for the big Indexes. Broadening-out won't be sufficient yet to offset any liquidations that might occur in the big-cap stocks, so institutions persist in doing the best they can to avoid having to lighten-up on those, because of the impact on the broader market. It's become a 'mask' over the market we noted all year; but is only more recently being acknowledged or recognized by the majority.  

Of course the smaller stocks move a bit independently; but not enthusiastically now. And the biotechs are news-dependent, or even rumor and gossip sensitive (not new but a difficult aspect of trading such stocks as contrasted to merely owning sprinkling of a few that 'might' achieve something, and leave it at that).  

This latter sector may actually control the big Indexes, because the Fed's concerns in a sense would be relieved by a world that can resume more-normal business activity and concurrently do so both with 'nearly-immediate' testing and a pill not just a vaccine or treatment when one is fairly sick, hence rendering Covid to a 'chronic' problem as other diseases and infection risks are too. The trouble is while we're optimistic about a solution to these aspects, none of it is 'refined' or on the market yet. But is coming; and at least Sorrento formerly filed it's Treatment IND today, although the timings of course 'sub-optimal', given the confusion over the firing of the CFO (still not detailed as to 'why', but there are various possibilities we speculated on last night).   

Bottom-line: In the last couple days all the so-called 'bedrock' big-box stores, all did report good numbers this week. And a couple majors like Intel & Apple planning for new buybacks is part of this, while there are jitters visible from the FOMC, as tend to counter the excessive optimism of some analysts on 'the Street'.  

Pain on the other retailers and so on is not simply the ideas that once we exit Covid, all will go back to normal, but rather the concern that if we don't have better times (I'd ignore politicians and analysts on this one, and watch medical science) consumer's ability to 'carry-on' as they largely have will increasingly diminish over time.  

The Fed cannot print money like crazy forever, but they better do so as the way this pandemic is being handled, it is still a market weighted heavily towards technology or online retail, but also people become less resilient to this without visible progress. I'm a bit disappointed we don't hear more about reorganizing 'school classes into groups' like I mentioned using Denmark as the example, because that is at least one solution that can minimize the necessary changes and quell some of the anxiety. But they're seemingly in such confusion they can't find people to organize such structures? In a few school districts they have, but not most.  

Generally everything else is artificial or fueled by stimulus (and the segments that do have viable incomes without Government dependence). The market focuses on the daily news and deals (like Oracle (ORCL) after TikTok now), and avoids confronting the basic need for a Covid solution, at least it's tamed (loss of optimism?) versus earlier.