Market Briefing For Tuesday, July 7

A post-Covid world - has to be contemplated, even as the 'Summer Dog Days' (or trading-range 'daze') may loom anytime 'soon', with surprise moves possible, if not probable, due to the extent of the move we'd had, the evolution of relations with China, the geopolitical risks associated with that, and of course 'Elections'.

At this point, Joe Biden is awakened by his poll numbers, which keep gaining. So of course we don't know how it will all go, but here's an early speculation if this is continuing as it's 'trending'. Biden might win by more than 10 million votes (again it has nothing to do with my opinion but what reality suggests), with sea-change shifts in attitude. That's where President Trump needed (or still could) shift more to a positive than negative political stance, and focus on balance and reform that more openly addressed a free society with tolerance and increased empathy.

The Election is encroaching, and the S&P won't be moved 'only' by the Fed forever, or by reaction to COVID-19.

So again, why would the stock market not be bothered? You likely will have very big economic expansions coming, much as occurred after World War 1, Spanish Flu, a period of recession, and then flood the Country with growth initiatives. So if that's coming, even with a Biden Administration, that might be important (with a caveat that an absence of tax cuts or more capital repatriation will be less urgent since we already have had that take place by most big companies). What needs to 'not' happen is more big wealthy PPP recipients (that is so fowl, legit or not, as there was no real criteria, and that will not go over well with voters incidentally).

Anyway it shows Government is not a good allocator of capital, and I suspect the Democrats might have done similarly, but that's not the point. A golf club putting in a wine cellar, or Planet Hollywood buying an Italian Restaurant chain with tax money is not exactly Government money getting to people who need it most, as was the 'plan'. No wonder they tried to keep it invisible for so long. Let's help the small chains, mom-and-pop businesses and restaurants, not mostly big guys.

Executive summary:

• The stock market proceeds higher, suggesting June's S&P 'trading range' was a consolidation prior to venturing higher, rather than collapsing.

• Markets may not be that favorable, but for now stocks are doing well and 'if' we get some broadening-out that will be helpful (especially if Oil's included).

• Small-caps and even micro-caps tend to do well in late stages of advances, although I'm hopeful we're not having a 'melt-up' quite yet.

• A melt-up wouldn't be bullish in the longer-term, actually a progressive grind would be, with moderate gains by the smaller speculative stocks.

• As to a 'melt-up' in the big-caps (like Tesla (TSLA) or Facebook (FB), having excessive or strong gains), I think that story is different, more a reflection of liquidity and a requirement by the biggest players that they need those active leaders.

• The VIX (VIX) did not drop along with the S&P gaining; which sort of is a warning of at least some sort of shakeout coming along fairly soon, likely not yet.

• The leadership of Chinese stocks over the holiday weekend set-the-stage, and you are getting some sense of reduced tensions between China and India, but overall industrials and materials are not acting bad.

• Overall the market is not dangerously extended, and I have argued that in a consistent way since calling the March down-up reversal, that matters since so many technicians fought this market all the way up and now capitulate.

• Their capitulation helps get a potential short-term blow-off, especially notable in the technology narrow-breadth leadership which is overstated a bit, and of course that's your Tesla, Amazon (AMZN) and so on (it means expensive even if no big decline occurs, it's a form of near-parabolic extensions that are risky).

• Concurrently the economy 'seems' cautious with rolling re-openings and for that matter re-closings, very few stocks are declining, many are exhausting and consolidating.

• All this remains reflective of a bifurcated market not a classic speculative bubble-mania top, because it's not a big top, and I have argued that for months, the beat goes on, although the nation's mood is newly unstable.

• Note that Becton Dickinson (BDX) has a new test; Merck (MRK) may be closer to a 'pill' therapeutic; and infrared demand remains strong; so whether it's Flir (FLIR) or more broadly (many diverse customers) LightPath (LPTH).

• I cannot answer questions two members posed about new lenses relating to autopilot systems using LiDar or Volvo, as I don't know the answer (have not heard other than what has already been stated and mentioned months ago), yes I know Luminar (private so far) has involvement with Volvo.

• I do know companies are moving that way with relation to Luminar, and that of course is LiDar; and I do know that LightPath has mentioned LiDar at the last presentation at Needham in May; I do not know the extent of Luminar's customer relationship with LightPath, (that was the specific question), while I believe there's a continuing association as 'colleagues' at least.

• Things remain promising for a number of stocks that benefit in the 'COVID-19 world' presently, and irrespective of the S&P chopping around for now as it grinds higher with tinges of blow-off mostly in the handful of 'super-caps'.

• As to politics, if the Election goes for Biden and the Senate flips Democrat, you will probably see a massive boom in the real economy (infrastructure), and you may see some of that expressed in a bipartisan way sooner. 

Meanwhile . . we've covered the prospects for vaccines and the more-urgent therapeutic drugs that will arrest progress of the virus, not to mention the lower mortality rates that, to a degree, validate the point I think President Trump meant to convey, that we'll see lots of illness, but less death.

And we already considered that's the case, just from better awareness of how to address patients, especially if they wind-up in an ICU, from earlier interventions to the cortisone / steroids and plasma therapies, to what may be a mutation to a less-lethal variation of the virus (unless that's just cover for simply the improved ability to cope with the disease).

The economy may have slipped-back in retail, restaurants and tourism, but even with income pressed, the firepower in the system is keeping the economy going, at least somewhat, while the incredible 'flexibility' the Fed gave Blackrock (more or less it's agent to manage interventions in corporate bonds or even stocks) is a debatable topic, but to me it all comes down to a PPT (Plunge Protection Team) set-up in-advance of any systemic issue that might confront markets 'ahead'.

(A controversy surrounds flying these to monitor protests at night for-instance; keeping in-mind this is an escalation of military technology used domestically.)

In-sum: Optimistically we won't have to employ the Plunge Protection Team yet, as there won't be a plunge, at least not at this moment. Pauses to refresh, even corrections, sure depend more on 'perception' of what's just ahead, not valuation itself, though we've made the argument for fundamentals to justify rallies these past few months, based on technology primarily in the 'new normal'.

Also as parts of the economy recover gradually you'll see more borrowers need more time in payments. So no matter how many of us are muddling through this, it is essentially to be aware how many are not. And that's part of the protests that aren't fully appreciated, as I doubt the organizers or agitators (they aren't always the same people, as some protests have legitimacy way beyond others) would in reality be galvanized as they have been if they were busy and working. But there are flaws that require reforms, and to that degree there's a 'sea-change' afoot.

Bottom-line: The sea-change may indeed see a sweep by Biden based on polls. So many of you may not prefer that, but the stock market seems unfazed so far.

Why would that be? Because the market envisions, with the profligate spending we've already seen, that massive infrastructure spending is needed, and that's a big plus for Industrial and other stocks that so far have only modestly lifted. That also is not negative for the security, infrared monitoring or technology stocks, it's just a broadening of participation and investment that would occur.

Conclusion: The 'legendary' Mom's Birthday rallies continues (July 6), and it's an honor that at least one member recalled that after all these years. I should not it often wanes within a few sessions thereafter.