Market Briefing for Wednesday, June 24

Empathy and respect the focus (not too Emersonian)

Executive summary:

• S&P hangs-on by a thread, as broad market continues internal correction.

• Technical work can be viewed either way, with a bias for S&P drop 'soon'.

• Sec'y. Mnuchin says Congress may pass new fiscal stimulus bill in July.

• Conspiracy theories, especially politicizing COVID-19, allow believers to lay claim to a secret truth not limited by one's level of wealth or education (also known as nonsense, but can make one feel a sense of some control).

• Twisted internal logic, whether in markets or politics, can be complicated, and in a bifurcated stock market, can easily result in false assumptions.

• People who feel their beliefs are being challenged, because it's tough times now, can become even more entrenched in their views and that's risky for a society, political outcomes, or in this case potential market spillover effect.

• This has resulted in fearmongering and ridiculing across the board of rising concerns and instability.

• It's not merely about coronavirus or protesting that morphed into something else, but evolves into relating to politics, markets; and that raises anxiety.

• Deep-rooted beliefs without historical tradition and comprehension, tend to be dangerous, diminish levels of trust, and can lead to a broad hysteria, you see that in the 'permabear' and 'permabull' types that are overly confident of their views or even righteousness, then they don't get their way for long.

• The market doesn't like uncertainty and it disdains hysteria.  

Controversy dominated markets - throughout these last 3 months since we'd identified a capitulation low of the "WuFlu" decline beginning more than a month earlier, well before the disease term 'COVID-19' existed. Now, with some money managers resisting the upside move all along, along with those only recently so inclined to commit money into the market, debate rages as to whether or not we have a top developing, or for that matter whether a momentum peak is here.  

For the most part the answer is neither accurately describes this market for now at least. Why? Because the momentum peak (and broad market internal high for that matter) was 'early' in June as suggested then. That's not because it was our forecast, though it was (and we've exceeded our S&P target), but because with momentum peaking, and stocks correcting on a rotating basis during this time, it seems that the most the pundits or technicians screaming top now can proclaim (even if S&P were to really reverse) would be that the 'super-cap' (FANG types), and a handful of similar issues that dominated the volume this month, topped.  

It matters because: first of all we don't have that condition (but it looms soon), second it's an overly simplistic way of viewing the market presently (because no broad-based participation has existed since early this month), and third, there are external influences that aren't exactly 'black swans', but conceivably they do contribute to doubt, to great controversy, and even to damaging harmony within groups that 'think' they're on the same page.  

That extends beyond markets into the slew of political (or even health concerns being sadly politicized), as well as social discord, that we all know about. How it manifests can roil conventional assumptions about how the market will perform. It has already caused trimming of positions while most debate superficial issues such as whether the S&P is topping or whether social stocks benefiting from COVID-19 are too high (the Zooms of the world and so on). What this mostly ignores is a prospect that we're in an internal correction, and that providing some good news (and like at the beginning of the year this hinges on: the Fed, COVID-19, and maybe China, as last night's drama as I prepared that evening's report, brought forth) .. providing good news would be a major relief for this market.  

Seriously there are concerns that transcend individual 'opinions' about the virus, about the President's seeming alternating encouragement of ignoring protocols his own Administration has established in the public health arena (it is very much a traditional American characteristic to disdain discipline and do as one wishes, at the same time when it disrespects the public good and common health there's a precedent for mandating exactly what's been done, hence the obvious conflict).  

In-sum: of course 'the' virus isn't judging debate on any of the issues, and the President seems to want to be optimistic (we all do), but reality might bite even with best intentions. It's Summer, the virus is here in the Sunbelt more than the North (of course that's opposite of what many thought would occur), travel is nonexistent for the most part, profitability is mixed and nothing is very certain aside the Fed's friendly policy; and the 'bank stress tests' are almost upon us.  

Bottom-line: it's the 'bank stress tests' that are more concerning at the moment than the latest virus news, the President's alternating remarks on testing or the trend of disease, or for that matter the tension with China that may be greater it seems than the slight-of-hand tweets 'clarifying' Navarro's statements. (Note he elaborated on the January meeting with the Chinese, and accused them more or less of spreading the virus by not telling us in Washington then, and that's the real story that is difficult for the Administration, but also difficult for China.)  

So it's not about conspiracy but consistency, and realization that most situations faced this year are dynamic, with some people finding some solace perhaps in a posture that somehow seems to convey a degree of control. Influencing these issues is tricky, and basically unacceptable, no matter what posture one takes. In the middle of this, you have those disruptive elements taking advantage of a reasonably legitimate goal of equality under the law, of a goal for equal starts in life, by transposing that into some sort of entitlement for stature in life, based on removing statues (and causing turmoil) that reflects our history, which is our US culture, as we are all a shared-composition of experiences that preceded.  

Sure, this cannot continue, and though many who perpetuate conflict have little idea of what egalitarianism taken to extreme can result in, I'm pretty sure some funding the conflicts, know very well. And it matters here, because besides the endurance of COVID-19 impacting markets in various ways, embrace of radicalism, especially without studying the history of certain movements, also can hit market behavior, in a different and more enduring way. Our overall lives too. 

Perhaps certain media and even (or especially) politicians should grasp that too, and it really has little to do with favoring or disavowing Trump's approach. More below just to wrap this us for tonight, with the market not likely to instantly tank, even if a couple pundits proclaim that. Though sure, it's thin and easily swung if anything comes along, like you saw this time last night.