Stocks fly around in turbulence - partially related to Quarterly Expiration; while also leaving investors in doubt about near-term stability prospects. Perhaps they may just relax a bit; after all this is the stock market, and it's a bifurcated one at that. It's not at all like taking a trip on a  Boeing 737 Max soon (mis-renamed the 737-8); where most will ponder every dip or lift during turbulence pondering needlessly whether it's going to impact the aircraft's angle-of-attack; when it's really only takeoff that's concerning.

Speaking of takeoff; the new trading week historically can be vulnerable; but not in a straight line. We'll be between the Jewish holidays; as an old adage comes into play: 'Sell on Rosh Hashanah, buy on Yom Kippur' which really isn't particular relevant. It's less so this year given everyone is working, playing and praying from home primarily; and even the firms like JP Morgan and Goldman Sachs that tried bringing traders to their offices were compelled to reverse that trend with immediate new Covid cases.  

Sure, softness related to an 'old saw' about the Jewish holidays had some merit years ago when most traders - of any faith - would use the holidays as an excuse to take off a day or two, even if they were Irishmen working the NY Floor. It also just so happens September seasonally is often the year's weakest month, and down a majority of the time. When it's not, October becomes more risky. This time, it's already defensive led by 'super-cap' corrections. And one of the most contested Elections in U.S. history.  

Executive summary:

• With volatility and chop related to Quarterly Expiration behind; markets can focus on the same backdrop issues, which generally do not have clear prospects, other than the Fed continuing to inject massive liquidity; plus now a SCOTUS vacancy;

• The duration of S&P 'chop' within what I call the 'cushion' above another leg down is surrendering; so yes we should get an Index-biased move that's defensive; but a lot of individual stocks that internally already corrected, may do relatively well;

• Note that Nasdaq and NDX are already breaking below range; well after we'd indicated a blow-off (overshoot) peak more than two weeks ago; sell warnings as now appear are way after the fact; though we likely have more decline ahead;

• Implications are a trend of growth giving way to value more so; and that's a topic I have already addressed; as cyclicals and value get favored over absurd leaders; but the absurd leaders with the dominant market 'cap' in this case set the tone;

• That 'tone' can actually give an impression of 'lost conviction' about the economy; contrasted with what should be diminished optimism related to the pandemic;

• So it's not the storyline behind this as much as simply the transition which might be from: 'correction of the small under-cover of the big-caps'; to a 'rally of selected small-caps masked by selling in the big-caps'; ponder that a bit;

• Worries about the double levels of bank stress tests emphasize more needs to be done; so whether that's the banks or a fiscal stimulus; the answer likely is both;

• Default and failure damage is not diminished; people are sort of 'resigned' to the ongoing malaise and economic 'circling'; almost like that aircraft in turbulence;

• That the Fed had to backstop commercial paper or municipal markets are very revealing of the concerns about systemic risk or similar shocks out there;

• Banks were in better shape because of Dodd-Frank; and really shouldn't be in a share-buyback mode essentially helped by taxpayers;

• Speaking of taxes; that's a big consideration looking to 2021; depending not only on the Presidential race, but how the Congressional picture shapes-up;

• A move to anything like a doubling of Capital Gains taxes would be very relevant even if Wall Street tries to minimize that concern by noting institutions don't have to pay capital gains taxes (well some of that might change; transaction tax too);

• Many Americans invest or trade within retirement accounts; hence there's no tax issue on those until (depending on which type of IRA) retirement tax rates (lower for most people if actually retired at that point in life as taxed at ordinary rates);

• Nevertheless there is considerable uncertainty and a degree of hesitation about new long-term investments pending more clarity on where that will land; and on top of that the awareness that political campaigns promoting higher taxes don't play well with the electorate, even if the need for more funding is evident;

• Heaviest part of tax-fears will be MORE long-term sale of stocks or even property if they're concerned about political upheaval leading to higher tax treatments; but if there is a big tax debate looming by the time it's legislated it might impact 2022; and so actions taken this year would be fear of retroactivity to Jan. of 2021;

• Speaking of; the Fall is often a seasonally soft time because little 'fresh money' or what is called seasonal-reinvestment funds flow in; though this year is ... different;

• The pandemic dominates everything here; as an effective therapeutic could be essentially a drug treatment (some will say 'cure') that changes everything; fast;

• I have avoided much talk about TikTok as that's not yet panned-out; however for sure there is likely Chinese retribution on American tech stocks after this; but too soon to determine (they are more reliant on our chips and some software; but a majority of our hardware is still assembled 'in' China; so there's that issue);

• Finally, there is more turbulence from the (just reported) passing of RBG; who fought cancer for years and declined pressures to resign when Obama was in Office; as many of her supporters wanted her to let a Democrat appoint her successor.

In sum: tension on the tape has been evident throughout the Expiration week; and now we anticipate more pressure; although that was the post-Expiration expectation even before this week with regard to someone lateral behavior and a new leg down.