E Market Briefing For Thursday, Dec. 17

A waiting game . . . is what the Fed is engaged in for now, and apparently for the next few months, based on the Chairman's reflections that I'll comment on a bit more. Clearly failure of Congress to come-together with a 'relief' package would prompt even more (desperate?) action on the part of the Fed.

As it is, they continue printing money, and essentially contribute to 'real' rates being negative at this point, which while not in-itself endearing to bankers, for sure means companies (like our AT&T (T) with it's heavy debt they're whittling off from the Time Warner acquisition) don't have much worry in terms of carrying costs of their debt.

That allows expectations of keeping the stock market more or less in a 'warm' situation, so you can get shakeouts, or even a correction, but no catastrophe, of course barring an exogenous event, or so-called 'Black Swan', swooping-in to disrupt the dynamics. The grand-scale cyber-attack was a potential terribly disruptive event, but either 'they' have control of it, or are minimizing what has been shared with the public, because so far it's not really influencing markets.

As I noted yesterday, an excess liquidity case is an explanation for the driving of equities higher in the near-term, and that doesn't change just because lots of traders are alert for a decline, or even coveting the prospect of shorting.

In our view they continue fighting the Fed, even as a shakeout is due but we'd prefer listening to the 'messages of the market', which haven't reinforced odds of significant decline. That's been in-part by virtue of internal corrections, with a host of smaller stocks never really recovering to the Summer highs, working off their 'then' extended levels, or now encountering some year-end tax selling too. Some of these will probably do fairly well in January, after such pressures tend to abate.

Notably, while one can argue it's been time to take profits in the 'super-caps', as I like to call the grand-dames of this market, some will continue doing well as unfortunately they often are beneficiaries of the pandemic environment that isn't dissipating, but at the moment is still on the ascent.

It's really cruel to optimistic people that the case levels rise as vaccine hopes prevail (or at least the 'campaign' to convince Americans how worthy they are, and we don't have all the answers on that front, but remain a bit leery for now) .. but that is the situation, as that tech leadership associated with this persists.

And again that (barring shockers), this counters a bearish view. It's not really that simple, though if one means the managers who denied the rally from the March lows (Inger Bottom) for months, well yes, some of them indeed have been putting money to work belatedly, trying to improve a summary of their results for the year or perhaps the 4th Quarter. And typically in the leaders in the expensive categories. Part of why I suspect some of this shifts in 2021.

Executive Summary:

  • A risk is this market is the 'presumption' that vaccines are the cavalry, as every political and health agency is saying so, and we hope so but wary.
  • Part of the wariness is because some of that is 'priced-into' the market, so stocks might be a bit vulnerable 'if' they perceive it's not so smooth.
  • Toughest part of the pandemic is now and the very near-term, although at the same time we must have the 'relief' bill and effective vaccines.
  • An intraday shakeout (muted by the Fed comments) reminds us of what is a focused market on the super-caps, and the ability to shake 'if' they trip.
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