E Market Briefing For Wednesday, September 2

The propensity of intensity - is amazing in the overly-exploited super-cap stocks. I realize we've addressed this behavior frequently, and it has been a proper backdrop to 'not fight the trend' and 'not fight the Fed'. At the same time this behavior persists, it has had mixed results when it comes to the broad list, which appropriately lags.  

 (Not underestimating durability of trend-in-force; just keeping a skeptical eye open.) 

At the same time the S&P 'worry wall' has not just been climbed, but surmounted by the handful of leaders, and that is increasingly like what upside capitulation looks like of course. However, recognizing that (I presume) would explain why analysts are at pains to discuss how well many stocks could do if the economy reopens more.    

Sure; that's almost the only way to get sufficient participation to levitate the Averages which otherwise are not only stretched, but the limited correlation with the VIX tends to hint at concerns among traders that the S&P run is very long-in-the-tooth. (VIX)

Executive Summary:  

  • Record close for the S&P and the Nasdaq, driven by the usual suspects.
  • Only a solution to Covid-19 would enable 'convincing' optimism about opening and thus broadening the participation in a serious way.
  • I don't disagree with the idea that the S&P has legs, I've said that since March lows were nailed, but I do express concern that so many technicians or experts doubting the move all the way up 'now' can see how S&P works higher.
  • All that means is the sensitivity to the Fed's shift to inflation targeting is key to the implications of 'stretching' the upside, but the Fed won't be oblivious to runaway inflation (although that's something to focus on down-the-road).
  • The Fed has twice thrown cold-water on things, and I do agree (say it often) that slightly higher back-end rate firming would be positive not negative, as it would be affirming better business conditions, not merely surviving the pandemic.
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