Markets Gear Up For Flood Of Stimulus

On Tuesday, the pendulum of fear shifted strongly to worries of missing out again from the notion the market is at a near-term top. 

It was all about the fiscal stimulus, which could happen this week and again in January or February. There are a lot of potential deal combinations swirling around. However, I find it interesting that Sen. McConnell would be cool with a deal that does not include liability coverage for small businesses.

Moreover, I find it odd Democrats would go along with a deal that does not include individual payments to households. 

There could be limited funds for municipalities, which have been a major roadblock.  Republicans are loathed to bail out states with bloated budgets and billions in unfunded pensions.

Perhaps, in a phone call, Sen. McConnell can cut a deal with President-Elect Joe Biden.

Bacchus Would Blush

The only thing Wall Street loves more than a slug of money is back-to-back slugs of money.  Actually, we could see back-to-back to back-to-back slugs of money:

• Federal Reserve (today)
• Federal Government Stimulus (Friday)
• Federal Government Stimulus (January)
• Federal Government Infrastructure (February)

We are surely going to be drunk, as these punch bowls will run over, and like any great party, there will be a hangover - I have no clue when that happens. I know a lot of brilliant folks who have missed another great stock rally and are more concerned about the morning after that could come years after.

Message of the Market

Market breadth was extremely bullish, although we are stuck at the number of S&P 500 names in the plus column for the year. The rotation and re-rotation paces are dizzying, but also very exciting.

Each S&P 500 sector was higher on the day, led by Energy and Utilities. The Energy rally continues to marvel. However, the still stealthy rally in Industrials and Materials are a sign of a strong domestic economy. Perhaps the aforementioned infrastructure deal (I will believe it when I see it, and I mean it A. it has to be approved and B. it has to be spent on crumbling bridges).

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Tech Pulled by Horses

For all the talk about rotation and big bets on so-called value stocks, we are continuously reminded about the powerhouses in Technology. Speculation on Apple (AAPL) iPhone demand has a that chart in a perfect cup-and-handle formation. And chip stocks are leading like a team of Clydesdales. There is some resistance here, but the next leg higher could mean another 5-10% in a relatively straight shot. Watch the advance-decline line closely for the rest of the week.

To see the chart, click here.

Portfolio Approach

The Hotline Model Portfolio is back down to 5%.

Today’s Session

Today, Jerome Powell & Co get to make it rain, but there are issues and perhaps even contradictions to contend with. 

Powell has been haranguing Congress to get its act together and to pass the next stimulus – if they do, where does that leave the Fed?

He has focused on the vaccine, and now that it’s here, how will that influence today’s decision?

Powell has resisted negative interest rates - and yet, many nations around the world have seen rates move into the negative column. How does he stay the course without joining his compadres?

He appeased a needy Wall Street after they hit the panic button in the fourth quarter of 2018.  In a way, that Wall Street tantrum might have moved Powell toward his epiphany on inflation and wages (the latter does not automatically create the former) and down the road of a social justice warrior.

It’s not that Wall Street gives a hoot about any kind of justice, but if it means keeping rates lower for longer, then put them down as a ‘yes.’

Global Central Banks & Money Printing

It is remarkable where Wall Street thought the breaking point would be ten years ago, as the Fed began a series of experiments that included old tricks and new ways of alchemy to print money out of thin air.

I have no idea where the breaking point is or if we already crossed it – we don’t know. However, the number is going to be pushed so much higher from the current crisis, or the next, or perhaps the one after that. 

To see the chart, click here.

Running out of Steam

This morning chatter has climbed to its highest level since the summer that additional fiscal stimulus is imminent. The economic nudges make it more difficult for lawmakers in Congress to continue to sit on the fence.

Retail Sales

November retail sales came in below consensus and October was revised from a 0.3% gain to 0.1 decline. The 1.1% decline was the largest since April.

To see the chart, click here.

Part of the decline was the fact retail sales were already at a torrid pace and there is a degree driven by exogenous factors like government restrictions rather than organic demand or lack of demand.  That being said year-to-year changes bode well for a number of industries.