Good morning contrarians!
Stock futures are mixed again this morning. As of 0640, small caps are seeing most of the selling with the Russell 2000 off more than 1%. Dow Industrials are down 0.5% and S&P 500 futures off about 0.3%. But tech is showing signs of life, with the Nasdaq up 0.3%.
Bonds are rallying, with the 10-year yield down to 1.55%. Perhaps most telling, the 2-year has taken a big dip, down to 0.46% from over 0.5% earlier in the overnight session. Crude oil continues to drop, down 3%. So do cryptos, with bitcoin down more than 5% to trade around 56,700.
This sounds an awful lot like ‘risk off’ (tech stocks notwithstanding). Indeed our old friend Covid is rearing its head again this morning. Cases are apparently rising again in the U.S., thought not as much as in European countries.
Austria just went into full lockdown and Germany, where confirmed cases are at an all-time high, is imposing a partial lockdown. This has dampened the bullish spirit from the latest relief rally that was driven by earnings.
It’s worth pointing out that lockdowns are nothing new and the world economy has dealt with them successfully before. Fiscal and monetary stimulus helped a great deal, but the economy has shown itself to be adaptable. More importantly, since March 2020 every Covid-inspired bout of selling was followed by buying and fresh highs.
There isn’t really anything to speak of on the calendar for today, which makes sense seeing how next week is a holiday week (Thanksgiving) in the U.S. Federal Reserve governor Richard Clarida is speaking around noon on global monetary policy coordination. Clarida is seen as occupying the ‘neutral’ ground between hawks and doves on the FOMC so it is worth watching.
Bottom Line
With lack of much else going on, expect the Covid headlines to dominate and the ‘risk off’ mood to perhaps continue a little bit. Longer term it shouldn’t be a source of concern due to reasons mentioned above.
Yesterday’s Bottom Line told there wasn’t much in the way of catalysts but that stocks could move higher just because that’s what often happens in bull markets. The S&P and Nasdaq rallied but Dow Industrials didn’t play along, finishing down about 60 points or 0.2%.
Covid Returns, Again: Daily Contrarian, Nov. 19