S&P 500 Index September 2020

Navigating the Waves

There are waves of uncertainty circulating the news cycle every day. Presidential election, economy, recession, recovery, Fed policy, housing, riots, coronavirus, vaccinations and it gives everyone a headache. It is tough to get clarity on these matters these days and the stock has certainly reflected this sentiment these past three weeks. Many are calling for a crash in the coming months which tells me something else will happen as markets rarely follow consensus.

The S&P 500 has been twisting its way lower all month which has left the technicals with a clouded picture. A large correction on the horizon or just another pullback in a larger uptrend? There may have been some clarity in the closing hours of trading this week. However, we will need some positive follow-thru on Monday.

Let’s examine the chart below for some signals.

  1. The momentum indicators at the bottom of the chart are hooking higher in a sign the downward oversold slide is abating.
  2. Thursday’s low tapped the 61.8% Fibonacci retracement from the June low and held into the weekly close. This is a deep retracement but if it holds that would mean new highs in the coming weeks. However, a break of this level next week would warn that a larger degree correction is underway. This level will be one to watch next week (3202).
  3. There is a falling wedge pattern (white contracting lines) which was broken to the upside on Friday’s rally. A close above Wednesday’s high would likely confirm the pattern is broken and that a breakout is underway.

Bulls appeared to have the upper hand on Friday so let’s see if they carry the positive momentum into next week. Another consideration is that a new stimulus package may be negotiated in the coming days which would be a lift to consumers that are still without a paycheck – positive development, for sure. Also, the first Presidential debate is on Tuesday and Wednesday is the end of Q3 where fund managers re-balance their books (usually bullish).

Chart of the Week!

Statista Federal Coronavirus Spending

Economic & Central Banking Snippets 

  • There were 1.3 million single-family homes for sale at the end of July, marking the lowest count for any July in data going back to 1982. The pandemic has aggravated the housing market’s longstanding lack of supply, creating a historic shortage of homes for sale. (WSJ)
  • New home sales in August totaled 1.011mm which is the highest level since 2006. Inventory remains low at just 3.3 months which the lowest since 1963. Demand has been highest for homes priced below $300k.
  • The Fed’s balance sheet is back over $7 Trillion and should now be steadily growing again with its $120b of monthly purchases in addition to other asset buys, including corporate bonds. (Boock Report)

Macro Snippets

  • Congress is preparing a $2.4T coronavirus relief package, however, the terms are not solidified. The bill would include enhanced unemployment insurance, direct payments to Americans, Paycheck Protection Program small-business loan funding, and aid to airlines, among other provisions.
US Debt since 1900 (WSJ)
  • Novavax has begun the late-stage Phase 3 study of its COVID-19 vaccine candidate in the U.K. with 10,000 individuals. The company is reportedly in talks with the EU to provide at least 100 million doses, which would make it the seventh coronavirus vaccine in the bloc’s portfolio. (Investopedia)
  • Many U.S. hotels will only be able to last six more months at current projected revenue and occupancy levels without any more government relief. This statistic comes from a new survey by the American Hotel & Lodging Association (AHLA) conducted September 14-16 with more than 1,000 respondents. The U.S. hotel industry occupancy was 48.6% in August, a record low for the month, according to STR. This of course means it gets harder to repay debts. Mortgage-backed securities market analyst Trepp said the percentage of hotel loans that are 30 or more days delinquent was 23.4% as of July 2020, up from 1.34% at the end of 2019.
  • So far in 2020, IPOs of new blank-check companies have raised $41.2 billion, handily breaking last year’s haul of $13.5 billion, which was then a record, according to Dealogic. Such companies, also called special-purpose acquisition companies, or SPACs, have come under the microscope at the Securities and Exchange Commission.
  • Coronavirus cases have come down in the U.S. but are beginning to rise overseas in Spain, France and the United Kingdom.

That is all for now and thank you for being a subscriber!

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Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.