Markets: It’s August, but it’s also Covid. Normal August industrial flows are very confusing through the delta variant.
A third but still important complication: authoritarian action in China leads some to review the value of the Chinese call for raw fabrics and the valuation of its entire market.
At some point, this is a general August: usually low volume, followed by brief periods of downward volatility.
Many were alarmed when the Cboe Volatility Index (VIX) hit nearly 25 on Thursday morning, but that’s just because volatility is abnormally low, with only a few daily 1% movements in the S.
It is typical for the VIX to fire at least once, and several times, in August and September, and even in October. It was 25 at the same time last year and reached quarantine in October:
VIX: August-October. peaks 2020 41 2019 24. 8 2018 28. 8
The months of August to September are strong for defensive sectors such as customer commodities, healthcare, utilities and weak for cyclical sectors such as energy, fabrics and commercial products, and “less positive” for technology, according to BofA Securities.
So far, that is precisely what is happening.
On a level, it’s not a general August at all.
The main driving force of the marketplaceplace (the story of reopening) is being re-evaluated. Marketplaceplace is forced to review the value of expansion customers due to the delta variant.
As a result, cyclical sectors to the reopening story (energy, materials, industry, travel/leisure) are affected this week:
Energy this week: Chevron: -8% EOG Resources: -6% Hess -10% Cabot Oil -8%
Industrial Products/Materials This Week: Deere: -6% United Rentals: -6% Caterpillar -6. 5% Freeport-McMoRan: -15% Cleveland-Cliffs: -10%
Airlines this week: United: Down 6% U. S. U. S. : Delta Down 6%: Down 5%
The broader market remains due to continued rotation towards defensive stocks (healthcare, commodities, utilities) and technology, where several mega-capitalized stocks are reaching new highs.
This Week’s Basic Consumption: Costco: Up 1. 4% Pepsi: Up 1. 7% Kimberly-Clark Up 1. 8% Procter
Health Care This Week: Abbott: 2% Increase HCA: 1. 5% Increase United Health 1% Increase Bristol-Meyers: 1. 7% Increase
Heights of New Technology: Cisco Microsoft Adobe Juniper Networks
With the fragility of the markets, some believe that the Fed has become very vital as a wild card. Markets are comfortable with an imaginable announcement in September of a relay schedule, with a cut starting at the end of the year and ending in the middle of next year, and rate hikes will begin thereafter.
But if this were to be replaced suddenly, markets could go into a dizzying position, unable to cope with either the slow relief and rate hikes or the delta variant. A sudden move towards a higher-type position is traditionally the big killer of bull markets.
Traders are under pressure that the Fed wants to conscientiously manage its message: if it doesn’t and rates rise, generation will sell significantly and what is now a modest 2% correction will temporarily turn into a 10% drop.
What’s the biggest problem? Both are at stake, but the top believes the delta is the greater of the two risks, as the effect of the delta variant is much less predictable than the Fed’s likely peak trajectory.
Bulls insist that once it has gained reminders, economic activity will resume at full throttle.
But there will be several months in which the final outcome is uncertain. Until then, it’s like the death of a thousand cuts.
“The worse the delta gets, the more likely it is that relief will start later than before,” Alec Young of Tactical Alpha told me.
“Either you’ll see the delta ease and the Fed start shrinking, or the delta will come out and the Fed’s schedule could change,” he added. “Investors would rather deal with a well-telegraphed reduction than a delta that is expanding unsatisfactory and sinking the world economy. “
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