It was mostly a pedestrian session that struggled early on to maintain traction on Tuesday. But once it was clear that the rally would hold, reluctant buyers emerged big time to buy into the close. The S&P 500 is well above its 200-day moving average and faces one more hurdle at 3,100.

On Wall Street, buying begets buying, and it’s getting a lot harder to ignore the stock market rally. Although institutions continue to park money into money market accounts, they say money gravitates to where it’s best served. Over the last couple of months, that is not the sidelines.

Market Breadth

Once again, market breadth was firmly bullish, especially for the New York Stock Exchange listings, where the up volume outpaced the down volume by a ratio of 4-to-1.  

Watch crude oil. It continues to march higher and is now a gusher trying to close a huge gap at $40.00.

Value Sectors Building Momentum

With a couple of hours left in trading, the S&P was a hodgepodge of winners and losers. Every sector got some love into the close, although the value theme lifted Materials and Industrials ahead of the pack.

Question of the Week (perhaps the year)

A research paper from the National Bureau of Economic Research (NBER) suggests the nation has two options when COVID-19 cases rebound in the fall and the winter. We can use a targeted or semi-targeted lockdown that limits movement based on age groups. The outcome is we accept more deaths for greater economic activity.

https://www.nber.org/papers/w27102.pdf

• A “semi-targeted” policy would maintain a lower hit to the Gross Domestic Product (GDP) under 10% with an 0.5% mortality
• A total lockdown would mean a 38% hit to the GDP, but mortality at 0.2%

Which of these approaches would you consider a Faustian Deal?

The National Guard Fans Out

The National Guard is fanning out across the country, as reluctant governors reach their limits and try to establish order. It’s unnerving, and, sadly, it has come to this (probably should have happened a lot sooner). I understand some think this should send the market lower, but moving cities back to normalcy is a good thing for the nation. 

Meanwhile, the stock market sees marked economic improvement over the next year. At least sightseers and the locals were taking photos with Guardsmen in Los Angeles before the sun went down.  

Portfolio Approach       

There was no change in our Hotline Model Portfolio yesterday.

Today’s Session

Maybe Wall Street is Wrong

Wall Street’s May ADP estimate was for a loss of 8.75 million, but the actual number was -2.76 million, and prior month was revised from -19.6 million losses to adding 679,000 jobs.

• Small (1-49 Employees) -435,000
• Midsized (50-499 Employees) -722,000
• Large (500 Or More Employees) -1,604,000

Goods-producing Sector -794,000

• Natural Resources & Mining -52,000
• Construction -22,000
• Manufacturing -719,000

Service-providing Sector-1,967,000

• Trade, Transportation & Utilities -826,000
• Information -115,000
• Financial Activities -196,000
• Professional & Business -250,000
• Education & Health -168,000
• Leisure & Hospitality -105,000
• Other Services -307,000

Weaker Dollar

The weaker dollar is also driving multinational stocks, especially in the Industrials and Materials sectors.