New Jersey Governor Phil Murphy announced the delay of indoor dining in a tweet, which was supposed to happen on Thursday. It might have derailed the market on a different day, but after a lull, major indices got a burst of energy into the close.

Big Tide Lifts All Ships

Yesterday, all eleven sectors were higher on the day with Industrials leading the way, paced by the biggest winner of the session, Boeing (BA).  Airlines were higher as well, after Goldman Sachs (GS) made positive comments on the industry, pushing back their expected recovery date.

S&P 500 Index	+1.47%
Communication Services XLC	+1.85%
Consumer Discretionary XLY	+1.90%
Consumer Staples XLP	+1.89%
Energy XLE	+1.34%
Financials XLF	+1.11%
Health Care XLV	+0.90%
Industrials XLI	+3.28%
Materials XLB	+1.95%
Real Estate XLRE	+1.72%
Technology XLK	+1.09%
Utilities XLU	+1.88%

Lopsided Year

S&P 500 Winners:

• 123 average gain: +16.30%
• The top 20 average gain: +45.62%

S&P 500 Losers:

• 382 average loss: -22.46%
• The bottom 20 losers average decline: -59.10%

Small Caps Want to Rally

The result was an extraordinarily strong session that saw a tide lift all ships. The Russell 2000 (+3.08%) led the way. I am still not convinced about entering the fray. However, there have been sporadic signs the index is ready to put in a sustained rally:

• Russell 2000: +3.08%
• Dow Jones: +2.32%
• Crude Oil: +2.94%
• S&P 500: +1.47%
• NASDAQ: +1.20%

The Russell held above its 50-day moving average, which has been a buy signal for stocks and indices.

Russell 2000

What Are the Canaries Saying?

Bond yields were unchanged. While that is a source of frustration for me, the spread between the 10and 2-year Treasury Yield continues to widen. The Yield Curve is impressive if you want the Fed to remain accommodative to infinity and beyond.

The canaries in the coal mine are underscoring a weak economy, but one that will not shift into a recession over the next 18 months. That takes a so-called W-shaped recovery (double-dip recession).

Yield Curve

Light Volume

The market breadth was sufficiently bullish, but light volume continues to be an issue. The up to down volume continues to be very bullish, especially on the New York Stock Exchange.

Breadth	NYSE	NASDAQ
Advancing	2,275	2,252
Declining	716	1,131
52 Week High	46	84
52 Week Low	2	21
Up Volume	3.90B	3.16B
Down Volume	621.07M	1.17B

After the close, it was busy with earnings releases and other business news.

Micron (MU), the largest maker of memory chips in the United States, posted financial results that crushed consensus.

• Revenue: $5.44 billion, the Street: $5.31 billion
• Earnings: $0.82, the Street: $.77
• Guidance: $1.15, the Street: $0.80

Xilinx (XLNX) raided the mid-point of the prior guidance.

Lululemon (LULU) announced the purchase of Mirror, the fancy exercise tool you probably have seen on TV. The interactive model looks like Peloton (PTON), which has been a coronavirus-lockdown winner.

Portfolio Approach

We issued profit alerts on two positions in the Hotline Model Portfolio and put on two new positions leveling cash at 10%.

Powell’s Balancing Act

Fed Chairman Jerome ‘Jay’ Powell continues to walk a fine line where he commends actions taken by the Federal Reserve and Federal Government but implores Congress to do even more.  While outlining all the tools created out of thin air that saved the economy, he is also promising that unlike Pandora, he can put them back into the (tool) box when the coast is clear.

The coast will not be cleared until there is greater confidence that Covid-19 is under control enough for society to regain higher levels of confidence.  This is not the same as saying there must be a vaccine, but close, as the double edge sword of greater economic activity means greater coronavirus cases.   He will be asked about asset bubbles and how the Fed makes income inequality worse and the reelection of President Trump easier.

His mission, however, is to turn the tables and pressure Congress to take their finger away from the pause button and keep the money fiscal aid flowing.

Coronavirus and CARES Act
Chair Jerome H. Powell
https://www.federalreserve.gov/newsevents/testimony/powell20200630a.htm
 

As the economy reopens, incoming data are beginning to reflect a resumption of economic activity: Many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May. We have entered an important new phase and have done so sooner than expected. While this bounce-back in economic activity is welcome, it also presents new challenges—notably, the need to keep the virus in check.

While recent economic data offer some positive signs, we are keeping in mind that more than 20 million Americans have lost their jobs, and that the pain has not been evenly spread. The rise in joblessness has been especially severe for lower-wage workers, for women, and for African Americans and Hispanics. This reversal of economic fortune has caused a level of pain that is hard to capture in words as lives are upended amid great uncertainty about the future.
Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.

The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.
The tools that the Federal Reserve is using under its 13(3) authority are for times of emergency, such as the ones we have been living through. When economic and financial conditions improve, we will put these tools back in the toolbox.

The final area where we took steps was in bank regulation. The Board made several adjustments, many temporary, to encourage banks to use their positions of strength to support households and businesses. Unlike the 2008 financial crisis, banks entered this period with substantial capital and liquidity buffers and improved risk-management and operational resiliency. As a result, they have been well positioned to cushion the financial shocks we are seeing. In contrast to the 2008 crisis when banks pulled back from lending and amplified the economic shock, in this crisis they have greatly expanded loans to customers and have helped support the economy.

Today’s Session

The futures are pointing to a lower opening as we await the testimony from Powell and Treasury Secretary Mnuchin at 1230 ET to the House Financial Services Committee.

 

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