Just A Garden-Variety Consolidation (Technically Speaking For 10/13)

Initial unemployment claims have been a sticking point for the recovery narrative:

The current level is 857,000, which is ~250,000 higher than the highest point from the last recession. Some people have argued that this number is soft due to issues with state unemployment programs, which are being flooded with applications (emphasis added).

Adding to the challenge for analysts and forecasters, the pandemic has thrown the data itself into disarray. For the second week in a row, the jobless claims data carried a Golden-State-size asterisk: California last month announced that it would temporarily stop accepting new unemployment applications while it addressed a huge processing backlog and installed procedures to weed out fraud.

In the absence of up-to-date data, the Labor Department is assuming California’s claim number was unchanged from its pre-shutdown figure of more than 225,000 applications, or more than a quarter of the national total. The state began accepting new filings this week, and is expected to resume reporting data in time for next week’s report.

While this is a standard statistical practice (substituting past data for new data), there are legitimate questions about whether the unprecedented nature of the pandemic is making this method of substituting data moot. I don’t have an answer on that, but will keep my eyes open.

I’ve been lukewarm on REITs, even though they’re a traditionally conservative investment. The reason is pandemic related: small businesses are going under, lowering the amount of rental income. High unemployment and the drop in fiscal support are increasing residential evictions. And, larger businesses are rethinking their use of office space – a trend that will continue:

Many more companies are expected to delay their return-to-office dates to keep workers safe. And workers said they were in no rush to go back, with 73 percent of U.S. employees fearing that being in their workplace could pose a risk to their personal health and safety, according to a study by Wakefield Research commissioned by Envoy, a workplace technology company.

Here’s a chart of the main real estate ETF that I track:

The VNQ has been trading sideways, mired with the 200-day EMA – since early June.

The IMF released its latest Global Financial Stability Report, which contained the following observations (emphasis added):

However, vulnerabilities are rising, intensifying financial stabilityconcerns in some countries. Vulnerabilities have increasedin the nonfinancial corporate sector, as firms have taken onmore debt to cope with cash shortages, and in the sovereignsector, as fiscal deficits have widened to support the economy.

This was also discussed in the latest Federal Reserve meeting minutes and was highlighted in a recent speech by Boston Fed President Rosengren.

Let’s take a look at today’s performance tables:Yes, the indexes were down. But the overall drop wasn’t that large. Mid-caps were the worst-performing broad index, and they only lost .68%. The SPY was off .61%; the QQQ was only down .04%. This is hardly anything to get concerned about. Only two sectors rose, and then only marginally. Real estate dropped on

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So Far, It’s Just A Garden Variety Sell-Off (Technically Speaking For 9/8)

Let’s start with last week’s fund flows from ETF.com:Although tech led the market lower, the QQQ still saw a net inflow of $610 million. That stands in contrast to the $1.6 billion that left the SPY. The treasury market lost funds as well: $121 million and $672 million left the IEF and TLT, respectively.Despite last week’s sell-off, only four ETFs lost money: consumer discretionary, energy, real estate, and technology. The largest outflow was $205 million — which is small considering last week’s sell-off. Basic materials and industrials continue to attract interest. Consumer staples and utilities also had a net inflow.

State and local governments are facing a very deep fiscal crisis (emphasis added):

Collectively, state governments will have budget shortfalls of $312 billion through the summer of 2022, according to a review by Moody’s Analytics. When local governments are factored in, the shortfall rises to $500 billion. That estimate assumes the pandemic doesn’t get worse.

This could become a slow-rolling disaster over the next few years if nothing is done to fix the problem. As of now, it doesn’t look like Congress will be passing any legislation (emphasis added):

Majority Leader Mitch McConnell (R-Ky.) and other top Senate Republicans have been scrambling to round up votes for a narrow economic stimulus package they could put on the floor and hammer Democrats for opposing. The $500 billion-plus proposal includes $300-per-week federal unemployment payments on top of regular state benefits, another round of funding to aid small and medium-sized businesses, liability protections for businesses, schools and charities, and $105 billion for education, among other provisions.

There is no mention of aid for state governments on this issue. And, it looks like the plan doesn’t even have enough Republican support.

But it’s unclear whether McConnell has at least 51 GOP votes for the plan. Some Senate Republicans have been pushing for language related to “school choice” programs, complicating the process for McConnell and party leaders. And the measure almost certainly does not have the 60 votes needed to overcome a filibuster.

It’s always difficult passing legislation during an election year.

Oil prices are under pressure again:

Prices rebounded pretty quickly from the lockdown-caused sell-off. But for the last two months, the chart has been stuck in the lower 40s — a key level from the Spring sell-off (see the horizontal blue line). Last week, prices printed two strong down days on higher volume, sending prices into the upper-30s. This is a net negative for the energy sector.

Let’s look at today’s performance tables:

To no one’s surprise, the long-end of the treasury curve was the only sector that had any gains today. But the fact the gains were below 1% is interesting, potentially indicating there is less bearishness in the market. The QQQ had the largest drop, falling nearly 5%. Other large-caps were also near the bottom of the table.

All sectors were lower. Tech and communication services occupy two of the lowest positions, which explains why the SPY and QQQ

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