So begins the story. The Nasdaq Composite has been going up for so long now, it’s hard to remember that it feels like it should go down. Now we know.
Yes, this is an exaggeration, but not much. It has been up for seven of the past nine trading days and six of the past eight weeks. Today, it looks like the same – the Nasdaq was up 2% from its all-time high – before the sale started.
It would be easy to point out, for example, California’s decision to close museums, cinemas, restaurants and bars – at least the interior parts of these businesses – while Los Angeles and San Diego said the school would only be online when the fall school year begins.
There is only one problem: the Nasdaq and high-tech stocks have offered protection from the Covid storm in the past month, while cyclical stocks have taken it on the chin. But the Dow Jones Industrial Average managed to achieve an M gain today – it finished up 10.50 points – and it was helped not only by pharmaceutical giant Pfizer (PFE) and health titan United Health (UNH), but by the industrialists Caterpillar (CAT) and 3M (MMM), financial JPMorgan Chase (JPM) and Goldman Sachs (GS), and Dow Inc.
(DOW). Each finished more than 1%.
So what’s going on? Andrew Brenner, of NatAlliance Securities, postulated that the California announcement was actually the reason for the decline – that is, after the time when the market reversed. His explanation of why it was the Nasdaq that was hit: “This has led to profit taking in some of the highlands,” he writes. “We could see the same scenario tomorrow. “
But it could also be the start of the profit season that is driving the change. Bank profits arrive tomorrow, with JPMorgan, Wells Fargo (WFC) and Citigroup (C) reporting Tuesday morning, and have not gathered much since the lows of March, a sign of very low expectations. However, the technological gains must be good enough to justify gains of 30% to 40% in the past three months, which could be difficult to do. “[We would] Suppose the dynamic / growth reversal continues if the Bank’s profits are correct tomorrow, ”writes Dennis DeBusschere of Evercore ISI.
What if they are not? We could end up with the worst of both worlds – declining technology and declining cyclicals … and a complete correction.
Stay tuned to banking profits tomorrow to find out.
Write to Ben levisohn at [email protected]