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“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.” – Warren Buffett
Futures are lower again this morning, but what was looking like it would be a pretty rough day in the market when Europe opened has steadily improved in the last few hours. It’s a busy day for economic data today with initial and continuing jobless claims and the Philly Fed report coming out at 8:30. Initial claims came in higher than expected (742K vs 700K) while continuing claims were a bit lower (6.372 million vs 6.4 million). Regarding the Philly Fed report, manufacturing activity came in stronger than expected falling to just 26.3 from 32.3 versus expectations for a decline to 22.5).
At 10 we’ll get the latest reads on Leading Indicators and Existing Home Sales, and finally, at 11 AM we’ll get the November read on manufacturing in the Kansas City Federal Reserve district. Once we get those reports, though, that will be it for the week in terms of economic data.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, employment data in Australia, trends related to the COVID-19 outbreak, and much more.
The S&P 500 is on pace for its third straight day of declines today, and while rising numbers of COVID cases have been cited as a culprit, that’s been the case for weeks now, so why did the market finally decide to focus on it now? Another factor to consider is the fact that the market has seen an enormous rally this month, and heading into this week the S&P 500 was trading at ‘extreme’ overbought levels.
The chart below comes from page two of the Morning Lineup and shows the S&P 500’s daily overbought/oversold reading over the last year. Following Monday’s rally, the S&P 500 closed more than 2.3 standard deviations above its 50-day moving average which was the most overbought reading for the index since July 2018. Whenever markets get that extended it doesn’t necessarily mean that they have to trade lower from there, but it usually indicates that a period of consolidation is in order so that the market can catch its breath.