All Dressed Up… Nowhere To Go

All dressed up… nowhere to go. Stocks had an off day yesterday on no real news, signaling that investors were simply not in the mood for risk.  Earnings have been solidly beating estimates and analysts are raising the bar.

N O T E W O R T H Y

Thin air.  I am proud that I have some nerdy tendencies.  Rather than be held back by them, I apply those things to my work and it has proven to be a secret weapon of sorts.  Those same tendencies drove me to watch the 40 second video of a little space helicopter make its epic flight yesterday.  To the untrained eye, the first low resolution footage was utterly and completely… unremarkable.  The drone flew straight up, hovered for a bit, rotated slowly, then landed. In this day and age most of us have seen similar drones zipping by in the sky over our neighborhoods and beaches, mostly wondering if there wasn’t something creepy about some stranger shooting video of the tops of our heads… which certainly isn’t my best feature.  But one does have to marvel about the leap in technology that has allowed such a feat from miles away.  In any case, what was it that caused me to watch that video several times and then wait patiently for the higher resolution images to show up later in the day?  It took JPL (Jet Propulsion Labs) a while to download the second set of images… they came from Mars, which is at this point is some 180 million miles away. That is still not the most interesting thing about yesterday’s flight.  What made the flight so interesting was the fact that scientists were able to make the flight using the same low-tech method used here on earth since the 1930s… despite Mars having an atmospheric volume of around 1% of Earth’s.  In order to get the lift we have grown to expect here on Earth from helicopter blades, one needs air.  The Mars surface has less of that and it is actually equivalent to the thin air at 100,000 feet here on Earth… an altitude at which helicopters cannot fly.  The bottom line is that scientists figured out a way to get it done, mostly by spinning the rotors much faster than a traditional helicopter and by making them far larger.  In any case, if you haven’t heard, it worked.  So what can we non-nerdy investors take away from yesterday’s events on the red planet?  Markets have been trading up and up on expectations for future economic growth.  Last year the S&P500 ended the year with a +16.26% increase, which is greater than its long term average annual return.  All this in the midst of bankruptcies, shutterings, lockdowns, and a deadly pandemic.  Ok, we get it by now that stock and bond prices reflect what investors are expecting in the future.  It is clear that the markets are expecting greater economic growth in the months and years to come.  Just how much growth, for how long, and when it will really come in is still unknown to us.  Furthermore, even under that growth scenario, stocks can appear quite expensive, compared to their historic levels.  That doesn’t at all mean that the levels aren’t justified, but it is clear that the higher the levels go, further growth becomes more difficult, for want of proof.  If and when that proof comes from economic releases and earnings, investors will be able to look to further… and higher horizons.  It is clear that we are a thin air environment at the moment.  Not unlike Ingenuity’s (the helicopter’s official name) Martian flight, stocks have to work much harder to get lift in thin air conditions.  Air will come for some of the high fliers in this earnings season enabling them to climb higher, while others may have to wait for future proof.  Some may continue to hover at current levels while some will lose altitude due to a lack of air, still others will climb to higher heights. Yesterday, there was no real news in the financial markets, yet stocks slipped, leaving many traders wondering what might be the cause.  To figure that out, traders simply needed to go to NASA’s website and watch the epic flight of the hardworking helicopter that was able to fly 180 million miles away in what is equivalent to 100,000 feet here on Earth. 

THE MARKETS

Stocks slipped yesterday after hitting fresh highs last Friday.  It was a light news day, earnings looked solid, but investors took a sideline, awaiting further proof of the expected recovery.  The S&P500 slipped by -0.43%, the Dow Jones Industrial Average fell by -0.36%, the Russell 2000 Index traded off by -1.36%, and the Nasdaq Composite Index erased -0.98%.  Bonds slipped and 10-year treasury yields climbed by +3 basis points to 1.60%.

NXT UP

– This morning Silvergate Capital, Fifth Third Bancorp, J&J, and Omnicom beat estimates.  Before the bell we have yet to hear from Philip Morris International and Lockheed Martin, while Interactive Brokers, Netflix, CSX, and Edwards Lifesciences will announce after the close.