Morning Notes — Known Catalysts

Contrarian: The 5-day moving average of the CBOE Equity Put/Call ratio and weekly AAII sentiment survey are both at bullish extremes.  Extreme sentiment in either direction creates an asymmetric risk/reward scenario.  And while it remains in place, this level of bullish sentiment will dull the impact of upside catalysts and magnify the impact of bearish catalysts.  

Catalysts: 1) Consensus for Thursday’s ECB meeting is looking for a ~€500B increase and 12-month extension to the PEPP, plus the launch of new TLTROs; 2) expectations for next week’s FOMC meeting remain low with consensus looking for adjusted forward guidance, while leaving the pace and duration of QE unchanged; 3) PFE/BNTX shots this Friday; 4) MRNA vaccine shots next Friday and; 5) US fiscal stimulus (~$500B) also tucked into the budget by next Friday 12/18.

Sectors: Yesterday, the Nasdaq 100 (NDX) broke through technical resistance at 12,420 as worsening US COVID trends and associated restrictions drive near-term outperformance in growth/momentum names.  The 11/9 pattern breakout in the S&P 500 Value Index (SVX) that came on positive vaccine data looks like a months-long turning point in relative sector performance.  After a brief pause (days/weeks), look for the resumption in cyclical/value sector outperformance.