Morning Notes — Macro Catalysts Ahead

On deck: With the key Q2 S&P 500 earnings metrics now well entrenched and understood, the focus for the balance of the week will shift to macro data.  Tomorrow’s release of July ADP private payrolls and July Services ISM will be important for markets ahead of Friday’s release of the July Jobs Report.  Consensus is looking for monthly payroll additions of 1.835M vs June’s +4.8M, and an Unemployment Rate of 10.5% vs 11.1% last month. 

One eye open: Yesterday, the S&P 500 cleared a two week consolidation phase with secular growth continuing to impress as a consensus long.  Secular growth re-assumed leadership last week after a brief period of under-performance following early Q2 earnings results. The results generally exceeded elevated expectations, but the upside surprise looked thinner than other sectors with a lower bar.  Most of the large cap Tech names have reported Q2 results, but some less well-known companies levered to ‘work from anywhere’ are scheduled to report in the weeks ahead.  One such company reported huge upside results last night and the stock price is behaving as it should, but sell-side estimates are way too low and the stock is under-owned.  The obvious concern for the super-large cap names is overcrowding as recent gains have left PMs with larger than expected positions and shorter-term momentum investors tend to have weak hands.  The near-term risk for the group is still the potential for rotation into cyclical/value sectors.  A rotation based on a larger than expected fiscal package is possible, but probably short-lived as markets realize the temporary nature of stimulus.  But a more enduring rotation could come from a positive vaccine development in concert with better economic data.  The good news is that market internals tend to deliver clues a few days ahead of time.