Morning Notes — SPX Closing Levels Key

US economy: The WSJ’s Greg Ip noted some high frequency data that points to early signs of a US recovery: 1) map requests on Apple have been on a steady climb since the week ending April 9; 2) retail visits have improved from -50% year-over-year in mid-April to -32% last week; 3) customer contact with real estate agents is now above pre-coronavirus levels; 4) Uber rides have increased every week for the past three weeks and; 5) TSA data shows a +46% increase since May 1 in passengers using its checkpoints.

Vaccine: This morning, Moderna (MRNA) announced positive interim phase 1 clinical data for its coronavirus vaccine candidate. Trial results, which are being fast-tracked with the National Institutes of Health showed Covid-19 antibodies in all 45 participants and was generally safe/well-tolerated. There were other positive reports this weekend for other vaccine candidates, balanced by reports that adequate manufacturing capacity for the general population may not be available until well into 2021.

Underappreciated: The policy response for this recession has been larger, faster and more direct than any other time in history. This is because this recession can’t be ‘blamed’ on any institution or industry. There is no one to blame, no moral hazard and no political pressure on the consequences of indirectly bailing out ‘bad actors.’ And the overall health of the consumer and banking sector coming into this shock is completely underappreciated. US consumer credit and the US banking system was stretched heading into the 2008 financial crisis. Banks are the ‘transmission mechanism’ for monetary policy and in 2008/2009, that mechanism was structurally impaired by leveraged balance sheets and outsized exposure to residential real estate.

Test: Today’s rally in the S&P 500 is pushing the index just beyond our ~2900-2940 technical resistance zone. While closing levels matter most, it’s also encouraging to see intraday cyclical sector leadership for a second straight session. As noted last week, the 1-year rolling average of the SPDR ETF (SPY) Volume Weighted Average Price (VWAP) is currently 2940, with CTAs and other systematic strategies historically using this level as a trigger (give or take 2-4%). Systematic funds are currently estimated to be net long at the moment, but not by much. We could easily see ~$50B in additional buying pressure from these triggers. Sustained closing levels above ~2950 increases the risk of further upside.