Evening Note: What the Bulls are Missing...

Today's selloff came late for the S&P and the Nasdaq, and didn't capture the level of volume most of the recent down days have exhibited. I.e., while volume indeed increased as stocks sold off, taking the entire trading session into account, the 27% below the 20-day average volume figure says today was more about stubborn buyers than it was passionate sellers.

From a breadth perspective, however, the day scored definitely bearish, at least for the S&P 500; it saw 6 losers for every 1 gainer. For the Nasdaq it was just under 3 losers for every gainer.

Moving on to macro:

Ben Melkman, CEO and founder of Light Sky Macro is, by those in the know, considered one of today's great macro minds. 

Here's what he had to say in a July 2nd RealVision interview:

"Clearly a lot of slack has opened up in the economy, the largest unemployment since the 1920s. And what I firmly believe is, is that that's going to be the case in the near term, irrespective of whether we get a second wave or not.

We're not going back to 4% unemployment. For those that think that this is a super-V (he's referring to V-shaped economic recovery) and the virus was some kind of momentary blip and we're going straight back to where we were a year ago -- it's just not how the world economy works.

And even if there is no second wave, even if we've seen the worst of the virus behind us, we've had a 12-year expansion, and it always takes a shock to begin a recession, and even if this was just that catalyst shock -- and we don't get any more negative effects, which, at the moment doesn't seem likely, seems we will get more negative effects -- I'm sure that 12 years into an expansion companies will use this as an opportunity to more permanently right-size their bloated workforces, etc."

While the list of examples supporting Ben's last sentence is many these days, here's one from today's headlines:

"Levi’s sales fall 62% in second quarter, to cut 15% of corporate workforce"

I think what today's bullish traders are missing -- as Ben alluded to -- is an appreciation for the fact that we've just concluded the longest bull market/economic expansion in history. The inevitable accumulated excesses of such a phenomenon simply can't be purged over the course of a few short months. And, in stock market terms, the notion that one swift 3-week decline fully discounts a purging process that, frankly, has barely just begun, well, I'll just say that history offers zero support for such a notion...

Thanks for reading!
Marty