Mike Santoli's market notes: Fast collapse in volatility, no market breakout yet, broader rally

Published Thu, Nov 5 20201:49 PM EST

(This story is for CNBC Pro subscribers only.) This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Fourth-day of a furious rally heading into a Fed decision: The Big Squeezy meets the Big Easy. The "squeeze" here is the sudden, almost forced-seeming rotation out of the "Blue Wave/reflation" positioning and back into a "policy stasis/scarce-growth" posture. Compounded by "grabby" retail-trader buying as the mood swings from FOLO to FOMO. Could say this is the opposite of the 2016 post-election market reflex: Back then, the S & P was a few percent from its high (same as this week) and the consensus trade was more slow-growth/disinflation/Fed-reliance/policy impotence, when the GOP sweep forced markets to instantly re-price for fiscal generosity and higher nominal GDP growth. That 2016 rotation ran for a couple months, though I doubt we're in for that now. This growth/liquidity dominance was ascendant as recently as August, not exactly a long-neglected trade. Already today as the session has gone on it's become less centered on momentum/tech/growth. Huge factor is the fast collapse in volatility and the purge of put hedges the past few days has created a feedback loop of buying the big index names, just as previously wary investors finally feel safe upping their commitments to equities. This can continue for a bit, but will be a diminishing driver. Unless Softbank is revving its call-buying engine right now. S & P has put plenty of distance between itself and the recent retest of the September low just a few days ago. Still in "the box" for now, and starting to run a bit hot already. If at some point this range gives way to a brake higher, it would be a pretty bullish setup given the duration/amplitude of the base. But can't anticipate that it will for sure yet. I'm hesitant to say the past couple days are about specific policy expectations. Sure, investors prefer low capital-gains and corporate taxes to higher ones. And yes gridlocked government coincided with very good returns in the late '-90s and 2010s liquidity-supported bull markets. But this week it's been about investors being caught wrong-footed either by betting on higher yields/fiscal largesse or by sitting out the market for fear of some election calamity or other. Specific expectations for the Fed are pretty muted. Mostly reiterations of commitments to extreme accommodation until full employment, nods toward the need for fiscal help, response to the notion the Fed is out of tools, no additional specifics on QE or yield curve control. Interested in any color from Powell on his view of the recent run in 10-year yields toward 1%, whether that compromises any policy efforts or not. (My sense is they only worry if higher yields coincide with tightening financial conditions, wasn't the case recently.) A broader rally today, good participation, including by "reopening" stocks. As the election recedes the debate will turn to the push-pull between Covid surge/lockdown dynamics and vaccine data/consumer resilience/inventory rebuild factors. More than 85% of volume in advancing stocks, quite strong. VIX has deflated another couple points though it has risen like 1.5 points from its morning low despite the on-rolling rally, some seeing here some reason for very short-term caution. Credit markets very strong again, folks see tame yields/split government/no corporate tax hike as good excuses to grab some corporate debt.

U.S. Federal Reserve Chairman Jerome Powell speaks to reporters.

Kevin Lamarque | Reuters

(This story is for CNBC Pro subscribers only.)

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

Fourth-day of a furious rally heading into a Fed decision: The Big Squeezy meets the Big Easy.
The "squeeze" here is the sudden, almost forced-seeming rotation out of the "Blue Wave/reflation" positioning and back into a "policy stasis/scarce-growth" posture. Compounded by "grabby" retail-trader buying as the mood swings from FOLO to FOMO.