Regarding the recent move higher: in writing this, I don’t want to start an internet food fight. But I think the latest move higher is mostly political, based on the beginning of the transfer of power and the nomination of Yellen to the Fed. Regarding the former: markets don’t like uncertainty, which the various legal challenges to the certification process caused. The GSA’s letter on Monday was an unambiguous signal that the outgoing administration would “open the books” so the incoming administration could get up to speed. Regarding the latter: Yellen is a known quantity. She is one of the most accomplished individuals ever nominated for the Treasury. And — she’s dovish. She will be pro-stimulus (which the markets would like) and has the credentials to support her arguments.

The Census released the latest durable goods report (emphasis added):

New orders for manufactured durable goods in October increased $3.0 billion or 1.3 percent to $240.8 billion, the U.S. Census Bureau announced today. This increase, up six consecutive months, followed a 2.1 percent September increase. Excluding transportation, new orders increased 1.3 percent. Excluding defense, new orders increased 0.2 percent. Transportation equipment, up five of the last six months, led the increase, $0.9 billion or 1.2 percent to $77.1 billion.

Here’s a chart of the data:

The top two charts show total durable goods. The left chart shows the absolute number while the right chart is the Y/Y percentage change. The bottom two charts show the data less transportation orders.

Initial unemployment claims continue to be a problem:I’ve drawn a horizontal line from the current level all the way back to the mid-1960s. Notice that the number is still above the highest level of all previous recessions. The number of continuing unemployment claims is now below the highs from the last recession. But it’s still very high from a historical perspective.

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Today, let’s take a look at charts for micro, small, and mid-caps. These sections of the market have done very well in November.IJH 6-Month

Mid-caps hit support at the end of October at 186.93 and have been moving higher since. Their highest level was 222.02 — a rally of 18.77%. The rally is still moving higher.IWC 6-month

Micro-caps have the same pattern with different levels. They’ve rallied 22.58%.

IWM 6-month

Small-caps have moved 22.49% higher.

All three of these indexes have printed solid moves higher. Compare these to the SPY:

SPY 6-Month

The SPY spiked higher on Pfizer’s vaccine news. Since then it has trended sideways.

I have assumed that the markets would sell off based on being overbought in the short term combined with rising virus cases. I’m beginning to think that the market will completely discount short-term pain and go right to recovery where the vaccine will be broadly administered.

Have a good Thanksgiving.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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