Traders said that while the day started on a clearly negative note, stocks settled down and finished off their intraday lows. As one trader explained, “The afternoon price action was promising in light of the bearish overnight session and the volatile first hours of trading, even though today’s quarterly earnings failed to boost investor sentiment.”

While the short-term pullback might not be over yet, the market-leading Nasdaq stabilized toward the end of the day, and compared to Monday’s plunge, the tech exchange saw much lower volatility too. Small-caps performed in-line with the major indices, so the most reliable risk measures are not flashing red, despite this week’s dip. Netfilx (NFLX) dropped by double-digits in after-hours trading due to its earnings miss and weak guidance, which could cause turmoil overnight, but the underlying trends remain bullish on Wall Street.

The feared second-quarter earnings from the financial sector have been almost all bullish so far, but looking at the post-earnings price action in the sector, the picture is much more mixed. Bank of America (BAC) suffered a hit today, despite beating on its top and bottom lines, and just as in the case of Wells Fargo (WFC), the huge credit loss provision increase was behind the negative market reaction. The pattern that the companies with the most credit exposure perform worse than the trading or investment banking focused ones, like Morgan Stanley (MS), seems clear, and it could be foreshadowing a rough second half of the year for the corporate sector.

The European Central Bank (ECB) left its monetary policies unchanged today, including its benchmark interest rate and the conditions of its asset purchase program, following in the footsteps of the Bank of Japan (BOJ), and making a quiet Fed meeting likely next week. Currency and bond markets remained relatively stable in the wake of the ECB’s messages, but Treasury yields still finished lower amid the risk-off shift despite the positive U.S. economic numbers. All eyes remain on the leaders of the European Union (EU), who could get closer to a stimulus deal this weekend.

The week will end with another busy morning of economic releases with the housing market in the spotlight. Today’s blowout NAHB Housing Market Index confirmed last month’s strong sales numbers, and analysts expect a jump in both housing starts and building permits too, with activity getting close to pre-pandemic levels. The Michigan consumer sentiment number is also expected to tick higher, to 79, and today’s retail sales hint at a possible bullish surprise, as the consumer economy seems to be leading the post-lockdown recovery.

Technical Corner:
The technical picture is now bullish across the board, thanks to the Dow’s strong showing this week, even though the industrial average and the S&P 500 are still well below their all-time highs set before the start of the pandemic in February. The large-cap benchmarks are still all above their 50-day moving averages of 3,060 for the S&P 500, 9,742 for the Nasdaq, and 25,508, and now, the indices are also above their 200-day moving averages of 8,859 for the Nasdaq, 3,032 for the S&P 500, and 26,223 for the Dow.

After spiking higher and hitting a three-week high in the first two days of the week, the Volatility Index (VIX) pulled back sharply yesterday and remained relatively low today. The “fear gauge” is back below its 50-day moving average despite the very high economic uncertainty. Although it’s still slightly above its 200-day moving average, this week’s trends have been encouraging for bulls. Should the VIX drop below its long-term moving average, it would confirm that we have started the next leg higher in the recovery. Stay tuned!

The positive:

· The number of new cases edged lower in the U.S. while ticking slightly higher globally, but the domestic mortality rate remains encouragingly low

· Retail sales surged higher in the U.S. and thanks to the swift recovery of the past two months, sales are nearing their pre-pandemic levels

· Even though the Philly Fed Index dropped slightly following last month’s record-breaking surge, it beat the consensus estimate, and continues to signal growth in the key sector

· Johnson & Johnson (JNJ) will likely begin its late-stage COVID vaccine trial ahead of schedule in September

The negative:

· Texas and California reported a new daily record number of infections yesterday, with death ticking higher to close to 1,000 in the U.S.

· India reported another record jump as the country continues to roll back its reopening, with the total number of cases nearing 1 million

· With today’s 1.3 new claims, now, over 50 million people filed for unemployment benefits since the start of the pandemic

· The number of U.S. cases is now above 3.5 million, while the number of infections is getting close to 13.6 million globally, with fatalities surpassing 585,000 globally and topping 137,500 in the U.S.

Looking past the day-to-day fluctuations, the number of new cases continues to be very high both globally and in the U.S., with India, Brazil, and South Africa really seeing massive jumps outside of the U.S. The role of mass-testing is still debated, but the still relatively low mortality is a huge plus. Johnson and Johnson joined the ranks of the companies releasing positive vaccine-related reports, but the end-of-the-year still seems to be the earliest date for the availability of a vaccine. Economic activity continues to be strong compared to the expectations, despite the risks, and while the job market remains fragile, today’s releases are reassuring.

The Sectors

The key sectors diverged substantially again, with the tech sector’s weakness still apparent for the fourth day in a row. Investors continue to take profits from the leaders of the monster post-crash rally, but industrials, energy stocks, and financials fared better than the major indices today. From a technical perspective, cyclical issues are still very weak. The defensive utilities and consumer staples sectors were the strongest sectors today, while healthcare stocks were mixed in the wake of Johnson & Johnson’s earnings report.