Wednesday's Market Minute: Quarantine Trade: The Sequel?

Between Monday's big tech resurgence and yesterday's beatdown of consumer travel and cyclical stocks, the market this week seems to be preparing for a second wave of the summer quarantine trade. Does Quarantine Trade Part Two make sense?

The market's gravity-defying rally from April to September was a combination of several things: an unprecedented injection of monetary and fiscal stimulus, a worldwide and sudden demand for the latest technology to sustain work and entertainment, and a steady natural recovery from and understanding of COVID-19. Right now, we're missing some pretty big ingredients, notably the stimulus. A political narrative is building about what kind of stimulus is coming post-election, but that time-frame is unclear. How far post-election? Inauguration? It stands to reason with improvement in the economy we may not need a package as big as CARES to have a similar effect on the market, but without it, it also stands to reason the market would need something helpful on the virus front instead.

Right now we don't have much of that either. While our flare-up over the last few weeks does not look too alarming yet, Europe's is much more unsettling. As far as the cloud and tech stocks that investors are piling into again, they are not immune from sustained economic weakness. While demand for their products and services were pushed forward the last six months, that rate of new demand should slow if the struggling businesses are shuttering and the thriving ones have already gotten the products they need.

The same applies to consumer tech -- if you haven't already bought a $2,000 Peloton, are you going to this time around? As any moviegoer knows, the sequel is rarely as good as the first. In this case, the original was a 78% rally and new all-time highs. That's a tough standard to beat. It doesn't mean the sequel has to be as bad as say, Speed 2 or When Harry Met Lloyd, but it's tough to top the original Die Hard.