Good Thursday AM,

We are seeing a continued sell off in the equity markets. The question now is how deep will the selling be. This is day three and it is too early to know if this is just a minor pull back, or a major correction. Although we fell the last couple of days, the volume was light and other market breadth metrics that I watch have been suggestive of a healthy, needed and constructive pullback. We need more than this to jump start bonds, specifically the mortgage bonds, as the treasuries are again outperforming, with the yield on the ten-year back down to .71. The news was bond friendly this morning, as jobless claims came in worse than expected, as did the Empire manufacturing index. The Philly Fed index beat expectations, but the focus is all on the jobless claim numbers. The stimulus talks are all over the board and if we get surprised with an agreement, I expect stocks to swing wildly back up and thus pressure bonds. I would stay defensive until we see a confirmed rally in bonds.

And as fall and winter approach, here is a cautionary note shared by the WSJ that Covid cases are likely to increase…

Source: European Centre for Disease Prevention and Control

The 27 countries of the European Union and the U.K. averaged 152 cases per million people daily over the seven days ended Oct. 12—the first time since the virus’s peak in the spring that Europe has outpaced the U.S., which averaged about 150. Both sides of the Atlantic ramped up testing over the summer, but the share of positive tests is also increasing in many hot spots—a sign that the virus might be spreading even faster than testing programs show.

Please remain safe and healthy, make today great.