Raindrops keep fallin' on my head
And just like the guy whose feet are too big for his bed
Nothin' seems to fit
Those raindrops are fallin' on my head, they keep fallin'
-BJ Thomas
It’s the month known for its showers and the day that’s known for its gags, and both seem appropriately timed. The stock market spoiled a lot of folks who were rattled big time during weeks of wild gyrations, and with previously invincible stocks doing their best Icarus impressions, there was a lot of woe-is-me.
More seasoned investors were always on the prowl. But let’s face it, even seasoned hedge funds made mistakes, although they were based on a lack of fear or humility. A lot of raindrops fell on our heads in recent weeks, but as the song says, it won’t be long before happiness steps up to greet me (and my portfolio).
Hang onto stocks of great names, and you should be feeling much better sooner than expected, and that’s no fooling.
The S&P 500 eked out a gain and tickled a new all-time high, but all the action was in the NASDAQ. Composite.
S&P 500 Index | +0.36% | |
Communication Services XLC | +0.40% | |
Consumer Discretionary XLY | +0.78% | |
Consumer Staples XLP | -0.32% | |
Energy XLE | -0.69% | |
Financials XLF | -0.76% | |
Health Care XLV | +0.20% | |
Industrials XLI | -0.32% | |
Materials XLB | -0.49% | |
Real Estate XLRE | -0.40% | |
Technology XLK | +1.59% | |
Utilities XLU | +0.74% |
Market Breadth
Volume was light, and market breadth on the New York Stock Exchange (NYSE) underscored some profit-taking, as hot money was on the move once again. This time, it headed back to the NASDAQ Composite, which enjoyed slightly better market breadth, mainly the up to down volume. But it is still not strutting its stuff like it did until bond yields tripped up tech.
Market Breadth | NYSE | NASDAQ |
Advancing | 1,814 | 2,667 |
Declining | 1,505 | 1,487 |
52 Week High | 188 | 100 |
52 Week Low | 15 | 44 |
Up Volume | 2.17B | 3.31B |
Down Volume | 2.49B | 1.72B |
Software
Keep an eye on software, especially Software-as-a-Service (SaaS) names. The iShares: Expand Tech-Software (BATS: IGV) Exchange-Traded Fund (ETF) is a good proxy with big old-school names like Adobe (ADBE) and Microsoft (MSFT) but also newer upstarts like ServiceNow (NOW) and Workday (WDAY).
The index has held above its 200-day moving average, and a move through 358 should trigger the next leg higher to test the all-time high.
Portfolio Approach
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Today’s Session
The Chicago Purchasing Management Index (PMI) crushed Wall Street’s consensus, climbing to its higher level since July 2018 (the 66.3 read for March). Production was +10.1 points and new orders +7.1 points. Employment rose 5.5 points into expansion ahead of the U.S. Bureau of Labor Statistics (BLS) jobs report.
This month’s special question asked, “As the first quarter of 2021 comes to an end, are you planning to amend your inventory position due to any of the following conditions?”
- 67.6% planned changes to their inventory levels due to supplier lead times.
- 43.2% noted logistical issues as a reason.
Manufacturing Renaissance
Regional manufacturing surveys have been on fire, which means all eyes are on the Institute for Supply Management (ISM) report this morning.
The consensus is 61.7 from 60.8 in February – when 6 out of 6 regional data showed improvement:
- Empire Manufacturing: 17.4 from 12.1, consensus 15
- Philly Fed Business Outlook: 51.8 from 23.1, consensus 23.3
- Richmond Fed Manufacturing: 17 from 14, consensus 16
- Kansas City Fed Manufacturing: 26 from 24, consensus 26
- Dallas Fed Manufacturing: 28.9 from 17.2, consensus 16.8
- Chicago Purchasing Managers Index (PMI): 66.3 from 59.5, consensus 61
Initial Jobless Claims
Initial jobless claims climbed to 719,000 from 684,000; but the street was looking for 675,000. The number is perplexing, as these numbers remain stubbornly high.
The good news is the trend is moving in the right direction.
I’m not sure how this influences tomorrow’s jobs report. I suspect there are a pocket of Americans that will be permanently unemployed from the pandemic.
There is a chance we could see one million job print.
Watch the Chips
This morning, Taiwan Semiconductor (TSM) announced it will spend $100 billion over the next three years to improve capacity. Last week, Intel (INTC) announced it will spend $20 billion on two new factories in Arizona.
The semiconductor index (SOXX) peaked on February 19 at 437.69. Then, it stumbled hard all the way down to 374.50 or 14.4% by March 8.
Interestingly, the move came amid a supply crunch that has hit a number of industries that I’m sure would pay up for more chips. For some reason, however, the narrative shifted to the notion that a glut was imminent, so semiconductor stocks took it on the chin.
Considering how much capacity is being built over the next few years, it stands to reason there will not be an overnight glut.
The SOXX breaks an important resistance point at the start of trading and should rally to retest that February high
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