Monday was just one of those sessions. Major indices stumbled out of the gate and mostly drifted like a rudderless ship for most of the session. It’s been a few weeks, but it certainly feels a lot longer since the S&P 500 rambled to an all-time high, then hit a sizable air pocket from which it has not recovered.
There is a real struggle trying to gain traction in equities. Several narratives have included rotation into sectors that cannot carry major market indices without some help from growth names. This sideways motion isn’t alarming, per se - until you consider all the great news that gets absorbed into some kind of black hole moments after hitting the tape and even being cheered.
On Friday, Coinbase (COIN) shares were up 16% on knockout earnings results, only to turn lower.
Yesterday, the Street went nuts over the Discovery (DISCA) news that the company was buying Warner Media from AT&T (T), and shares of the latter surged 16%. By the closing bell, the numbers suggested AT&T successfully dumped an albatross for good money, while the folks at Discovery are going to have to show and prove.
Every news headline that looks great has barely survived the gauntlet of doubt. It doesn’t mean the news isn’t, or the initial reaction isn’t valid or important. It just means the market is digesting gains and dealing with doubt. Yep, the struggle is real… for now.
Message of the Market
Some buyers materialized, and the S&P 500 edged higher, almost climbing into the plus column. The problem is most sectors couldn’t escape their own inertia. Meanwhile, Energy and Materials continue to rock like growth stocks with no earnings in 2020.
S&P 500 Index | -0.25% | |
Communication Services XLC | -0.79% | |
Consumer Discretionary XLY | -0.18% | |
Consumer Staples XLP | -0.14% | |
Energy XLE | +2.32% | |
Financials XLF | +0.18% | |
Health Care XLV | -0.19% | |
Industrials XLI | -0.31% | |
Materials XLB | +0.88% | |
Real Estate XLRE | +0.05% | |
Technology XLK | -0.74% | |
Utilities XLU | -0.82% |
Market Breadth
The volume was so light that it was hard to get a sincere read on sentiment. But there was a strong shift in up volume against the down volume, not reflected in major indices. It is accumulation, and I think it’s the smart, well-heeled folks who are quietly building positions.
Market Breadth | NYSE | NASDAQ |
Advancing | 1,751 | 2,175 |
Declining | 1,579 | 2,059 |
52 Week High | 179 | 128 |
52 Week Low | 41 | 79 |
Up Volume | 2.85B | 2.40B |
Down Volume | 1.36B | 1.61B |
Commodities Comeuppance?
Many of the hottest commodities have begun to pull back with lumber off more than 22% from the recent high point. Copper is also moving decidedly lower, and the question is whether it’s profit-taking or a sign the market is seeing or sensing repairs to the supply chain.
Lumber
As commodities pull back, traditional inflation hedges, gold and silver, are picking up momentum. We’ll keep watching.
Silver
Don’t sleep during this period. This is the time to be very busy seeking opportunities.
It was a quiet morning until housing data came in with a thud. Permits were slightly above consensus of +0.2%, but there was a huge miss for starts, which declined 9.5% against consensus of -2.2%. The news took some air out of equity futures where were hovering above the plus line most of the morning.
New Residential Construction April 2021 | Single | 5 Units | Total |
Permits | -3.8% | +11.1% | +0.3% |
Starts | -13.4% | +4.0% | -9.5% |
Brick & Mortar
Over and over again in 2020 I asked guests if they were buyers of brick-and-mortar retailers and even experts in the industry shot me down. I’m glad I didn’t listen, but it’s amazing how this trade has been so amazing and so unheralded.
I bought Gap Stores (GPS) in my own account above $12.00 and posted it online to an avalanche of criticism. I’m getting the last laugh big time. Wall Street is so behind that Credit Suisse upgraded Gap this morning to neutral from underperform.
The stock is up 80% this year and 378% over the past 52-weeks.
For years, whenever Wall Street looked at the Consumer Discretionary sector, it was just a euphemism for looking at Amazon. But that’s changed. Check out the XRT Index of brick-and-mortar names. The names in the top ten holdings, including Boot Barn (BOOT) and Dillard’s (DDS), have just posted monster financial results. I think this continues.
This morning has seen strong results from Macy’s (M), Walmart (WMT) and Home Depot (HD).
Portfolio Approach
We closed a position in Materials, and we are adding a new position in Consumer Discretionary this morning in our Hotline Model Portfolio. If you are not a subscriber to our premium Hotline service, email Info@wstreet.com to get started today.
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