China’s War On Capitalism

Wider Market Participation

To see the chart, click here.

It was a strong, inclusive rally on Friday, but we begin today’s session under some pressure.  Some of the morning weakness comes from declines in Asian markets driven by China’s war on businesses – especially those with large percentage of American investors (see below).

Growth is back in the driver’s seat and the biggest names report this week. 

1. Monday:  TSLA
2. Tuesday:  AAPL MSFT GOOG GOOGL
3. Wednesday: FB PYPL
4. Thursday: AMZN

In addition, we get updates on the strength of the consumer and more on manufacturing and housing.  The latter acts greats and should begin to rally higher, matching strength of the housing market.

China’s War on Capitalism

For years, it was a no-brainer to own China educational stocks. We last presented EDU on October 28, 2019, and we took profits in model portfolio on Jan 10, 2020.  Even after we closed it, the stock roared back from a quick dip. But now the stock is off more than 70% from its February high as the CCP expands its war on businesses.

Wall Street is hustling to get out of these names, but it’s mostly too late.  There has been so much carnage and President Xi doesn’t seem to be done (see Tencent and others this morning).

• Gaotu Techedu (GOTU) downgraded to Sell from Neutral at Goldman; target lowered to $2.60
• Gaotu Techedu (GOTU) downgraded to Sell from Underperform at CLSA; target lowered to $2.70
• Glaukos (GKOS) downgraded to Equal-Weight from Overweight at Stephens; target $70
• Group 1 Auto (GPI) downgraded to Equal-Weight from Overweight at Morgan Stanley; target $203
• Hilltop Holdings (HTH) downgraded to Mkt Perform from Outperform at Raymond James
• New Oriental Education & Technology (EDU) downgraded to Hold from Buy at The Benchmark Company
• New Oriental Education & Technology (EDU) downgraded to Neutral from Buy at Bank of America Securities
• New Oriental Education & Technology (EDU) downgraded to Neutral from Buy at Goldman; target lowered to $3.60
• New Oriental Education & Technology (EDU) downgraded to Underperform from Outperform at CLSA; target lowered to $3.20

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Portfolio Approach

There are no changes to the Hotline Model Portfolio this morning. 

Guessing Tops

Wall Street continues its game of guessing the top, which is one reason the experts continue to severely underperform against novice investors.

To see the chart, click here.

Meanwhile, individual investors have become far less bullish in recent weeks reflecting confusion in markets, inflation, the Delta variant and potential return of lockdowns.

Goldman Gets the Message

The ten-year bond yield is edging lower once again as the downward channel is firmly entrenched.  Thus far, Wall Street has said ignore recent weakness, as its all-mechanical stuff like short-covering, or a reflection of foreign demand, and has nothing to do with the US economy. 

Goldman is breaking from the pack this morning and adjusting their GDP numbers.

• 3Q21 8.5% from 9.5%
• 4Q21 5.0% from 6.0%
• 2H22 in range of 1.5 to 2.0%