While there was no chance of buyers emerging in Tuesday’s last hour of trading that swooned into the close, it wasn’t pretty. I mentioned in yesterday’s Afternoon Note that the market should have been lower halfway through the session based on the underlying market breadth, and that’s what happened. The extraordinary light volume is also exacerbating moves during these late summer sessions.
Financials (XLF) took it on the chin again, weighed down by American International Group (AIG) and American Express (AXP). The XLF sector is up 11.2% in 2019, but it is down 6.3% over the past year, and it’s looking vulnerable after hitting a double top earlier this year.
Materials (XLB) were also hit hard yesterday, as the winners in the sector reversed lower - perhaps it’s a sign of profit-taking. We’ve been overweight in the sector, and while there are some big winners, the losers are gaining to the downside. We are going to lower exposure in the model portfolio today.
S&P 500 Index | -0.79% | |
Communication Services (XLC) | -0.67% | |
Consumer Discretionary (XLY) | +0.03% | |
Consumer Staples (XLP) | -1.09% | |
Energy (XLE) | -0.84% | |
Financials (XLF) | -1.34% | |
Health Care (XLV) | -0.85% | |
Industrials (XLI) | -0.59% | |
Materials (XLB) | -1.17% | |
Real Estate (XLRE) | -0.74% | |
Technology (XLK) | -0.50% | |
Utilities (XLU) | -0.16% |
Gyrations & Market Shakeouts
These market gyrations may be frightening for some and frustrating for most. However, they serve an important purpose if the market is to regain traction and rally into the end of the year. Let’s face it, the last couple of weeks have shaken weak hands and made others weaker.
Recommended
I’m not sure the market can break out between now and Labor Day. This is a great time to solidify a buy list, and even put on some positions until the big players return from back from the Hamptons and other locales to reload on the market. Keep in mind that it’s been a good year, and it could still be a great year for the stock market.
S&P 500 +15.7%
- 383 higher
- 308 +10%
- 214 +20%
Dow Jones Industrial Average: +11.3%
NASDAQ Composite: +19.8%
Russell 2000: +11.1%
Homebuilder stocks act great, although there could be pressure today after Toll Brothers (TOL) posted results that beat on revenue and crushed (beat by $0.18) on earnings. The guidance was slightly cautious, as there was a backlog decline in the total numbers and value. Management raised the lower end of the average selling price. Still, the better action isn’t in the $881,000 average home sold by Toll Brothers, so this stock isn’t the perfect proxy for homes in the heartland, where people leverage low mortgage rates.
The iShares US Home Construction ETF (ITB) index is trying to break out through a serious resistance point.
Beware Bad Headlines
“Home Depot beats quarterly profit estimates, warns of tariff impact”
-Reuters Business
I wrote about the National Association for Business Economics (NABE) report on Monday. Since then, I haven’t seen a report or headline that echoed the real story of fewer business economists seeing a recession in 2019 and 2020. Instead, the news focused on 2021. If the media wants to really scare people, they should focus on a possible recession by 2025. This way, headlines could read: “100% of economists see recession coming.”
Question of the Week With the conscious capitalism in America, including the Business Roundtable, saying profits are no longer the primary goal of business, are you changing your spending and investing habits? For instance, reports are out that Dick’s Sporting Goods (DKS) is looking to stop selling guns. The retailer stopped selling certain rifles last year and raised its age to purchase firearms. If the company stops selling firearms altogether, would you stop shopping there, and would you invest in the stock? DKS |
Approach
No new positions on yesterday. Stay tuned for alerts in the model portfolio today.
Communication Services | Consumer Discretionary | Consumer Staples |
1 | 2 | 1 |
Energy | Financials | Healthcare |
1 | 1 | 2 |
Industrial | Materials | Real Estate |
3 | 3 | 1 |
Technology | Utilities | Cash |
1 | 0 | 4 |
Today’s Session
More Signs of Recession?
Target (TGT) Monster Financial Results
- All-time record earnings.
- Best two-year comp sales in more than decade.
- Raises full year guidance.
- Comp store sales +3.4%
- Traffic +2.4%
- Same day fulfillment (pick up and drive up) add close to 1.5 percentage points to comp sales
- Digital +34%
Lowe's (LOW) Crushes It
- Revenue $20.99 billion (estimate $20.94 billion)
- Earnings per share $2.15 (estimate $2.00)
- Operating margins surge 12.0 from 11.0
- Comp store sales +2.3% (estimate 1.9%)
- Home improvement comp sales +3.2%
- Strong full year comp store guidance +3.0%
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