The Dow Jones Industrial Average (DOW) and the S&P 500 had rallied seven days in a row. It was on the cusp of making it eight, and then the wheels came off. There was something climactic about the session that revealed itself once the rally stalled, and profit-taking began to chip away gains.
The action is not unusual, but it’s been some time since we’ve seen that kind of turnaround. The Dow made a 460-point swing, while the S&P 500 reversed 48 points from its session high point. The NASDAQ Composite staged an impressive midday rebound before stumbling hard.
The big-time rally fizzled in the final hour of trading as several news items hit the tape.
Congress & Stimulus
Senator Mitch McConnell went on TV and said that neither side had spoken. It appears both parties have drawn a line in the sand. Make no mistake - the market assumes there will be an additional fiscal stimulus -and suddenly, it feels as though Congress might blow it. President Trump’s executive orders help, but it is not the complete package needed to keep the rally moving.
The market bullied Congress into a weekend session when the stimulus bill deadline expired. Perhaps it was time to send our lawmakers a fresh message. I think it is critical to keep this rebound going to be a true recovery. There must be one more fiscal nudge.
Football Cancellation
The Big Ten announced it was canceling its 2020 football season, which was rumored to happen. It drives home the continued challenges of operating in the world of COVID-19.
Apple & China
Yesterday, there was also a report out late about dramatically slowing smartphone sales in China, and the potential impact on Apple (AAPL). Shares of Apple (AAPL) closed at $437.50, down from the $449.85 high of the session. During the session, more than 45 million shares changed hands, up from the daily average of 36.6 million shares.
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The Message of the Bond Market
I was thrilled to see the ten-year Treasury get a six handle yesterday after opening at 0.583%. The yield rallied to 0.662% before settling at 0.642%.
Less than a week ago, the ten-year yield tumbled to 0.510%, leading many to say negative rates were a forgone conclusion.
It was a perfect split decision for the NYSE with advancers equaling decliners and the up volume equaling the down volume. There was obviously more selling pressure on the NASDAQ, as growth continued to stumble.
Market Breadth | NYSE | NASDAQ |
Advancers | 1,496 | 1,344 |
Decliners | 1,484 | 2,031 |
New Highs | 118 | 116 |
New Lows | 3 | 10 |
Up Volume | 2.45 billion | 1.42 billion |
Down Volume | 2.44 billion | 2.90 billion |
Fun Times
I am going back to my childhood and a goofy American original variety television show called, “The Banana Splits Adventure Hour,” to describe how much fun I think the dual August 31st stock splits of Apple (AAPL) and Tesla (TSLA) will pump up individual investors.
- Tesla will split five-for-one
- Apple will split four-for-one
Do not take that day off.
Portfolio Approach
Yesterday, we took profits in Consumer Discretionary and Healthcare, and added a new Consumer Discretionary stock. This morning, we took profits on an Industrial name and are adding a new position in Technology in our Hotline Model Portfolio. To get started on the Hotline today, contact your account representative or email Info@wstreet.com.
Today’s Session
Yesterday evening, former VP Biden announced he has chosen Senator Kamala Harris to be his VP candidate in the race for the White House.
There is a lot of debate over how safe a pick she is and what she brings to the ticket. From an investor point of view, I worry about higher taxes than Joe Biden is advertising, and other onerous rules designed to redistribute wealth. There must be smarter ways to spread organically generated wealth in America. Taking it from one group and giving it to another, with the Federal government taking the biggest chunk as the middleman, can only happen for a limited time before that well runs dry.
Flash Dip?
Equity futures are looking to rebound this morning, although, there is not any new news per se. I think it’s going to be a great litmus test on the value rotation trade as much of this year growth stocks, especially those Mega Cap names have been safe havens.
It is interesting that the biggest losers yesterday were historic safe havens; Utilities and Real Estate but also the 2020 safe havens Technology and Communication Services.
It was the most impressive session for Financials of the year, as the sector held up nicely and was led by those large money center banks.
S&P 500 Index | -0.80% | |
Communication Services XLC | -1.49% | |
Consumer Discretionary XLY | -0.20% | |
Consumer Staples XLP | -0.69% | |
Energy XLE | -0.34% | |
Financials XLF | +1.16% | |
Health Care XLV | -0.63% | |
Industrials XLI | +0.53% | |
Materials XLB | -0.18% | |
Real Estate XLRE | -1.92% | |
Technology XLK | -1.80% | |
Utilities XLU | -2.16% |
We have had Apple (AAPL) in the model portfolio for years and are up about 400% on our original investment. We have been reluctant to feature it as a new idea, but traders should expect a pop in the stock around the 4-1 split on August 31.
There is of course the anxiety that always revolves around the scuttlebutt on Apple’s business in China. Yesterday, the report was smartphone demand was declining. Today’s report from Apple’s supplier Foxconn said it sees smartphone demand off the lows.
The splits have been huge buying opportunities in the history of the stock.
To see the chart, click here.
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