Mega-Cap Optimism Carries The Day

Although the gains were not huge, it is fair to say that yesterday saw major equity indices muscle higher. Or, I should say ‘rode the muscle higher,’ as big mega cap stocks continued their dazzling run:

• Apple (AAPL): +2.2%
• Microsoft (MSFT): +4.9%
• Amazon (AMZN): +1.1%
• Alphabet (GOOG): +2.2%
• Facebook (FB): +2.4%
• Netflix (NFLX): +2.8%
• Tesla (TSLA): +2.8%

Turning Point

When the Conference Board released its Leading Economic Index (LEI), the stock market firmed up nicely. I suspect the buyers were not day traders - but instead, old-school investors that have seen the LEI turn as a harbinger for a greater and more sustained turn in the economy.  The ten components of The Conference Board Leading Economic Index® for the U.S. include:

• Average weekly hours, manufacturing
• Average weekly initial claims for unemployment insurance
• Manufacturers’ new orders, consumer goods, and materials
• ISM® Index of New Orders
• Manufacturers’ new orders, nondefense capital goods, excluding aircraft orders
• Building permits, new private housing units
• Stock prices, 500 common stocks
• Leading Credit Index™
• Interest rate spread, 10-year Treasury bonds, less federal funds
• Average consumer expectations for business conditions

I continue to think the near-term wildcard is Congress stepping up to extend a bridge to the vaccine. 

The dollar (DXY) continues to sink, which helps multinational companies but lessens the purchasing power of Americans. I think it’s nearing a key sweet spot, and I would like to see it hold.

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Portfolio Approach

Today’s Session

The S&P is still in a double top formation and looking a little tired.  Consolidation is natural, especially since this is the best first three weeks in August since 2000.   Still, its important buyers materialize here. Although, the market is giving a little back now, it is a great way to test the rally and shakeout weaker hands.

Stock of the Day (nothing runs like it)

The stock if the day is Deere (DE).  The company posted financial results that blew away Wall Street consensus.  Founded in 1837 by John Deere, a blacksmith who heard concerns from farmers about plows designed for sandy soil of eastern United States not able to shed the thicker prairie soil.

This morning Deere posted results

• Revenue $8,925 billion against consensus of $6.703 billion
• Earnings $2.57 against consensus of $1.26
• Operating margins improved in equipment and turf units

I love when these companies based in the heartland deliver like Deere did this past quarter.