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OPINION

Are Markets Gearing Up For A Shocking Rebound?

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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AP Photo/Richard Drew

Even though it was ninety degrees in my neck of the woods, I could feel summer slipping away, which is a bigger bummer than usual since I hardly did any of the things I love to do in the summer. I was on track for getting in the most exercise ever in my swimming pool before a horrific storm knocked down a 30-foot tree that ripped the liner inside my pool and drained all the water.

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We have ordered a new liner, and we hope to get it installed in time for Indian summer (one last hurray in a year of disappointments).  Yes, it’s been the summer from hell with a cherry on top, but I am still sad to see it go. And yet, at this point, you just feel it slipping away.

The stock market, on the other hand, feels as if it’s gearing up for the next leg higher. It has been a remarkable rebound that shocked all the experts, even the few that were optimistic. Yesterday should have been a down session but instead, it was mixed. However, buyers remained the most energetic and committed to their cause.

Consequently, there were more new highs in major indices, although the Dow Jones Industrial Average (DJIA) was foiled by heavy losses in names getting kicked off the index (more on the ironic timing of the folks at Dow Jones later).

Year-to-Date

  • Nasdaq Composite: +27.8%
  • S&P 500: +6.6%
  • Dow Jones Industrial Average: -1.0%

Winners broadened out a little more. There is a gold mine of opportunities in all those losers- but finding them will take some skill.

S&P 500 Winners 

  • 221 average gain: +21.52%  
  • Top twenty average gain: +75.82%         

S&P 500 Losers

  • 285 average loss: -23.44%
  • Bottom twenty average decline: -59.01%

Nasdaq Winners 

  • 436 average gain: +57.32%
  • Top twenty average gain: +470.35%       

Nasdaq Losers

  • 557 average loss: -27.80%
  • Bottom twenty average decline: -72.36%
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The Message of the Market

Stop me if I’ve written this before, but Energy tumbled, and old safe haven sectors pulled back as well.  Communication Services posted the best move on the session, proving my point the folks at Dow Jones blew a chance to add some real octane to the index.

S&P 500 Index

+0.36%

 

Communication Services XLC

+0.94%

 

Consumer Discretionary XLY

+0.33%

 

Consumer Staples XLP

 

-0.22%

Energy XLE

 

-1.40%

Financials XLF

+0.28%

 

Health Care XLV

+0.68%

 

Industrials XLI

 

-0.13%

Materials XLB

 

-0.40%

Real Estate XLRE

+0.31%

 

Technology XLK

+0.50%

 

Utilities XLU

 

-0.95%

After the Close

Earnings keep coming, and for the most part, continue to crush expectations. Moreover, stocks continue to react with a certain glee, rewarding management, and shareholders. This truly has been a great earnings season. Mostly, it’s because so many companies offered guidance, and that guidance has overwhelmingly been to the upside:

Nordstrom (JWN)

  • Posted mixed results, and was the biggest loser of names that posted after the close

Toll Brothers (TOL)

  • Beat consensus easily, posting strong revenue and earnings, as orders established a quarterly record in total numbers and dollar value

Hewlett Packard (HPQ)

  • Beat on top and bottom lines

Urban Outfitters (URBN)

  • Got back some of that old swagger before they started selling weird and offensive tchotchkes

The Grand Life of Marc

He was already loving life as a business pioneer, Silicon Valley darling, and the owner of a well-known magazine, Time Magazine. Marc Benioff is one of the wealthiest persons in the world. And yet, life got even better for Benioff in the last 24 hours. His stock is being added to the Dow Jones Industrial Average (DJIA) and after the close, Salesforce.com (CRM) posted a huge earnings beat, sending the shares into orbit.

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I bet the folks at Dow Jones wish that the switch had already taken place to enjoy the double-digit gain in the share price.

Interestingly, maybe Benioff will regret the inclusion in the world’s most famous index. According to the folks at Bespoke Research, the timing in those decisions has historically been a disaster.

Take a look at the last three times there have been changes in the DJIA. 

It makes you wonder if we should be buying Exxon Mobil (XOM), Pfizer (PFE), and Raytheon (RTX), which is already in the Hotline Model Portfolio and not doing so hot.

Dow Jones Component Swaps

Added

Removed

Year

Name

Change

Name

Change

2013

Goldman Sachs (GS)

+10.1%

Alcoa (AA)

+90.3%

 

Nike (NKE)

+15.9%

Bank of America (BAC)

+19.1%

 

Visa (V)

+7.3%

Hewlett Packard (HPE)

+68.7%

2015

Apple (AAPL)

-17.7%

AT&T (A)

+15.1%

2018

Walgreens (WAG)

-22.0%

General Electric (GE)

-20.6%

 

 

Historic Average        

-8.6%

Historic Average

-2.3%

Median Average

-10.7%

Median Average

-5.7%

Portfolio Approach

There were no changes yesterday. This morning, we took profits in one Consumer Discretionary stock and are adding a new one in our Hotline Model Portfolio.

Today’s Session

Stock of the Day

Dick’s Sporting Goods (DKS)

  • *Rev $2.71 billion estimate $2.46 billion
  • *Eps $3.21 estimate $1.30
  • Same store +20.7 estimate +9.9%
  • Ecommerce (includes curbside) +195%
  • Gross margin 34.5 from 30.0
  • Operating margin 14.4 from 6.7
  • Reinstate dividend $0.3125
  • Shuffleboard +225%
  • Cycling +122%
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*company records

Two weeks ago, my wife mentioned she thought there was only one sporting gear company left, and she wondered if Dicks was a good investment.  She was spot on, but then again, she has been hot. She was my inspiration to feature Michael’s (MIK), which I think we took profits on too soon.

Economy Continues to Defy Experts

Durable goods orders for July climbed 11.2%, significantly beating consensus estimate of +4.3%.

  • Transportation +35.6%
  • Electric equipment +4.1%
  • Computers +2.2%
  • Business investment +1.9%, consensus estimate +1.7%

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