Markets Look To November Vaccine

Yesterday, it finally happened. It took some time, but the Dow Jones Industrial Average (DJIA) is finally in the hunt to achieve new record levels.

All those nascent efforts to rotate stock-buying into value from growth will morph into something substantial - and dare I say, something powerful. As I have been writing for weeks, this rotation was bound to happen. The only question was: could the impact on big tech and communication names cause large indices to move lower, even as the breadth of winners widened?

Initially, the NASDAQ Composite limped along; even the S&P 500 wasn’t on firm footing, as investors rediscovered blue-chip names. Just as I said, new highs for the S&P 500 would trigger automatically, forcing all those fund managers that missed the bounce to put money to work. It is their gig, after all.  There would not be as much pressure to buy on a DJIA breakout to new highs. However, many in the media will finally say, “the market is at all-time highs,” and that creates a positive feedback loop.

The Bluest Chips

Buyers moving into Dow names went for some of the worst performers of the year, and those names gave a different meaning to “blue-chips.”

One phenomenon we are going to see are mundane names with very low-beta tech make moves that are more typical of high-beta tech:

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Year-to-Date

• S&P 500: +10.8%
• NASDAQ: +34.4%
• Dow Jones Industrial Average: +2.0%
• Russell 2000: -4.8%

Market breadth was powerful, as new highs outpaced new lows by a 7:1 ratio, but it was up the volume on the NYSE that was the highlight of the session

Get Ready

I never met a girl who makes me feel the way that you do

(It's alright)

Whenever I'm asked who makes my dreams real

I say that you do

(you're outta sight)

So fee fi fo fum

Look out baby 'cause here I come

And I'm bringing you a love that's true so get ready

So get ready

I'm gonna try to make love to you so get ready

So get ready here I come

-The Temptations

It was revealed yesterday that the Centers for Disease Control and Prevention (CDC) has told states to get ready to make way for the distribution of a COVID-19 vaccine by November 1^st.

The “CDC urgently requests your assistance in expediting applications for these distribution facilities, and, if necessary, asks that you consider waiving requirements that would prevent these facilities from becoming fully operational by Nov. 1, 2020.” - CDC Director Robert Redfield

The federal government wants to make sure regulatory hurdles are quickly removed, so a safe and effective vaccine can be provided to the general public as swiftly as possible. The most optimistic scenario has two million doses ready by the end of next month, followed by up to 20 million by the end of November.  

These are optimistic goals, and even if achieved, it will be politicized. But not even politicians and the media would be able to curb the spike in hope for Americans upon such news.

That would be something, especially if it’s coupled with the normal increase in confidence and optimism that comes with the stock market hitting all-time highs. 

The wealth effect meets the health effect.

Portfolio Approach

 We added to Technology yesterday in the Hotline Model Portfolio. 

Today’s Session

Stocks have been under pressure all morning, but that’s a natural reaction after a monster session like yesterday.

Initial jobless claims came in better than expected at 881,000 against consensus of 950,000.  The nation has come a long way from 6.867 million initial jobless claims back in May.  The news turned around the Dow Jones Industrial Average; albeit, by a small margin.

Rotation Picks Up Steam

Sharp pullbacks on better than expected news will frustrate a lot of investors today.  I already had someone reach out this morning complaining about CrowdStrike (CRWD).  Yes, after a 185% move, even great news is discounted.  If you are a long-term investor, you invite occasional pullbacks.  We are getting them in Technology and Communication Services.

CLDR +14% 2020

• EPS $0.10 vs $0.07
• Revenues +9% $214.3M vs $208.09 consensus
• Operating margin 14% vs 9.9% consensus

-Guidance

• Q3: EPS $0.08-$0.10 vs $0.07; Revenues $207-$210M vs $205.30M consensus

PD +49% 2020

• Loss $0.04 vs -$0.07
• Revenues +26% $50.71M vs $50.67M

-Guidance: Below Street

• Q3: EPS -$0.11 to -$0.10 vs -$0.09; Revenues $52-$53M vs $52.54M
• FY21: EPS -$0.30 to -$0.27 vs -$0.27; Revenues $206-$211M vs $208.21M consensus

SMAR +33% 2020

• Loss $0.06 vs -$0.16 consensus
• Revenues +41% $91.2M vs $86.5M consensus
• Adj. operating margin -8% vs -23.2% consensus
• Calculated billings $92.27M vs $91.7M consensus
• FCF-$4.4M vs -$9.1M consensus

-Guidance:

• Q3: EPS -$0.23 to -$0.22 vs -$0.13 consensus; Revenues $94-$95M vs $92.75M; Billings $104-$106M
• FY21: EPS -$0.54 to -$0.49 vs -$0.50; Revenues $367-373M vs $364.66M

CRWD +185% 2020

• EPS $0.03 VS -$0.01
• Revenues +84% $198.9M vs $188.5M

-Guidance:

• Q3:EPS -$0.01 TO $0.00 vs -$0.05; Revenues $210.6-$215M vs $195.88M
• FY21: EPS $0.02 - $0.08 vs -$0.04; Revenues $809.1-$826.7M vs $772.72M