All Eyes On The Fed

Yesterday’s session began with so much promise. Initially coming out of the gate like a thoroughbred, the market just trotted around the track, losing speed and interest each step of the way. 

Major indices closed higher with the S&P notching okay gains, and the NASDAQ holding onto a 1% gain.

Bargain hunters continue to sniff around the Real Estate sector, which was the second-biggest gainer on the day. Value investors continue to pick their spots in Materials as well.  

Technology was strong and continues to enjoy a somewhat contradictory status as the high-powered growth sector and de facto haven.

Communication Services

The S&P 500 held up nicely, powered by Netflix (NFLX), which was the most influential stock despite management’s continued courting of controversy. The company will spend $13.0 billion on content, overshadowing the distasteful “Cuties.”  I must say those Prime movies feel as if Amazon (AMZN) passed out a bunch of camcorders and $100,000 budgets, and asked filmmakers to come back with movies.

The Communication Services (XLC) sector is up 13.9% for the year versus Technology (XLK) +27.5%, so the former could pick up even more momentum.

Dow Jones Industrial Struggles Continue

The Dow Jones Industrial Average (DJIA) slipped into the red and struggled to close barely higher. The index just is not relevant, even with recent changes to its composition. 

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The following names on the index traded curiously:

• Apple (AAPL) didn’t wow them with the virtual product launch that did not include the latest iPhone.
• Caterpillar (CAT) was hit hard, despite an upgrade from a tier-one firm. The company’s monthly retail sales updated a reminder that there is still work to be done before there is work to be done.
• JPMorgan Chase & Co. (JPM) hit hard on lowered expectations and awful news, including large layoffs at Citigroup (C), taking Goldman Sachs (GS) along for the ride. Making matters worse, JPMorgan also had to send home traders that tested positive for Covid-19. 

NASDAQ Juggernaut

While the DJIA was never going to rock yesterday, the growth-led NASDAQ traded like it had something to prove. Ignoring the sloppy trading in Apple, the NASDAQ held up the entire session, which in turn pulled in more buyers. 

The index broke a key resistance at 11,136 and finished higher. There are not any real hurdles between here and the recent high.

Distribution of Gains

Despite all the talk about rotation from growth to value, the fact remains that half the names in the NASDAQ are down for the year. Perhaps before moving money to stocks trading on other indices, investors have a lot of losers to choose from on the NASDAQ.  The lingering question and challenge are when and how buyers can rotate beyond current winners without disrupting the broad market.

NASDAQ Winners:

• 434 average gain: +56.28%
• The top 20 average gain: +478.26%         

NASDAQ Losers:

• 578 average loss: -29.06%
• The bottom 20 losers average decline: -74.53%

Fed to the Rescue

All eyes will be on Powell & Co. today, as they wrap up their Federal Open Market Committee (FOMC) gathering. It will be very interesting to see what kind of magic is left in the policy toolbox. Meanwhile, the Fed is openly frustrated with Congress and urging lawmakers to act.

I am frustrated as well. They are resting on their laurels and the economy is slowing. Big bounces in key economic metrics are running out of steam. Employment and consumer spending, just two very important gauges, are sending clear signals of needing a boost.

I hope they wake up on Capitol Hill.

To see the charts, click here, and here.

Portfolio Approach

I’m becoming more sensitive to declines in earnings estimates, and that might drive moves in positions that I would ride out in a less volatile environment. Note: this does not apply to every position.

Today’s Session

Breaking News

Retail Sales Increase Less Than Expected

This pattern mirrors other economic metrics, including job growth.  I continue to urge Congress not to abandon this remarkable recovery.  Not only was this morning’s initial read a big miss, but there were sizable lowered revisions for July’s data.