Do We Need More Stimulus To Get Economy Back On Track

Yesterday was the perfect session. It was the kind of day that allowed would-be sellers ample time, and just enough pressure to bail out. And yet, even when it seemed major indices were ready to trade lower, sellers stopped selling and buyers began to nibble. Yes, I think yesterday’s session was more about sellers being exhausted than buyers being motivated.

That said, it will not take a lot to nudge many fence-sitters if the rebound gathers just a little more traction.

Economic Traction

On Tuesday, Chicago Fed President Charles Evans said the economy is 90% back, although he still thinks that the last 10% will need a fiscal nudge as the recovery continues to be amazing. The trend was corroborated by manufacturing data out of the Richmond Fed (the district includes Washington D.C., Maryland, South Carolina, Virginia, and most of West Virginia).

The report came in at +21, powered by new orders and local business conditions.

To see the chart, click here.

Consumer Steps Up

With trillions in savings, and record household wealth, the U.S. consumer that is working is doing exceptionally well and could provide even more organic stimulus into the economy.

Yesterday, Consumer Discretionary (XLY) was the best performing sector in the S&P 500, led by Amazon (AMZN). Beyond Amazon, the names were very intriguing, cutting across a wide swath of industries:

• Ralph Lauren (RL)
• D.R. Horton (DHI)
• Lennar (LEN)
• L Brands (LB)
• CarMax (KMX)
• Nike (NKE)
• Tractor Supply (TSCO)

This index is poised to rally big time today after the blow-out earnings from Nike (NKE) and an announcement that Lululemon (LULU) is restarting its buyback program.  After the close, KB Home (KBH) posted monster results, as Americans continue to take advantage of low rates to escape from major U.S. cities.

I still like the theme of being overweight in Consumer Discretionary and owning brick-and-mortar survivors.

Recommended

Police at UT Austin Had the Perfect Response to a Pro-Hamas Activist Flipping Them Off Matt Vespa

Advertisement

Internals Still Sloppy

Market breadth continues to reflect recent softness in the market. It underscores the phenomenon of investors piling into winners, eschewing the notion of a balanced portfolio, or avoiding crowds.

The NASDAQ Composite had an equal number of advancers versus decliners, but a billion more shares changed hands in advancing issues versus declining.

What is Value?

I have been having this debate on my show for a few weeks: what is value?  Does a low price-to-earnings (P/E) ratio make a stock cheap, or the fact that it’s been beaten to a pulp?  Yes, stocks get oversold, but none are ordained to rebound one day, making your investment guaranteed to work if you wait long enough. I consider many Materials and Industrial names “value,” but the sector has a higher P/E ratio than the broad market.

Let fundamentals guide you on value and opportunities.

Portfolio Approach

We added to the Hotline Model Portfolio yesterday, as the composition’s extreme overweight has swung from Industrials and Materials to Consumer Discretionary and Technology.

Today’s Session

The markets are mixed this morning, with the NASDAQ trading down.  Apple (AAPL) was downgraded to Neutral by UBS. Also, Tesla (TSLA) is trading lower after its Battery Day event yesterday.

The Dow is being propelled higher on news from Johnson & Johnson (JNJ) that it is entering its Phase 3 Covid vaccine trial, which will include about 60,000 people.  If the trial goes well, the vaccine should be ready in early 2021.

Nike (NKE) had a great quarter and is trading up about 11% on its earnings.

Nike Results

Washington really needs to get its act together and give another round of stimulus.  Laid-off workers have reduced their spending, and while the short-term extension has been helpful, it hasn’t alleviated their financial fears.