Is A Lack Of Stimulus Holding The Market Back?

Yesterday was another sloppy finish for another session that never really got off the ground. It reminds me of my efforts to “go fly a kite.” 

I have never been good at it, and I always envied those folks in the park with the kite flying high in the air, even doing aerodynamic tricks. Then again, back in the day, I had poorly constructed homemade kites that never really had a chance.

I guess one could say that during the session, investors were flying a kite just like Ben Franklin, as the market was in discovery mode.

However, today, if you use the term “go fly a kite,” it would have an entirely different meaning from the 1929 version of the expression (see sidebar).

The bottom line is the session was uneventful with a tinge of frustration. All the major indices finished lower, although there was never any danger of a serious selloff.

• S&P 500: -0.22%
• NASDAQ: -0.28%
• Dow Jones: -0.35%
• Russell 2000: -0.86%

Market internals were uglier than the print for the major equity indices:

• NYSE: 2,003 decliners v 1,045 advancers
• NASDAQ: 2,193 decliners v 1,275 advancers

Earnings Parade

After the close, a long list of names posted financial results, and just about all of them beat the Street, and several offered higher guidance.

• Align Technology (ALGN). The initial reaction saw the shares pop 23%.
• Whirlpool (WHR). The initial reaction +10%, as the results crushed it! Earnings, $6.91; consensus, $4.20, and management reinstated guidance that was higher than the Street.
• Las Vegas Sands (LVS), +6% on earnings, and also word that Macau’s casinos are coming back online and in Singapore as well.
• Chipotle (CMG) saw digital sales up 202%, but guiding tighter, 4Q20 margin held the stock back.
• Tesla (TSLA) saw revenue of $8.77 billion against a consensus of $8.26 billion, allowing Elon Musk & Co to post net profits for the fifth straight quarter. Wake up, S&P 500 inclusion selection committee.
• CSX Corp (CSX) posted earnings of $0.96, beating the Street by $0.04, as management reloaded the buyback program, which had $1.1 billion remaining by an additional $5.0 billion.

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Transportation names have been rocking, and that’s a great sign for the economy, as one could argue this sector is the best proxy for Main Street economic projections. CSX popped 4% on the news (new all-time highs on strong volume) and could see a true breakout today.

Hotline Model Portfolio Approach

There were no changes the Hotline Model Portfolio yesterday.

We took profits on Whirlpool (WHR) a few days ago at $201, in part to early signs that the underlying fundamentals may not have kept up with the big move in the stock price. But also in part because at the time, we were fully vested in the model portfolio, and we moved into Avis Budget Group (CAR). So the gain mitigates the hindsight stuff that can haunt investors.

We are close to fully invested in the model portfolio. 

For those with larger portfolios ($400,000+), my potential buy list includes:

• Hanes Brand (HBI)
• Mastercard (MA)
• VM Ware (VMW)

Today’s Session

I was asked this question this morning: “Seems that the dragging out of the stimulus is holding the market back.”

There are a lot of factors with the market, and what's happening now is indicative of the early part of earnings season.  I do not think a lot of investors did anything based on stimulus.  Most professional investors are modeling $2.0 trillion during Trump or $3.0 trillion in a Biden administration.  Be careful of talking heads, especially those that never managed a nickel in real life. 

There always has to be a reason, and it always has to be at the surface.  The market has made a big move from the lows, and what I'm seeing is a digestion phase.  So far, earnings have been fantastic and guidance robust.  Using history as a guide, once we are close to this period of financial reports, we will see a more decisive outcome with respect to broader market direction; although, it will continue to be very selected. 

Better Economic News

Initial jobless claims declined significantly more than anticipated to 787,000

Too see the chart, click here.

Continuing jobless claims dropped by more than one million to 8.37 million. 

To see the chart, click here.

The grand total of folks on some form of unemployment benefits as of October 3^rd is 23,150,427 and down 1,046,493 from the prior week.

This is very encouraging news, and yet the total number of Americans receiving some form of assistance a year ago was only 1,393.973.

We have a long way to go but are getting there faster than anyone assumed or thought possible.