Wall Street Meets A Fork In The Road

Talk about coming to a fork in the road. The bifurcation of the market continues as those high-flying Technology and Communication Services stocks got hammered again. 

After the close, yesterday, there were no surprises after Datadog (DDOG) posted financial results. Management delivered a beat on revenue, a beat on earnings, and higher guidance for the current quarter. Also, according to the script, the shares were gobsmacked.

It brings me to a question that more investors are beginning to ask. Is the party over?  Are these stocks just making a big temporary pullback that will see these names back on track momentarily?  It’s sort of like the old saying “take someone to the woodshed,” referring to an authority figure; usually, a dad taking his son outside for corporal punishment.

Once the deed is done, and the lesson is learned, things go back to normal.   

Then there’s having to go to the outhouse. We all know what that means. So, is this tech route just a quick trip to the woodshed or the outhouse? I tend to think it’s mostly the former, although some tech names were too far over their skis. This kind of volatility is not new, but I’m hearing more about worry than before.

Believe Me, I’ve Been There

I get it. I’ve been to the woodshed and the outhouse, and neither is particularly fun. 

What makes it different this time is money is not seeking shelter on the sidelines. Money is finding new homes in other sectors, and it does not feel like pit stops. I think a lot of this rotation sticks, but at some point, mega-growth and the rest of the market can enjoy simultaneous gains.

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(Where does the extra cash come from?  The bond market.)

Widening the Net

Remember those summer sessions when the “market” would be higher, but the breadth was negative, as there were more losers than winners?  Well, even with the NASDAQ Composite pounding the table, there were far more winners in the index.  

This is great because it means the number of 2020 winners continues to expand for the NASDAQ and the S&P 500. There is a huge swath of names still in the red for the year, and I suspect a fair amount of money managers will be buying those names at the end of the year bid to show performance.

 S&P 500 Winners 

• 281 average gain: +23.36%

S&P 500 Losers 

• 224 average loss: -20.78%

NASDAQ Winners 

• 583 average gain: +61.83%

NASDAQ Losers 

• 431 average loss: -22.44%

Where is Value?

The term “value” is being tossed around as a euphemism for anything that is not a mega tech, so, therefore, is “cheap.”

Using forward price-to-earnings (PE(f)) ratio as a distinction of value in Real Estate is most overvalued; Financials is most undervalued.

To see the chart, click here.

Employing the Price/Earnings to Growth (PEG) ratio, Real Estate is most overvalued; Financials is most undervalued.

To see the chart, click here.

Hotline Model Portfolio Approach

We took profits in one positions and opened a new one yesterday in our Hotline Model Portfolio.

Today’s Session

There is a shift into those high fliers that have been grounded, but it remains to be seen if it’s a guess at a short-term bottom or if the worst is over.  There is no doubt  a lot of these names are oversold. 

Thank a Vet

Before your day gets too busy, make sure to thank a veteran today (and everyday).  Employers make sure to get our vets back to work.  After sharp declines in unemployment rates, they have worked again.

Freedom Isn’t Free

Gulf War era I

1. Feb 2020 2.3%
2. Oct 2020 5.3%

Gulf War era II

1. Feb 2020 4.5%
2. Oct 2020 6.2%

To see the chart, click here.