It’s hard to remember or even imagine this year seeing the sharpest fall into a bear market territory in history, and now the S&P 500 and the Dow Jones are at all-time high points again.
- NASDAQ: +32.9%
- S&P 500: +12.3%
- Dow Jones: +5.0%
- Russell 2000: +7.0%
Every Dog Has Its Day
This leg higher is about the laggards or those stocks and sectors that not long ago could only be described as “dogs with fleas.” Now they are thoroughbreds racing to catch up with their rival sectors.
S&P 500 Index | +1.16% | |
Communication Services XLC | +0.64% | |
Consumer Discretionary XLY | +1.31% | |
Consumer Staples XLP | +0.92% | |
Energy XLE | +6.58% | |
Financials XLF | +2.22% | |
Health Care XLV | -0.17% | |
Industrials XLI | +2.44% | |
Materials XLB | +1.97% | |
Real Estate XLRE | +0.64% | |
Technology XLK | +0.97% | |
Utilities XLU | +1.01% |
Overbought?
What’s fascinating about this market is how to measure overbought and oversold conditions. For instance, Materials (XLB) is up 82.8% since the March 23rd low point, but only up 14.5% for the year. Industrials (XLI) are a bigger conundrum, up 79.9% since the market low, but only up 7.8% for the year.
Three sectors are still negative for 2020, including Energy, down 40.6% for the year.
To see the chart, click here.
Oil Gusher
Oil field services and refiners continue to lead the Energy sector higher. It’s the size of these moves that has been truly amazing. They all have a lot more room to the upside, but it’s not helping the market beyond positive vaccine news. Draw down surprises would add octane to the rally.
Company | Weight | Nov 16 Move |
TechnipFMC plc | 0.56% | +12.18% |
Schlumberger Ltd | 4.46% | +11.33% |
National Oilwell Varco Inc | 0.75% | +9.65% |
Valero Energy Corp | 3.64% | +9.33% |
HollyFrontier Corporation | 0.58% | +9.17% |
Marathon Petroleum Corp. | 4.25% | +8.44% |
Phillips 66 | 4.38% | +8.23% |
Here They Come
So, the NASDAQ is having a hard time getting back to its all-time high, while the S&P 500 has found its groove. Each day, the party in the index best reflects the country unless you go with the Wilshire 5000 Index and add all companies - but I have a problem with that.
S&P 500
Winners
- 290 average gain: +25.51%
S&P 500 Losers
- 215 average loss: -19.73%
NASDAQ
Winners
- 598 average gain: +67.34%
Losers
- 415 average loss: -21.83%
The NASDAQ exhibited a fair amount of spunk yesterday. I suspect the index will form some kind of wedge, then break out on the wings of semiconductors and software stocks, not only teetering to lockdowns.
Consumers & Heavy Lifting
Today, we get the read-on retail spending, as the week will also see earnings from the nation’s largest retailers. It’s a great chance to see if consumers continue to step up to the plate.
The composition of the U.S. economy has changed dramatically since the year I was born. Government and trade were larger percentages of the Gross Domestic Product (GDP).
The economy is all about personal consumption these days.
Gross Domestic Product | 1962 | 2019 | ||
Components | % of Total | Components | % of Total | |
Consumption | $382.6 | 60.0% | $14,563.9 | 68.0% |
Investment | $97.0 | 16.1% | $3,742.8 | 17.5% |
Government | $140.3 | 23.2% | $3,754,3 | 17.5% |
Trade | $4.0 | 0.7% | -$632.0 | -2.9% |
Total | $603.9 | 100.0% | $21,429.0 | 99.9% |
In billion USD | ||||
To see the chart, click here.
Consumers Have Dry Powder
Consumers are well-fixed and exhibit few signs of strains. Of course, there is still a large swath in desperate shape, and that’s where additional stimulus would be a boon. However, we are not talking about a $2.2 trillion package. One more injection would also spark households sitting on increased savings to spend.
That’s the centerpiece of our investment theme of 2021.
October Card Metrics | Net Charge-offs | Delinquency Rate | ||
Oct | Sept | Oct | Sept | |
(C) Citigroup | 2.03% | 2.55% | 1.37% | 1.40% |
(AXP) American Express | 2.20% | 2.00% | 1.10% | 1.10% |
(BAC) Bank of America | 1.97% | 1.90% | 1.36% | 1.20% |
(JPM) JPMorgan Chase & Co. | 1.89% | 1.92% | 1.00% | 0.98% |
(COF) Capital One | 3.11% | 3.35% | 2.19% | 2.21% |
(DFS) Discover Financial Services | 2.90% | 3.31% | 1.99% | 1.91% |
Source: Seeking Alpha
Hotline Model Portfolio Approach
Yesterday we took profits in some Technology stocks and added a new position in Healthcare in our Hotline Model Portfolio.
Today’s Session
Equity futures have been under pressure all morning, but the selling picked up as earnings and data rolled out. Retail earnings were mostly strong, although a lack of guidance mitigated positive impacts on share prices.
Walmart (WMT)
- Revenue +5.2% y/y $134.7 billion, consensus $132.4 billion
- EPS $1.34 VS $1.18 consensus
- Walmart-only US comps 6.4%; 3.5% consensus
- Sam's Club U.S. comparable sales ex-gas 11.1%; consensus 7.10%
- U.S. comparable sales ex-gas +7.1% versus consensus +4.3%
- Transactions -14.2%
- Average purchase +24%
- Ecommerce +79%
- No Guidance
Note: Customers continued to consolidate store shopping trips with significantly larger average baskets and shifted more purchases to eCommerce; transaction volume improved as store hours were extended.
Home Depot (HD)
- Revenues +23.2% $33.54 billion versus consensus $28.6 billion
- EPS $3.18 against consensus $3.02
- Comparable sales +24.1%
- US comparable sales +24.6%*
- Transaction +13% to 453.2 million
- Average ticket price +10% to $72.9 million
- Announced $1B investment in employee salaries
- No Guidance
*US comps 25% for two consecutive quarters
Kohl’s (KSS)
- Revenue -14.0% to $3.98 billion versus consensus $3.85 billion
- EPS $0.01 VS consensus -$0.44 consensus
- Comparable store sales -13.3% versus consensus of -11.7%
- Gross margin 35.8% vs 36.3% year ago
- No guidance
Retail Sales & Consumers
Perhaps it is a sign consumers are becoming more reluctant to spend or are tapped out, as the Retail Sales came in below consensus.
The +0.3% increase was less than +0.5% or +0.6% consensus (too many consensus numbers).
Highlights
- Electronics
- Internet
- Building materials
Concerns
- Department Stores
- Furniture
October 2020 | M/M | Y/Y |
Headline | +0.3% | +5.7% |
Ex-Motor | +0.2% | +4.4% |
Motor | +0.4% | +10.7% |
Furniture | -0.4% | +5.2% |
Electronics | +1.2% | -3.9% |
Building Materials | +0.9% | +19.5% |
Grocery | -0.4% | +9.2% |
Health and Personal Care | -0.1% | +3.8% |
Gasoline | +0.4% | -14.0% |
Clothing | -4.2% | -12.6% |
Sporting Goods | -4.2% | +12.4% |
Department Stores | -4.6% | -11.9% |
Internet | +3.1% | +29.1% |
Restaurants | -0.1% | -14.2% |
The markets are taking a breather this morning and would love to see the market blow off some steam.
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