Covid-19 Lockdowns Bite The Big Apple

Yesterday, the market swooned into the close, finishing at the lows of the session on a combination of factors. these were not new, but the cumulative effect finally triggered selling.

Increased lockdowns and local restrictions finally became big market news when it hit New York City schools. The news came out around 2:08 p.m., and minutes later, Mayor Bill de Blasio sent the following tweet to confirm.

At the time, stocks were edging lower, but there wasn’t any sign of panic. But once the lives of the fat cats of Wall Street were disrupted, selling intensified.

Too Chilled?

Several issues softened the market up and could be seen right off the bat. The vaccine “news” was losing its ability to awe the Street after so many up days, going back to last Monday. Yesterday, markets never really took off on the Pfizer (PFE) news, which was more of an update with better numbers that were already great.

The needle barely nudged.

The lack of fear could be a problem as the Cboe Volatility Index (VIX), the so-called fear index was edging to levels that were around before talk of a deadly virus from China began to make the rounds in medical and investing circles.

There have been a few spikes in the VIX since the market bottomed. Mostly, it’s associated with another wave of the virus of worries – and a lack of additional stimulus.

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• Leadership Confusion

Breaking up is hard to do, and investors continue to look longingly at those mega-cap growth names whenever they get rocky. Yesterday, they were the only two lagging sectors; before you knew it, they rallied into the plus column as traditional havens -Utilities (XLU), Real Estate (XLRE), and Consumer Staples (XLP) – slipped into the red.

• Consolidate Gains

I have also sensed the market rallied so much this month, particularly in beaten-down sectors, that it needed a break. I’m talking about good-old-fashioned consolidation. The problem there, however, is with the backdrop of breathless pandemic reporting meandering, it could morph into something more challenging.

• Market Breadth

The internals of the market were more in line with the selling, but it still reflected a market that is much stronger than the print on major equity indices would suggest.

Check out that up to down volume on the NASDAQ. My interpretation is big-pocketed buyers are using dips to get those names they missed the first time. 

Conclusion

It was one of those sessions that was due to the only question, which was the spark. Now, the question is about follow-through. Keep in mind that economic data and other fundamental truths are very favorable, including the signal from the bond market, where yields were slightly higher. 

Hotline Model Portfolio Approach

We continue to take profits and raise cash, as many ideas either hit our targets or the risk-reward shifts enough to warrant ringing the register (which also feels good when it’s outperforming the market).

Today’s Session

There is lots of earnings out that reflect on the consumer.  Most have seen big beats on top and bottom lines, but there is little forward guidance.

Children’s Place (PLCE)

• Earnings $1.44; consensus $0.46
• Revenues -18.9% $425.5M; consensus $392.12
• 55% of revenues were made online
• Gross margin 35.7%; consensus 33.7%
• Inventory +9.7% $427.6M
• Digital Sales 44%
• No guidance

Macy’s (M)

• Earnings $0.63; consensus -$0.82
• Revenues -22.9% $3.9B; consensus $3.8B
• Comparable sales (ex-licensed departments) -20.2%; consensus -23.4%
• Gross margin 35.6%; consensus 35.4%
• Inventory -29% y/y $514M
• Digital sales 38%
• No Guidance

BJ Wholesale Club (BJ)

• Earnings $0.92; consensus $0.65
• Revenues +15.7% $3.65B; consensus $3.68B
• Comparable Sales (ex-fuel) +18.5% ; consensus 6.7%
• Gross margin 20.4% ; consensus 17.5%
• Operating margin 5.1% ; consensus 3.9%
• Spent $50M to buy back 1.2N shares.
• No guidance

L Brands (LB)

• Earnings $1.13; consensus $1.02
• Revenue $3.06B; consensus $2.67B
• Comp store +28%; consensus 10.8%
• Victoria Secret +4%; consensus -2.6%
• Bath & Body +56%; consensus +36.3%
• No guidance

Jack in the Box (JACK)

• Earnings $1.61; consensus $1.13
• Revenue +15.4% $255.4M; consensus $249.16M
• Comparable Sales +9.6%
• Franchise same-store sales +12.4%
• System same-store sales +12.2%
• Gross Margin +69.3%
• Operating margin +25.8%
• Transactions -12.3%
• Declared cash dividend of $0.40 per share
• No guidance

Initial Jobless Claims

Claims came in much higher than expected, and while it didn’t initially impact equity futures, it does impact sentiment.  The other side of this could be the notion Congress sees a greater urge to get some fiscal aid through immediately.

To see the chart, click here.