Market Momentum Moves Into Homebuilders And Brick-And-Mortar

It was a lazy sort of ‘catch your breath’ session. As I mentioned in yesterday’s market commentary, Technology, and Communication Services stocks continued their role as safe havens for investors to hang out during iffy periods. They were joined by Utilities, the oldest safe haven sector in the S&P 500.

For the rest of the index, it was mostly a pedestrian session, save for Energy, which was overdue for some profit-taking.

The hot money, however, was not taking a break and poured into consumer stocks, homebuilders, and brick-and-mortar retailers.

Homebuilders

The Mortgage Bankers Association (MBA) released its latest Quarterly Performance Report for the third quarter. Independent Mortgage Banks (IMBs) and mortgage subsidiaries of chartered banks reported study-high average pre-tax production profits of 203 basis points ($5,535 on each loan originated) in the third quarter, up from 167 basis points ($4,548 per loan) in the second quarter.

The industry has come a long way since the fourth quarter of 2018 saw an average $200 loss on each loan.

To see the chart, click here.

While revenues and earnings climbed to new record levels, bottom lines were impacted by frantic hiring and increased incentives for existing employees to keep up with the pace of demand. Meanwhile, homebuilders were impressive during the session after pulling back and meandering for weeks.

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ITB Home Construction Index

Retailers

Brick-and-mortar names continue to rock and continue to defy the imagination. Many are learning to play the game with omnichannel, with a special focus on e-commerce. We all know the Internet is going to be more than a conduit to the customer to provide ‘ease of use’. Data collected through online purchases will come to predict and ultimately influence individual buying decisions.

That world is evolving quickly with many big players, including Amazon (AMZN). It’s not unlike the scene in the movie version of Philip K. Dick’s ‘The Minority Report,’ where billboards tailored specific pitches as people walked by. Of course, that can feel cool and intrusive. The better step is when the machines pitch you based on what you like and what you are expecting.

Yesterday, that was the story of Stitch Fix (SFIX), which posted financial results after the close and it will be the stock of the Day. It has indicated to be up as much as 35% at the start of trading.

• Revenue of $490.4 million was only a slight beat of the consensus of $481.2 million, and up 10% from a year earlier. Earnings also beat and key metrics blew away analysts.
• The company is a reminder that the Roaring 20s will be all about data- the collection, analysis, storing, securing, and sharing.

The company has 145 data scientists working side by side with 5,600 employee stylists. The focus is on three types of data:

• Client
• Merchandise
• Feedback

By using this information, the company’s predictive algorithms go to work as personal stylists. 

Consumers Are Tentative

Consumer credit for October increased by $7.23 billion, but Wall Street was looking for $16.0 billion.  Revolving (credit card) usage slumped by $5.5 billion, although non-revolving credit increased by $12.7 billion. It will change with the distribution of vaccines and one more slug of fiscal stimulus. 

We’re looking at you, Congress.

Consumer Credit

To see the chart, click here.

Portfolio Approach

There were no changes to the Hotline Model Portfolio.

Today’s Session

The major indices are lower open this morning and consolidating some of the amazing gains of late, and record high close for the Nasdaq again yesterday.  Tesla (TSLA) is down this morning on news that it is planning to sell $5 billion of its stock in an offering “at-the-market.”  

In the U.K., the NHS has begun administering the first doses of the Pfizer/BioNTech vaccine.  Those over 80 and frontline healthcare workers, home care staff and residents are the first to receive the Covid-19 vaccine.  

The NFIB Small business optimism index in the U.S fell to 101.4 in November, down from October’s 104, but is still significantly above the 47-year historical average of 98.  Six of 10 components of the index declined. More small business face uncertainty due to the pandemic and uncertainty around the Georgia runoff election.

NFIB Chief Economist Bill Dunkelberg stated, “Small business owners are still facing major uncertainties, including the COVID-19 crisis and the upcoming Georgia runoff election, which is shaping how they’re viewing future business conditions.” He added,  “The recovery will remain uneven as long as we see state and local mandates that target business conditions and disproportionately affect small businesses.”

To see the chart, click here.

The Uncertainty Index declined 8 points, and owners expected conditions to improve in the next six months declined 19 points to a net 8%.