Wall Street Eats Up Stimulus, Ignores Growing Debt

It was just one of those sessions that never seemed to get out of the gate on Tuesday. Still, the majority of stocks traded higher, which might simply be muscle memory at this point. The thing is, I do not think the participants were busy watching the second impeachment trial of former President Trump, but it was just a consolidation kind of slow down.

For whatever it’s worth, I took a peek at the impeachment proceedings. And Trump’s lead attorney was so bewildering that I had to take a nap. I think the impeachment is a mistake. It could backfire from the goal of minimizing the former president’s popularity and barring him from running in the future. Our elected leaders should focus on navigating a brighter future.

That’s why I love the stock market, especially the current rally. It’s all about a better day for mankind.  That doesn’t necessarily mean more jobs or less income inequality -  there is action in the legislative pipeline that will make things worse. I’m talking about grabbing a ‘flying air taxi’ from my home in New Jersey to Midtown Manhattan instead of sitting on the George Washington Bridge for an hour.

Therein lies the rub. Wall Street is loving all this cash gushing into the economy and ignores bigger government, bigger debts, and bigger obligations. Everyone is ignoring it, including the folks cooking up all the cash. This action kind of turns the age-old question on its head: “If a tree falls in the forest and no one is there, does it still make a sound?”

Instead, the updated question: If the Fed is cooking up massive inflation and revolution-inspiring inequality but says it doesn’t see smoke or smell burning pots, should investors see smoke or smell burning pots?  The answer is a resounding hell no until it’s a resounding hell yes!

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Make no mistake. It is a brand-new test, and while Japan blazed the trail with the quantitative easing (QE) actions of their central bank (they actually own stocks via exchange-traded funds (ETFs)). It provides us with real-time experience to analyze, and perhaps, even to expect our central bank heroes are looking to go even further.

Our Powell-led Fed is going to let inflation run hot as a way of seeking absolution for exacerbating the gap between the super-rich, the rich, and everyone else.  It brings new challenges and questions on whether the whole house is on fire - or somehow, we come out the other end a more financially united America.

 I wish I knew the answer. Or maybe I wish I didn’t.

Message of the Market

Most stocks edged higher in relatively quiet trading. But make no mistake, the oomph in the NASDAQ Composite listed shares was not dissipating, and small-caps and microcap shares kept on rocking.

This week, we have seen the emergence of bailouts as a theme. On Monday, there was potential assistance for airlines - and yesterday, a bailout for restaurants was floated. Before this “rescue” package is put to a vote, it’s hard to imagine it would only be $1.9 trillion.

The NASDAQ Composite saw 655 stocks finish at new 52-week highs, and the up volume more than 3:1 over down volume.

As powerful as the NASDAQ Composite has been, it’s the Russell 2000 that continues to dazzle, up more than 50% in the past three months.

S&P 500

It was one of those sessions where there were far more individual winners, and six of eleven sectors were higher, but weakness in Technology pulled the index into the red.

I found the action in Materials concerning. Also, I find the disconnect between crude oil prices and crude oil stocks is still too wide. Even though the latter has rallied, it suggests oil stocks are still undervalued.

Portfolio Review

We took profits in two positions yesterday and added a new position in Industrials in our Hotline Model Portfolio.  This morning we are adding a new position in Financials.

Today’s Session

The market was edging higher when the Consumer Price Index (CPI) report for January was released.  The benign results put a spark into the action sending major indices higher.

Consumers saw a month-to-month price increase of 0.3%, which was in line with consensus, while the 1.4% increase over the past twelve months was slightly less than consensus of +1.5% (see chart below).

To see the chart, click here.

The Nasdaq closed at a record high yesterday and looks to be continuing the gains this morning. 

The earnings parade continues.  Coca-Cola (KO), Lyft, General Motors (GM), (LYFT) and TWTR (TWTR) are a few names that are trading higher on their releases.

Investors will get an update from the Fed when Fed Chair Powell speaks at 2pm ET. Treasuries are relatively with the benchmark 10-year yield at 1.16%, the dollar is flat at 90.47, and WTI crude is continuing to rise, up 0.6% to $58.65 per barrel.