What an impressive session. The market staged a very impressive intraday reversal led by GameStop (GME) which erupted higher. Maybe it wasn’t led by GameStop, but the reversal in that individual investor (and smart hedge fund longs) was the perfect proxy for the overall ability for the stock market to rebound as soon as all the experts start to play taps.
The financial media could not contain its joy at GameStop being lower after posting financial results that came in below Wall Street consensus. The company has billions in sales, and actually made money, which would be surprising to the casual observer.
I bring this up because investors must remember they own businesses that are run by people that are trying to achieve every single day. Some are better than others, but to reduce them to only symbols, misses the point. Elite disdain isn’t for GameStop but the type of investors that are buying the stock.
At some point, I will buy GameStop shares in my own account. For now, closing above $220.00 could spark a monumental leg higher.
Message of the Market
The major indices, after being down significantly, reversed into green with a lot of buying into the close. The Dow had a 500-point reversal, +0.6%. The S&P500 recovered from being down 0.9% and dipping below its 50-day moving average to being up 0.5%. The Nasdaq eked out a gain of 0.1%. The Russell 2000, which had been down 8% in the previous 3 sessions, bounced back, adding 2.3%. The Dow and the S&P500 are down less than 1% for week, and that could change today.
It was all about cyclical stocks yesterday , which regained composure after light profit-taking. President Biden first press conference touted his infrastructure plan, which will be unveiled next week (not in Pittsburgh today), which could come in at nearly $4 trillion. After hitting this target of 100,000 Covid-19 vaccines administered in his first 100 days, he upped the bar to 200,000.
Financials, Industrials and Materials were the best performing sector. The Federal Reserve announced plans to lift its restrictions on bank dividends and buy backs after the June stress test, provided, they maintain sufficient capital. Bank stocks are higher again today.
Tech executives, Mark Zuckerberg of Facebook (FB), Jack Dorsey from Twitter (TWTR), and Sundar Pichai of Google (GOOG) testified for almost 6 hours on Capitol Hill. It was more of the same, although it focused more on conspiracy theories, disinformation, hate speech and protecting children then it did on antitrust law and censorship. These guys are become regulars in D.C.
There is new legislation being reintroduced as well as created. The “Protecting Americans from Dangerous Algorithms Act” will be reintroduced today, which will provide some changes to Section 230 that will hold media companies liable “if their algorithms amplify misinformation that leads to offline violence." There is another bill in the works, the “Online Consumer Protection Act,” which aims to make tech companies more accountable. Despite all the noise, any regulation is a long way down the road.
S&P 500 Index | +0.52% | |
Communication Services XLC | -0.49% | |
Consumer Discretionary XLY | +0.88% | |
Consumer Staples XLP | +0.97% | |
Energy XLE | +0.37% | |
Financials XLF | +1.68% | |
Health Care XLV | +0.42% | |
Industrials XLI | +1.60% | |
Materials XLB | +1.45% | |
Real Estate XLRE | +0.85% | |
Technology XLK | -0.06% | |
Utilities XLU | +1.07% |
The stealth 52-week rally in Industrials (+57%) and Materials (65%) means there could be a lot more money pour into those sectors.
Manufacturing data from the Kansas City Fed underscores the conundrum for the stock market. There is enormous growth and growth potential in many pockets, including manufacturing. But prices are going higher, and to the extent that can be, it will be passed on to customers (mostly producers than individual consumers).
The headline 26 read was the highest ever, but prices paid for raw materials are also on record pace. What caught my attention was the fact lots of people do not want to work and lots of workers are taking days off because the latest fiscal aid check is equal to two weeks of work.
Federal Reserve Bank of Kansas City (DENVER / OKLAHOMA CITY / OMAHA)
Tenth District Manufacturing Activity | Feb | Mar |
Composite Index | 24 | 26 |
Production | 26 | 23 |
Volume of shipments | 14 | 27 |
Volume of new orders | 16 | 37 |
Backlog of orders | 27 | 32 |
Number of employees | 21 | 17 |
Average employee workweek | 13 | 21 |
Prices received for finished product | 27 | 31 |
Prices paid for raw materials | 68 | 66 |
Selected Manufacturing Comments
“We continue to see record orders. We had to buy from outside U.S. for the first time in 20 years. Prices of steel are also a problem, but we have been able to pass much of that on.”
“We are seeing significant changes in commodity costs. We have announced a price increase intended to address these cost increases for later this year. This will be our second price increase in 2021. We believe that inflationary pressures are building and will continue to do so as the year progresses.”
“The rising costs of raw materials, namely steels, aluminum, bronze, as well as, corrugated packaging and labor is happening quicker than we can react, forcing us to eat the additional costs.”
“We will not increase on-site staff or business travel until more people get vaccinated. We're expecting to see that by late summer.”
“We are always looking for production employees. We can't find enough.”
“Having a very difficult time getting applicants (even bad ones) for open positions. The extra Federal unemployment payments are keeping people home and out of the work force.”
“The individual stimulus payments are the equivalent of nearly 80 hours of work for a majority of our hourly positions so we have an increased number of call-ins and no shows. The extension of unemployment benefits has made it difficult to hire unemployed individuals.”
Portfolio Approach
We took profit in Financials in the Hotline Model Portfolio yesterday and are adding to Consumer Discretionary today.
Today’s Session
This morning personal income and spending missed Wall Street consensus. Income -7.1% ( -7.0% consensus) and Spending -1.0% (-0.7% consensus). The numbers didn’t move the street, which is looking to upcoming data as the latest rounds of fiscal checks hit accounts.
To see the chart, click here.
The 10- year Treasury is relatively flat but with an upward bias at 1.675%. And WTI looks to be gaining some of its losses from yesterday, up 2.10% to $59.80 as concerns over the Suez Canal delays mount. It is estimated that $400 million in trade per hour is being held up. Approximately $9.5 billion in trade passes through the canal daily.
At 10am ET we get the final read of the University of Michigan Index of Consumer Sentiment for March.
Dow futures are picking up some stem, while the Nasdaq losses are gaining. The 10- year Treasury is relatively flat but with an upward bias at 1.675%. And WTI looks to be gaining some of its losses from yesterday, up 2.10% to $59.80 as concerns over the Suez Canal delays mount. It is estimated that $400 million in trade per hour is being held up. Approximately $9.5 billion in trade passes through the canal daily.
We will get more economic data out at 830 am ET, including receive Personal Income and Spending for February, PCE Prices for February, and the Advance reports for International Trade in Goods, Retail Inventories, and Wholesale Inventories. Then at 10am ET we get the final read of the University of Michigan Index of Consumer Sentiment for March.
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