Opinion

Investors See Past Delta Variant

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Posted: Aug 06, 2021 1:11 PM
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Investors See Past Delta Variant

Source: AP Photo/Damian Dovarganes

It was a back-to-back session that saw buyers emerge late in the day to get ‘long’ before the closing bell.  What made yesterday particularly interesting was buyers got ‘long’ before today’s jobs report.

Nine out of eleven S&P 500 sectors were higher, led by Financials and Energy. There was a small nudge in bond yields. But I think the session was all about buying the stuff that’s been under pressure, including the so-called reopening trade.

Reopening Trade Sees Past Delta Variant

Penn National Gaming (PENN) pulled off a big deal that initially sent shares lower. But it’s clear investors hope the Delta variant will follow the same trajectory as it has in other countries:

  1. (PENN) Penn Nat’l Gaming
  2. (WYNN) Wynn Resorts
  3. (AAL) American Airlines
  4. (RCL) Royal Caribbean
  5. (LNC) Lincoln Nat’l Corp
  1. (CCL) Carnival Corp
  2. (VIAC) ViacomCBS
  3. (NLCH) Norwegian Cruise Line
  4. (CZR) Caesars Entertainment
  5. (MGM) MGM Resorts

Internals

Market breadth was not too shabby, save for the very light volume. New highs were picking up momentum – that’s a trend that can be contagious.

Market Breadth

NYSE

NASDAQ

Advancing

2,241

3,035

Declining

1,087

1,333

52 Week High

186

176

52 Week Low

53

107

Up Volume

2.69B

2.90B

Down Volume

1.07B

1.14B

 

Value Vs. Growth

For a while, it was nip and tuck, then value began to take the lead. The last three months have seen a conclusive shift back into growth, as investors are trying to make hay while the sun shines:

  • Growth: +11.40%
  • Value: +0.96%

Earnings Begin to Matter

Don’t look now, but earnings beats are beginning to move stocks higher. This is great news as each day, the stats get even more remarkable.

Earnings Scoreboard

427 Reports

Revenue

Earnings

Beat

87%

88%

Blended return

23.4%

92.9%

Blended estimate Jul 1st

18.5%

65.4%

Blended estimate Apr 1st

15.2%

54.0%

Blended estimate Jan 1st

12.7%

45.7%

Portfolio Approach

There are no changes to the sector weights in our Hotline Model Portfolio.


Today’s Session

Jobs data came in strong, but there are some issues for the nation and with respect to Fed policy. Total non-farm payrolls climbed 943,000 and June was revised higher to 938,000 from 850,000.

  • Private employment 703,000
  • Government 240,000

To see the chart, click here.

Worrisome

  • Total labor force participation 61.7 from 61.6
  • Construction 11,000
  • Manufacturing 27,000

Black American Labor Conditions

Federal Reserve Chairman Powell has talked about an economy where the same tide lifts all boats and the goal of the Fed to make sure there is greater labor gains for Black and Hispanic workers.   This morning’s report will get favorable media coverage, as some will point out the sharp decline in Black unemployment.

They will not say why.

  • Labor force -249,000
  • Employment to population 55.8 from 55.9
  • Employed 18,757,000 from 18,769,000
  • Participation rate 60.8 from 61.6

While the media will be dishonest about the month, the Fed will take note of the numbers…which were very problematic.

Wages

Overall wages +0.4%, which beat consensus of +0.3%, but were probably eaten up by inflation resulting in yet another decline in real wages.

Employment – Population Ratio

  • 58.4 from 58.0 but still down 2.7%from February 2020 level

Participation Rate

  • 61.7 from 61.6, this key metric has been ranged bound between 61.4 to 61.7 since June 2020

Conclusion

I do not see this forcing the Fed’s hand, which might be why the market didn’t get hit when the numbers crossed the tape.

Much is being made over the ten-year bond yield hitting a double bottom at 1.13% and now racing higher.

It will change the style back to overweight value to growth, which has had an amazing run, lifting the NASDAQ to an all-time high.