Financials And Energy Rebound Despite Fed Meeting Worries

I really couldn’t call yesterday a nail-biter, even as major indices looked listless with less than an hour to go into trading. I knew the market would finish the session higher, and the S&P 500 and NASDAQ Composite would keep rolling up those record-closing tallies.

Market breadth was not as robust as prior sessions, but we’ll take the win after recent weeks.

S&P Leadership

The Financial sector enjoyed the biggest move of the session and moved back into first place year-to-date. Energy also continued to rebound from its recent eight-day slide.

Casino stocks continue to rip – reacting to gaming, starting back in Macau.

Perhaps sparking the move back into cyclical stocks was the 4.0% jump in the ten-year bond yield, which is now breaking through the trendline that marks recent tops. If this move becomes more powerful to the upside, it could roil the order of the equity market, although I think it’s mostly signaling the Fed’s Jackson Hole meeting angst and nothing else.

Consumers Spending & Companies Buying

Williams-Sonoma (WSM) posted financial results so strong that management moved up its longer-term goal of $10.0 billion in annual revenue one year sooner, to 2024. In addition, management increased its dividend by 20.3% and hiked its share buyback program.

Comp-Store Sales:

• Pottery Barn: +26.9%
• West Elm: +51.1%
• Pottery Barn Kids: +18.0%
• Williams-Sonoma: +6.4%

People are spending a lot of money on their homes, high-end appliances. So naturally, there are ‘haters’ out there, including the writer of “The 2020 Hater’s Guide to The Williams-Sonoma Catalog.”

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It’s mostly sophomoric humor. But beyond the humor, the guide makes valid points - and yet, if someone could afford a $5,000 coffee machine, they might buy one.

Price: $4,499.95

“The ultimate solution for an unbeatable coffee standard… the Jura Z8 offers a true bean-to-cup experience from freshly ground coffee.”

Drew says: What’s that I see beside the coffee Lamborghini? ARE THOSE MACARONS?

Oh, you better believe they are. Let’s pin them at $60 each. Every year, I hunt around this catalog for the highest-priced item, and every year, it ends up being some ******** espresso maker.

There is so much cash sloshing around on corporate balance sheets, and there’s so much confidence that it will keep coming, and that we will see massive buy-back announcements.

These are indeed true goals, but most seem to be followed through and are often increased down the road.

• Williams-Sonoma (WSM) announces $1.2 billion buybacks, up from $560 million left from the last announcement.
• Analog Devices (ADI) announced an $8.5 billion increase in buybacks to bring the goal to $10.0 billion.
• Guess (GES) announced it would increase its buybacks to $200 million.

Portfolio Approach

There are no changes to our Hotline Model Portfolio this morning.

Today’s Session

This morning, second quarter GDP revision came in at 6.6% from the initial report of 6.5%, and against the street’s consensus of 6.7%.

There is lots of Fed chatter this morning with Ester George and James Bullard both suggesting the Fed get started with tapering, sighting inflation and the size of the Fed balance sheet.

Bullard also pointed to the housing bubble, reminding folks that everyone including the Fed slept on the housing bubble in the mid-2000s.

Also, reminding folks the job market is a lagging indicator – tell that to Jerome Powell.

On that note, initial jobless claims inched higher last week, and continuing claims also rose. These numbers should be lower at this stage of the recovery.  Be that as it may, lots of changes next month, from schools reopening to federal unemployment benefits running off, could get these number back in the lower 200,000 pre-pandemic range.