Yesterday’s session had moxie written all over it after major indices stumbled out of the gate. Even with a closing push that lifted the Dow Jones Industrial Average (DJIA) into the plus column, as I pointed out on the Afternoon Note, it was all about chasing fundamentals, especially big Technology and Communication Services (see Tim Cook’s comments after the close below). The S&P 500 was steady, as old leadership continues to cede ground to a different evolving world.
S&P 500 Index | +0.58% | |
Communication Services XLC | +0.40% | |
Consumer Discretionary XLY | +1.20% | |
Consumer Staples XLP | +0.66% | |
Energy XLE | -4.27% | |
Financials XLF | -1.76% | |
Health Care XLV | +2.18% | |
Industrials XLI | -0.89% | |
Materials XLB | -0.58% | |
Real Estate XLRE | -0.65% | |
Technology XLK | +1.22% | |
Utilities XLU | +0.02% |
Health Care
The Health Care sector (XLV) is only down 3% in 2020, and it is gaining momentum as the sector’s heroic role in combating coronavirus (COVID-19). The steadiness of health insurers has gained greater investor recognition.
Technology
The clear winner in a shutdown world of working and playing from home is Technology stocks – they are living up to the hype and the promise. The country was already lurching toward an improved work-life balance. This meant working from home and having powerful online gaming, which would need unique computer chips and software that would make distance-working easier and safer.
Consumer Staples
The Retail Sales report saw food at home surge 26% last month, powered by even stronger grocery sales, as consumers loaded up on the basics for survival, including toilet paper. We’ve reverted to industrial-strength products and mainstays like Clorox bleach, instead of those fancy products, whose great claim to fame is not harming the environment.
Then there are the places we buy all this stuff. The big-box stores have always been great core investments, but their values have increased markedly during this crisis.
Grounded
On the other end of the spectrum are clear losers like airlines, which held back the Dow Jones Industrial Average for most of the session. Oil stocks continued to sink, and the big banks are putting so much cash on the sidelines. It’s as if they’re bracing for something uglier than current headlines.
Both oil and Financials are so much less influential to the broad market than ten and twenty years ago. Big indices can rally even when they are dragging.
A Rally into the Close
Yesterday, the Dow clawed into the plus column, led by Caterpillar (CAT), which staged an impressive reversal on comments from President Trump on a potential $2.0 trillion infrastructure. We’ve heard this before. For some reason however, investors gave the scuttlebutt more credence, bidding up CAT shares $5 bucks into the close, and another $2 bucks in after-hours trading.
After the Close
A spate of positive news and developments after the close powered equity futures substantially higher:
- Gilead Sciences (GILD) reported shorter hospitalization in COVID-19 patients in Chicago treated with Remdesivir.
- Boeing (BA) announced workers in the Seattle area will go back to work next week under new social distancing guidelines.
- Apple’s (AAPL) Tim Apple, also known as Tim Cook, made comments after the close that Apple will come out of the coronavirus crisis even stronger than it was before.
President Trump outlined the White House guidelines for reopening the nation. He said each state will be able to follow the guidelines while also calling their own shots. The 18-page report and nod to governors were both seen as smart and measured approaches that will allow for smoother transactions predicated on health and safety first.
Guidelines for Opening Up America Again: https://www.whitehouse.gov/openingamerica/
Technical View
The Dow Jones Industrial Average acted great overnight, as the overly influential Boeing (BA) popped 7% on news it was getting back to making airplanes in the Seattle area.
Don’t look now, but the index could eclipse the 50-day moving average, a point I made at the start of the week.
Today’s Session
The rally has been amazing. While we could run into some resistance, the point has been made, and I hope investors understand. There could be more swoons and the Covid-19 crisis continues to haunt the world, but we know the market can rebound and will rally long before economies turn. Today will be a very compelling session, knowing Fridays have been tough on markets.