The market limped into the weekend, having lost its oomph midway through the week when the Federal Reserve sort of promised it would come to the rescue, but never explained how. Wall Street’s need for reassurance beyond the so-called Dot Plot has been obvious for over the last three Federal Open Market Committee (FOMC) gatherings.
Meanwhile, the dilemma of keeping the market buoyant amid serious profit-taking in many of the hot stocks adds to worries that “the market” is in trouble.
Nowhere to Hide
On Friday, the entire equity market was under pressure, as selling spread throughout the day. By the closing bell, only 11 names in the S&P 500 held onto gains. There were no safe havens as Utilities and Real Estate were the biggest sector losers. Technology was the third-worst performer.
There is not a sense of panic. However, it is a concern about how much further the hot names have to pull back before they can resume their usual leadership role.
S&P 500 Index | -1.12% |
Communication Services XLC | -0.96% |
Consumer Discretionary XLY | -1.39% |
Consumer Staples XLP | -0.92% |
Energy XLE | -1.12% |
Financials XLF | -0.20% |
Health Care XLV | -0.15% |
Industrials XLI | -1.12% |
Materials XLB | -1.72% |
Real Estate XLRE | -1.98% |
Technology XLK | -1.72% |
Utilities XLU | -1.76% |
Technical Test
The S&P 500 closed slightly below its 50-day moving average on Friday, which means the index must make a stand very early in the absence of any major scheduled news. If there is any early pressure, look for the first big support point at 3,276.
Technology is down six weeks in a row, so if the sector finds terra-firma, I think we could see a sense of urgency.
Clock Stopped Ticking
It looks as though the TikTok saga has been resolved in a deal that will eventually see U.S. investors become the majority shareholders.
- Private U.S. shareholders in ByteDance (BDNCE)
- Oracle (ORCL)
- Walmart (WMT)
Apparently, the Committee on Foreign Investment in the United States (CFIUS) and the White House are satisfied that private information from American users will not be compromised and shared with the Communist Chinese government and military officials.
The deal values the company as high as $60 billion, and we will see if it’s really worth all the fuss. I get concerns from the government, several nations, and private companies over safety.
Although it should not have been a big deal for all tech, I think resolution helps the sector this week.
Portfolio Approach
Last week we began to close positions and raise cash in part to concerns about exogenous events and the short term impact on the market.
These are going to happen from time to time, and its difficult to grapple with as an investor. It has been my experience to have cash to buy into these dips while taking care not to sell stocks that are going to rebound fairly quickly or represent significant value.
We took more action this morning, taking profits on one position and a loss on another to hike our cash position to 25% in the Hotline Model Portfolio.
Today’s Session
Turmoil in DC
Inability to get fiscal stimulus – I have been warning this selloff would happen – now exacerbated by SCOTUS fight.
We regret and mourn the loss of Justice Ginsberg, which came as a shock to so many considering her will to live and her indomitable spirit. But even without her untimely death, Congress was playing it too close to the vest. The game of chicken now has the chance to see both parties drive off a cliff and take the rebound and stock market with them.
The economy and markets will come back. and sadly, we are stuck with a two-party system that has become more dysfunctional and selfish. Still, these folks do react once turmoil they could have prevented spills over into markets. Perhaps, this is could be a wakeup call, but who knows at this point.
Federal Reserve - too sanguine - Wall Street needs to hear of a greater sense of urgency and what the new magical tool will be to make sure all their good work isn’t wasted. Note, the S&P 500 hit 3233 before the June FOMC, and stumbled after Fed didn’t come through, and the index moved lower by June 26, to 3000, -7.1%.
The Federal Reserve will probably have to be the knights in shiny armor and come to the rescue. Jerome Powell & Co have been acting too cool and they actually exacerbated September’s weakness with unambiguous plans for future accommodation.
Rising Covid19 cases - next 24 hours will see major restrictions issued in UK and the word “lockdown” will be used, but this is not the same lockdown put into place in the spring.
- Schools are open
- Businesses are open
There will be restrictions that will dent their economy lower. The key nobody wants to talk about out loud is that this time around, death rates should be lower, as younger cohorts are more likely not to get very sick and treatment has improved dramatically. This part of the narrative, and its influence on the market, won’t be articulated for a few weeks.
Technical Factors
The inability to hold key support, most particularly the 50-day moving average for the S&P, made the market more vulnerable. It felt innocuous, but the weak close on Friday violated a key support point.
Big Rebounds | NASDAQ | S&P 500 | Dow Jones |
March 23 | 6,860 | 222 | 18,591 |
September 2 | 12,056 | 357 | 29,100 |
Change | +76% | +61% | +57% |
Key Support Point
NASDAQ
- 10,847
- 10,390
S&P 500
- 3,276
- 3,215
Dow Jones Industrial Average
- 27,500
- 27,005
Note: the market is already approaching levels where buyers with the right wherewithal and cash are going to be spying opportunities. The thing right now is a lack of urgency with so many unknowns. Once that pendulum swings back to the train leaving the station, the bounce will be swift, but we probably will be ranged bound into the election.
It’s a wide tradable range, however.
Make sure you have cash and stay alert for chances to buy names you wish you owned on September 2. If you are not a current Hotline subscriber contact your account executive or email Info@wstreet.com to get started today.