It's beginning to feel a lot like holiday indifference is creeping into the market. Folks are more eager than ever to celebrate Christmas for what the day really means. Plus, most investors can breathe a sigh of relief if they did not panic back in the spring. Others that actually bought the dip can sit back and enjoy their spiked eggnog.
Let’s Hear it for Small-Cap Names
In the first half of the year, the Russell 2000 badly trailed other major equity indices and seemed hopeless. That’s all changed. Since March 23, the Russell 2000 (RUT) is up 79.5%, while the S&P 500 is up 57.1. Only the NASDAQ (which also closed at a new high) has outpaced the Russell year-to-date.
Yesterday’s big winners included Clean Energy (CLNE), GameStop (GME), Vista Outdoor (VSTO), and The Container Store Group (TCS). All the names have been battered in recent years, so their rebounds also serve as metaphors for never giving up.
Pullbacks & Stumbles
There are pockets of the market that have gone bonkers. It’s like a giant lump of coal in the stockings of so many market experts. All day on financial TV, the experts are constantly bellyaching and making the connection to 2000.
These folks have simply missed the big moves, and the best they can do is to assuage their bruised egos and to call for the crash. Some of the names will pull back, as many have gotten out over their skis, but this is not 2000.
Sell Signal?
Yesterday gave us two examples of what will trigger individual pullbacks.
Sell on the news, or in the case of Moderna (MRNA) with the delivery of vaccines - one of the big winners in the Covid-9 vaccine race, the stock has lurched into free-fall mode over the past two weeks.
Sell when perfection is not achieved, like in the case of CarMax (KMX), which saw its stock wipe out despite very impressive numbers. When stocks have rallied as much as auto dealers, the Street expects nothing but perfection.
A Little Bit of Luck
Stocks and markets also pull back when buyers recede into the backdrop (not out of fear), waiting for better entry points. The fear of missing out (FOMO) as the train leaving the station made for very short-lived pullbacks since the summer. However, it’s harder even for those that missed the rally to chase.
This is another reason the same chorus that sings about outrageous rallies is always cheering the value in buying the losers. That kind of buy - guessing at a bottom would be frowned upon if done by a novice investor.
Instead, the novice investor is supposed to send an expert his or her hard-earned money and leave the guessing to the professionals.
There is something to be said about valuations not reflected in share prices. But just because a stock trails the broad market, that doesn’t make it cheap. The fact of the matter is those cheap stocks (more often than not) become cheaper.
On the flip side, even a great company can have an overvalued share price, which is why we have been ringing the register with the Hotline Model Portfolio.
Guessing tops is folly, but we could see selling overwhelm thin buying. For the most part, that would not be an indictment of the market or stocks (in the absence of news).
Portfolio Approach
We added to Consumer Discretionary yesterday in the Hotline Model Portfolio. If you are not a current subscriber to our premium Hotline Service, contact your account representative or email Info@wstreet.com to get started today.
Today’s Session
President Trump is demanding Congress provide $2,000 stimulus checks ($4,000 for a couple). I am not sure how this plays out; although, it seems we could see a $1,200 compromise.
Fiscal Stimulus
The market would react positively if Congress took President Trump up on his demand for $2,000 household supplement checks ($4,000 per couple). In March, unemployment federal unemployment benefits and direct household supplements totaled $754.0 billion.
The current emergency Covid-19 relief act tallies $286 billion. Some may ask where the rest of the funds in the $900.0 billion bill are going, and how are they going to help Americans and the most vulnerable businesses survive in a world of spreading coronavirus and local business lockdowns.
Fiscal Stimulus
| Unemployment | Supplements | ||
Weekly | Total | Per person | Total | |
CARES | $600 | $462 billion | $1,200 | $292 billion |
Emergency Relief | $300 | $120 billion | $600 | $166 billion |
More Red Flags
Personal Income in the United States decreased 1.10% in November from October.
Personal spending fell 0.4%, below estimates for a 0.2% decline.
Let’s see how trading goes this morning.