The Fear Trade?

Despite nonstop financial media coverage of the coronavirus, investors’ fears have shifted from a worst-case scenario and a global pandemic, to missing the next big leg higher. As the session moved along, buyers emerged and that triggered other would-be buyers to take notice. And soon, there was aggressive buying into the close on Monday, sending the NASDAQ Composite and the S&P 500 back to all-time high levels.

The momentum is coming from companies that are in the eye of the coronavirus storm, including Apple (AAPL), which made a seven-point reversal from an intraday low of $313.00 to close at the highest level of the session at $321.55. Apple’s not the only beneficiary; during the session, several Wall Street firms commented on opportunities being created by a fear of the coronavirus.   

Then there was merger speculation from, a piece in Forbes Magazine, suggesting Alphabet (GOOG) buy Tesla TSLA) for $1,500 a share. And there’s a piece in the Business Insider, hinting at International Business Machines (IBM) making a bid for Slack Technologies (WORK).

S&P 500 Index	+0.73%
Communication Services (XLC)	+0.59%
Consumer Discretionary (XLY)	+1.13%
Consumer Staples (XLP)	+0.42%
Energy (XLE)		-0.50%
Financials (XLF)	+0.29%
Health Care (XLV)	+0.53%
Industrials (XLI)	+0.56%
Materials (XLB)		-0.05%
Real Estate (XLRE)	+1.15%
Technology (XLK)	+1.35%
Utilities (XLU)	+0.38%

The NASDAQ Corral

If there were high-profile deals, and those trillion-dollar names and others started putting their cash hordes to work beyond buybacks and dividends, it would set off a serious wave of excitement.

Even if blockbuster deals do not materialize, stock buybacks will get larger. We are waiting for the final tallies from 2019. There was a point during the year when buybacks were on target to eclipse $1.0 trillion.

Meanwhile, I am not sure where the next leg of the NASDAQ rally goes from here – and I’m not going to try and guess the top. 

Market Breadth

There is this notion that only Technology and momentum names were higher, but market breadth was firmly higher, although selling volume underscores the risk of disappointing investors.

Breadth	Advancers	Decliners	New highs	New lows	Up volume	Down vol.
NYSE	1,721	1,211	248	86	1.82 billion	1.72 billion
NASDAQ	1,906	1,296	167	92	1.58 billion	641 million

Earnings Erupt

Thus far, 324 S&P 500 companies have reported, and the results keep getting better and better:

Revenue

• 66% beat
• 34% missed
• Blending change +5.0% (estimate Jan 1 +4.1%)
• Bended ex-Energy +6.2%

The total: $2,959,900,000,000

Earnings

• 71% beat
• 19% missed
• Blended change +2.3% (note: estimate Jan 1 -0.3%)
• Blended ex-Energy +5.2% 

The total: $342,960,000,000

While earnings are back in the rearview mirror, looking ahead is another reason to consider being long – as the market consensus estimates see a monster sequential growth.

Portfolio Approach                   

Two more ideas in the model portfolio moved above current buy limits (we reevaluate the underlying fundamentals as things change; ou want to chase the improving valuation, not the higher share prices).

Today’s Session

The major indices are positive this morning. A judge has approved the merger of T-Mobile (TMUS) and Sprint (S).  Both stocks are higher, TMUS +10% and S +74%.  This news is also lifting others in the sector. 

In economic news, the small business Optimism Index began 2020 in the top 10% of all readings in the 46-year history of the survey, up 1.6 points to 104.3 in January. Six of the 10 Index components improved, two declined, and two were unchanged, with the Uncertainty Index edging up slightly. Sales expectations and earnings trends improved significantly, yet Owners expecting better business conditions slipped slightly.

With the election cycle in full swing, 60% of small business owners are paying “a lot” of attention to it, while 30% said they are paying “some” attention.  Almost all say they are likely to vote in the general election, with 60% approving of President Trump’s job, and 52% believe their business will be better off if he is reelected. Only 41% think they would be better off if a Democrat wins.

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