Lots of moving parts were in yesterday’s session, including massive rotation that has been creeping along. But now the dam has broken.

• 10-year yield rallied 7% to 0.70%, and there is no doubt cash moved into equities.
• Defensive sectors faltered as Consumer Discretionary (XLY) continued to outperform.
• Technology (XLK) stumbled big time with a big rotation into Financials (XLF) & Industrials (XLI), led by Goldman Sachs (GS) & United Airlines (UAL).

S&P 500 Index	+1.36%
Communication Services XLC	+0.29%
Consumer Discretionary XLY	+1.61%
Consumer Staples XLP	+0.72%
Energy XLE	+3.19%
Financials XLF	+5.63%
Health Care XLV		-0.03%
Industrials XLI	+4.39%
Materials XLB	+2.77%
Real Estate XLRE	+3.06%
Technology XLK		-0.05%
Utilities XLU	+1.04%

I have been posing this question for weeks– can this market rally without Technology leading the way? The answer is yes, but it cannot rally if Technology is getting hit. 

Consumer Ready to Carry Load?

Yesterday’s Consumer Confidence revealed a firmness among consumers, particularly with present conditions, which edged to 96.9 from 94.3. Moreover, when asked about business conditions over the next six months, optimism improved.

• Improve: 43.3 from 39.8
• Worsen: 21.4 from 25.1 

Portfolio Approach

We have adjusted weights in the model portfolio, matching the commentary and observations above.

After the Close

Tractor Supply (TSCO) offered current-quarter guidance; not only did that send shares surging, but in the process, it also laid out a template for what investors should be looking for.

• Demand
• Hiring workers (especially full time)
• Strong growth during the pandemic
• Capital expenditures (heavy IT spending)
• Broadening out omnichannel (for retailers)

From the Company:

PLEASE NOTE: Due to high demand, you may experience shipping delays

WE ARE HIRING!

Tractor Supply is embarking on the Company’s most ambitious hiring drive ever, with plans to immediately fill more than 5,000 full-time and part-time Team Member positions across its nearly 1,900 stores in 49 states and 8 distribution centers.

Second Quarter 2020 Outlook

Building on the momentum in its business in the first quarter of 2020, Tractor Supply continues to experience record sales across its channels, product categories, and geographic regions. The company’s e-commerce business has experienced substantial growth quarter-to-date with many customers choosing to Buy Online, Pickup at Store, and the new contactless curbside delivery option. While there is still a significant portion of the second quarter ahead, the company currently forecasts a net sales growth of 24% to 29% and comparable-store sales growth of 20% to 25%.

The company’s gross profit performance continues to be strong with gross margin expansion anticipated for the second quarter. For the second quarter, the net incremental operating expenses related to the COVID-19 pandemic are estimated to be at the high end of the company’s previous guidance range of $30 million to $50 million. Diluted earnings per share for the second quarter are forecasted to be in the range of $2.45 to $2.65.

Investments in Enhanced Consumer Shopping Experience

Over the second quarter, the company is relaunching its website at www.tractorsupply.com. The new website will position the company for rapid digital growth by leveraging a modern web architecture, including a docker and containerization strategy that will be enabled by Microsoft (MSFT), Azure Power Global (AZRE), HCL Technologies (HCLTECH), Red Hat (RHT), and Solar Alliance Energy (SOLR).

The new website will enhance and simplify the e-commerce journey for the customer, and give Tractor Supply the ability to introduce new digital capabilities into the market much more quickly. As customers continue to utilize omnichannel conveniences, such as contactless curbside pickup for Buy Online, Pickup at Store, and same-day delivery, the relaunched site will help to ensure that Tractor Supply can deliver on their expectations.

Additionally, Tractor Supply will launch its first-ever mobile app in late June.

Today’s Session

On the housing front, the weekly MBA Mortgage Applications Index rose 2.7% after declining 2.6% in the previous week. The standout was Purchases:

• Purchase +8.6% w/w +54% since April 15

The futures are looking to extend yesterday’s gains. 

 

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