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Morning Commentary

GETTING OVER THE HUMP á

By Charles Payne, CEO & Principal Analyst
6/24/2020 9:38 AM

Once again, the stock market exhibited resolve - and at the same time, fragility as the rally ran out of steam into the closing bell on Tuesday. Outside of those half dozen monster growth stocks and new momentum darlings, big-equity indices were finding trouble maintaining footing. However, early efforts to gain traction usually fail midday, and then it hangs on into the closing bell.

Meanwhile, the NASDAQ has soared to all-time highs; quietly, the Russell 2000 has gone up big since the June 11th drubbing.

June Resistance

S&P 500

Dow Jones Ind

NASDAQ Comp

Russell 2000

June 10

3,190

26,989

10,020

1,467

June 11

3,002

25,128

9,492

1,356

June 23

3,131

26,156

10,131

1,439

Since June 11

+4.3%

+4.1%

+6.7%

+6.1%


Although the market faded in the final hour of trading, only one sector turned negative. Consumer Staples joined the other sectors that are usually seen as shelters in down markets or periods of uncertainty.

S&P 500 Index

+0.43%

 

Communication Services XLC

+0.65%

 

Consumer Discretionary XLY

+0.79%

 

Consumer Staples XLP

 

-0.15%

Energy XLE

+0.10%

 

Financials XLF

+0.46%

 

Health Care XLV

+0.43%

 

Industrials XLI

+0.01%

 

Materials XLB

+0.23%

 

Real Estate XLRE

 

-0.37%

Technology XLK

+0.72%

 

Utilities XLU

 

-1.01%

Investors Got Spooked

Fund flow trends have been very revealing.  There were five consecutive weeks of net outflows from money markets after 11 straight weeks of inflows (money mostly shifting to bonds), resulting in 10 straight weeks of inflows into taxable-bond funds.

The $35.8 billion in money market outflows brought the five-week total to $98.2 billion, which is a drop in the bucket compared to the $1.1 trillion accumulated during the 11 weeks of inflows.

Investors Put a Toe in the Water

After pulling cash out of equity funds for weeks, investors piled $20.4 billion in the week of June 10th, perhaps sensing a major breakout was in the offing. When they got that huge selloff instead, they moved back to retreat mode and pulled out $25.5 billion last week.

Cash to fuel a potential breakout is not an issue…getting that cash off the sidelines is the challenge. 

Lipper

Bifurcated Market & Opportunities

You often hear the term “stock picker’s market,” which means winners are significantly outperforming most of the market. That has been the story of 2020. While it suggests a lot of opportunities, it also reflects a fact that you must be in the right names for outsized gains.

The Message of the Market

The market is so close, and yet so far away from the kind of breakout that changes everything. Taking out those June 10th highs (June 8th for the Dow) forces a lot of fence-sitters with tons of money off the sidelines, but it must happen soon.

A big standout in yesterday’s trading was Kansas City Southern (KSU), a favorite of mine that was talked up in the takeover rumor mill. The stock rallied 1.44% on 2.5 million shares, which is a million more than the usual change of hands.  This rumor is credible since this is the smallest name of the major rails, which has somehow craved up North America in such a way that there are little crossings. 

The of the dominate rail companies are KSU, UNP (Union Pacific), and NSC (Norfolk Southern).

Full Time Employees:

Volume

Inter

Chem

Ag

Auto

Oil

Min

Forest

Metal

Coal

INDUSTRY

+36.8

+42.7

+79.4

+103.4

+71.6

+28.9

+74.0

+145.4

+14.9

KSU

+1.5

-5.9

+4.5

+42.2

+10.0

-36.4

+15.4

-10.9

12.8

UNP

+5.8

+0.9

+0.8

+53.5

+25.6

-0.5

+8.9

+32.0

+11.2

NSC

+4.9

+5.4

-19.5

+42.3

+13.5

-7.9

-23.3

+1.6

+18.2

Overall, the Transportation Index has been very weak; -17.02% year-to-date. It’s clear industries such as airlines will probably see some merger activity, or perhaps a high-profile bankruptcy. Transportation is the circulatory system of our economy - even more so in the Internet age, as packages find their way into our homes from truckers, and not the truck of our vehicles.

The Transportation Index (XTN) holds 42 stocks in six industries:

Portfolio Approach

Yesterday, we added a position in to Healthcare and reduced cash to 5% in our model portfolio.

Today's Session

The major indices are down this morning.

 

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