It was one of those sessions where the broad market could not get any traction; consequently, selling began to mount, and equity indices closed near the lows of the session on Tuesday.

·       Dow Jones Industrial: -1.51%

·       S&P 500: -1.08%

·       NASDAQ: -0.86%

The Dow Jones Industrial Average took the largest hit among large equity indices weighed down dramatically by Boeing (BA) and Goldman Sachs (GS). I continue to grapple with the inability of Goldman to gain traction. It is as if the stock has a ‘glass jaw,’ taking huge hits from time to time, often on light volume.

We have a legacy position in our model portfolio that is significantly underwater, and still have not gotten a clear signal to enter again at a lower cost. Traditional valuation metrics have become less attractive since the end of the first quarter, even though the forward price-to-earnings (forward P/E) ratio and book value are inexpensive in the historic sense. 

Goldman Valuation Metrics	March	Current
Price to Earnings (forward)	7.03	14.0
Price to Book	0.67	0.88
Price to Sales	1.74	2.32

Goldman Sachs will report next week, just when the earnings consensus has begun to trend higher. 

While Goldman has been a frustrating stock, it is nowhere near as disappointing as Boeing (BA).

Not long ago, Boeing enjoyed the best long-term investment thesis on the planet. Then came those heartbreaking 737 Max crashes, poor management reaction (empathy wasn’t big in the old C suites of Boeing), and of course, new business realities amid the COVID-19 crisis.

Boeing and the airlines do not have to lead the next leg higher, but they must turn around and trade higher. Instead, the airlines are looking for volunteers to retire early, and no one wants to do that. Meanwhile, more airlines are lining up for a bite at the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) financial apple:

• United Airlines (UAL)
• JetBlue Airways (JBLU)
• Alaska Air Group (ALK)
• Southwest Airlines (LUV)

Turning the Tables

It was only four years ago that many in the investing world began writing off Walmart (WMT), suggesting it missed its chance to fend off Amazon (AMZN). Since then, the company has bulked up its online presence, while leveraging its brick-and-mortar advantages, including strength on groceries.

Reports now say Walmart is ready to unveil Walmart + membership platform at $98.00 annually. Perks will include same-day delivery and fuel discounts. 

The stock rocketed higher on the news. Of course, when considering where shares of Walmart (WMT) could go from here, investors should look beyond the 70% move in the past five years, to the 600% move in Amazon (AMZN) for inspiration.

WMT/AMZN

As Walmart takes on Amazon in retail, Amazon is sharpening its challenge to Netflix (NFLX), offering subscribers to establish up to six user profiles. The news sent the stock higher in after-hours. There’s no word on whether Netflix will get into the retail business (probably not). I still think the company is a good acquisition for Disney (DIS), which has been very acquisitive in recent years.

Speaking of the Mouse House, after the close, Disney (DIS) announced it will go ahead with plans to reopen Walt Disney World on Saturday.   

We featured Disney on the Hotline, but we took a quick profit on it as I became convinced that I was too early. The shares rallied higher, but they have been under pressure since then, after failing to break the 200-day moving average. I will not be chasing this news this morning, but it makes the story more compelling.

The Message of the Session

The market was tired, and looking for something that was not in the offing – a catalyst. So, we opted for a warm place to take a break. Selling was orderly, even as it picked up momentum into the close. For a split second, the S&P climbed into the plus column, but it was too brief. Investors rotated into Consumer Staples or the sidelines.

S&P 500 Index		-1.08%
Communication Services XLC		-0.28%
Consumer Discretionary XLY		-1.57%
Consumer Staples XLP	+0.91%
Energy XLE		-3.18%
Financials XLF		-2.05%
Health Care XLV		-0.87%
Industrials XLI		-1.92%
Materials XLB	+0.03%
Real Estate XLRE		-1.63%
Technology XLK		-1.05%
Utilities XLU		-0.40%

Portfolio Approach

There were no changes yesterday in our Hotline Model Portfolio.

Today’s Session

The United Kingdom is putting in place 9.0-billion-pound worker retention program.  This should put additional pressure on US lawmakers to get something done sooner rather than later. The question of any round of stimulus has been an anchor for the markets. 

The market is looking to open in the green. 

Comments

Thank You ! James G Palmer on 7/8/2020 11:26:33 AM

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