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Morning Commentary

Cheap Tech?

By Charles Payne, CEO & Principal Analyst
7/20/2020 9:07 AM

Last week saw the second concerted effort to get so-called value names to rally higher.  The result was fantastic performances in Industrial and Materials names.  Those gains came at the expense of Technology and Communication Services names, although Friday saw a reversal of that trend.  This is a source of frustration for the market. 

There is a large pool of money on the sidelines held in reluctant or worried hands.  Conversely, funds committed to the stock market are reluctant to move to the sidelines and are instead seeking daily opportunities for gain value.   At some point, one of these dynamics will break and change the entire tone of the market. In each case, that pressure will come from fear.

Fear of Missing Out

A major breakout in the S&P 500 and Dow Jones Industrial Average will force even the most bearish money managers into the fray as well as causing those that hate the rally to blink.

Fear of Losing Money

Last week shares of companies in very stodgy industries that normally are very low Beta stocks surge, including diagnostic testing, transportation (rails and trucks), packaging companies, and medical instruments to point out a few.  
 

S&P 500 Index

+1.25%

 

Communication Services XLC

 

-0.50%

Consumer Discretionary XLY

+0.40%

 

Consumer Staples XLP

+2.16%

 

Energy XLE

+3.24%

 

Financials XLF

+2.09%

 

Health Care XLV

+5.14%

 

Industrials XLI

+5.87%

 

Materials XLB

+5.47%

 

Real Estate XLRE

+0.06%

 

Technology XLK

 

-1.16%

Utilities XLU

+4.22%

 

Getting growth and value to rally together would be huge and would change the entire tenure of the rebound rally.  Healthcare will continue to rally on vaccine developments, diagnostic testing promises and health insurers earnings.

Materials have little influence on overall market direction, but those packaging names are great to watch as commentary on consumer demand and changing retail landscape.

Keep an eye on the Industrials, which contain lots of economic proxies.   The index breaks out through 76.29.

Cheap Tech

As we watch for resumption of the so-called value trade, a lot of tech names are oversold…yes, oversold.  You cannot go back in time and buy Tesla (TSLA) or Amazon (AMZN) at points you first began to short them, and now wish you bought, but successful investors forget about that kind of stuff and focus on new chances to get into missed opportunities.

Relative Calm

Whether its typical summer doldrums or something else, the decline in frequency of wild gyrations that marked the first half of the year is a welcomed development.

The VIX is one measure of market angst sending positive signals.  Closing under its 200-day last week, the VIX sees support at 24.5. Below there, the index could drift to a more reasonable 19-20. 

Portfolio Approach


 

Today’s Session

All eyes are on Europe and whether the EU can put together an economic rescue package.  That ahead of what everyone says will be intense negotiations for more stimulus out of Washington.  Republicans are all over the place and Democrats are already overplaying their hand.

I think we will see a deal that has limited additional federal funds for unemployed Americans.  I think the number will be $300.00.

There will be liability assistance for businesses operating in the age of coronavirus.

There will be small and targeted amounts of money to states to assist in first responders and bring schools up to safety requirements needed to reopen.

There will be another tranche of cash directly into the hands of consumers – more than likely $1,200 for single adult and $2,400 per family with $500 additional for each child.

I do not think a payroll tax cut will make the final package.

 

 

 


Comments
Morgan Stanley commits to tallying its climate impact
The financial giant will become the first major U.S. bank to count emissions from its loans and investments.

REALLY?.....when it reaches a certain # they stop loaning/investing?

prettydirect on 7/20/2020 9:14:27 AM
Even the Responsible Giants are beginning to "lose their way"! America needs to be AMERICA again!

FMT on 7/20/2020 11:40:20 AM
 

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