Yesterday, we saw the pendulum of fear swing hard. Perhaps, from the market’s viewpoint, the fear was too high; I better get in now before I miss the next leg higher. 

Unlike last week’s session, market breadth was extremely bullish on the NYSE with the up volume more than four times the down volume. Conversely, while the NASDAQ exhibited spunk by climbing off the canvas early in the session, yesterday was all about value acting like growth.

Market Breadth	NYSE	NASDAQ
Advancing	2,170	1,888
Declining	841	1,498
52 Week High	97	143
52 Week Low	10	45
Up Volume	3.09B	2.15B
Down Volume	635.94M	1.72

In recent years, it is earning the moniker of Fear of Missing Out (FOMO), but it has always been a part of investing in the stock market. Behavior is contagious, and the only thing worse than losing money is not making any money when it seems everyone else is ringing the register. These momentums often build up quietly in innocuous ways, and then it’s off to the races.

This is the case with the Dow Jones Industrial Average (DJIA), the best performing of the larger equity indices yesterday. Now that it’s just less than 1% from moving into the plus column for 2020 (once that hurdle is cleared), I suspect the index will sprint to an all-time high. I continue to point out that while it is not the best proxy for the economy, every media outlet presents the index as the market.

When it pops, there will be a mad dash from fence-sitters everywhere, including professional money managers.

Dow Ready to Rumble

After the close, Boeing (BA), Dow (DOW), and American Express (AXP) popped big time. Buying begets buying, but yesterday was a jailbreak. 

Well, perhaps someone heard me and my constant complaints about the DJIA Index being a horrible index because, after the bell, major changes were announced.

Three new names will be added to the index, replacing names that had been listed for some time.  Looking at share price performance over the past five years, investors will wonder why this didn’t happen sooner:

• Salesforce.com *CRM) to replace ExxonMobil (XOM)
• Amgen (AMGN) to replace Pfizer (PFE)
• Honeywell (HON) to replace Raytheon (RTX)

New DJIA	CRM	XOM	AMGN	PFE	HON	RTX
2020	+33%	-40%	+2%	-3%	-6%	-32%
3 Year	+126%	-45%	+37%	+12%	+26%	-13%
5 Year	+232%	-39%	+66%	+19%	+83%	+12%

Powell Ready to Make History

Speaking at a viral version of the Fed’s annual Jackson Hole, Wyoming, conference on Thursday, Jerome Powell reportedly will outline an aggressive effort to get inflation back to normal levels. I have been saying for a couple of years that the Fed’s greatest worry has been its inability to arrest deflationary pressures.

The speech will be titled “Monetary Policy Framework Review,” and is said to be on par with the historic moves by Paul Volcker to defeat inflation back in the 1980s. Essentially, the Fed will continue to prime the pump, and eventually allow inflation to run above its target for a long period.

Recently, the inflation needle has moved in several key measures, including the Consumer Price Index (CPI) and Producer Price Index (PPI). But a lot of that has to do with limited supplies hampered by Covid-19. Commodities have also made a strong move of late, although it’s a long way from anything that could be associated with inflation.

Jerome Powell has been taken by a hero complex, which includes fixing embedded ills beyond the purview or abilities of the Federal Reserve. Wall Street loves it…until it does not.

Yesterday, we took profit in Consumer Staples and added a new position in Technology in our Hotline Model Portfolio. Today, we are a new position to Technology. If you are not currently subscribed to the Hotline, call your account executive or email Info@wstreet.com.

Today’s Session

Yesterday’s session was impressive because growth and value both enjoyed strong outings. For me, this is critically important. If rotation is to be a successful transition, it cannot happen at the expense of shares in these new household investment names moving lower.

The conundrum is clear, when indices decline investors revert to safe havens.  Today, those safe havens are not Utilities stocks but Apple (AAPL), Amazon (AMZN), Google (GGOG/L), Facebook (FB), and Netflix (NFLX).

S&P 500 Index	+1.00%
Communication Services XLC	+1.22%
Consumer Discretionary XLY	+1.52%
Consumer Staples XLP	+0.86%
Energy XLE	+2.75%
Financials XLF	+2.39%
Health Care XLV		-0.46%
Industrials XLI	+1.81%
Materials XLB	+1.76%
Real Estate XLRE	+0.14%
Technology XLK	+0.86%
Utilities XLU	+0.88%

The Other Rotation

I know every time I mention yields are on the move, they turn back south. But the indications are clear, and the chart backs up the notion, there could be a major breakout higher resulting in some cash going to stocks.

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