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Morning Commentary

ALL EYES ON JOBS REPORT & D.C

By Charles Payne, CEO & Principal Analyst
10/2/2020 9:32 AM

Thursday was a seesaw session that hung on every quip, blip, and a slip of the lip out of Washington, D.C., where lawmakers were still talking past each other. In other words, typical brinkmanship.

At this point, I feel Speaker Pelosi is overplaying her hand. It’s going to take pressure from within the party to do a deal. 

The states with the highest unemployment rates are so-called Blue states, which have enforced Draconian lockdowns and still seeing a lot of upticks in virus cases. 

Meanwhile, it was the tale of four markets:

The biggest winner in the S&P was Real Estate, followed by Consumer Discretionary and Technology.

S&P 500 Index

+0.53%

 

Communication Services XLC

+1.43%

 

Consumer Discretionary XLY

+1.31%

 

Consumer Staples XLP

+0.56%

 

Energy XLE

 

-3.07%

Financials XLF

+0.17%

 

Health Care XLV

 

-0.34%

Industrials XLI

 

-0.30%

Materials XLB

 

-1.41%

Real Estate XLRE

+1.64%

 

Technology XLK

+1.05%

 

Utilities XLU

+1.01%

 

Communication Services

The sector was powered higher by the names hit with tough headlines out of Washington, D.C.

Senate Prepares to Subpoena Tech CEOs Over Social Media’s Legal Shield

There was a time when investors would at least act worried when Republicans and Democrats teamed up to go after big tech and Communication Services names. Not yesterday. The Senate Commerce Committee has requested the CEOs of Google, Facebook, and Twitter to come to Capitol Hill and testify on Section 230 that currently shields them from harsher scrutiny and penalties.

Perhaps the ‘dog and pony’ show has run its course, even when both sides of the aisle share the same concerns. 

NASDAQ & Newbies

The newer Technology names that trade on the NASDAQ (but not the S&P) are super-hot, as they represent the future - and the time is now. After the close, Twilio (TWLO) popped 10% on guidance, well above consensus.

The index closed well above its 50-day moving average and is within striking distance of the all-time high. Those Software-as-a-Service (SaaS) cloud software names, along with artificial intelligence (AI) and big data names, are simply on fire again.

NASDAQ Composite

Russell 2000

The small-cap index was the best-performing equity index yesterday and closed right at its 50-day moving average. Although it looks attractive based on how far behind it’s been, I think the index will continue to trail.

Russell 2000

Dow Goes Down

There were 2,079 winners on the NYSE and 2,291 on the NASDAQ against only 958 and 1,168 losers, respectively. The up to down volume was 2 to 1 on the NYSE and almost 3 to 1 on the NASDAQ Composite.

New 52-week highs continue to pile up as well.

The flaccid action in the Dow Jones Industrial Average (DJIA) was pathetic.

The index is not the stock market. And the handlers need to jettison one oil stock and bring in big Technology names.

Speaking of Energy, oil stocks were hit yesterday, partly because of a downgrade in Chevron (CVX). I get a lot of questions about buying oil stocks every day, and it’s too early to force the issue. In fact, we have legacy positions in the Hotline Model Portfolio that we intend to take losses on by the end of the year.

Hotline Model Portfolio Approach

We added a new position in Technology yesterday and are taking profits in a Consumer Discretionary name this morning in our Hotline Model Portfolio.

Today’s Session

By now, you know President Trump and First Lady Melania Trump have tested positive for Covid19 and are in quarantine. 

Like everyone inflected with this scourge, I wish the Commander in Chief and First Lady a speedy recovery.

I have had the pleasure of spending time with President Trump and speaking with him on several occasions. I think he is different than the man portrayed by the media, and even by himself, as his first instinct is to fight back immediately.

In this situation, I think his fighting spirit will serve him well.

Meanwhile, we should remember that as cases climb around the world, in many places to levels seen in the spring, coinciding hospitalizations and death rates have declined.  Our posture during these periods is not to panic. 

That said, we adjust to the market, which was already vulnerable since bias shifted to the downside after September 2, and major indices have not been able to reverse the trend.  I have to say, I do believe this news makes a fiscal stimulus deal more likely, but the jobs report will play a role with regard to urgency.

The street is looking for 800,000 jobs and unemployment rate declining to 8.2%.  Even a beat of those numbers (we see 1.0 million and 7.9%) would be devastating enough to warrant urgent assistance.

Key Support Points

Although equity futures are lower, I’m surprised they haven’t declined more.  Key pre-opening numbers for the S&P 500 sees 3,301 support and 3,338 resistance.

Today’s Session

Investors are now on: 

Positive

Worrisome


 

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