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Morning Commentary

LOTS OF DRY POWDER

By Charles Payne, CEO & Principal Analyst
10/8/2020 9:25 AM

Wednesday was a huge day for the stock market, as all the major indices rallied. Market breadth was sturdy across various metrics, including the mounting list of stocks hitting new 52-week highs. 

The session was marked by serious bottom-fishing and momentum trading, lifting the weakest performers for the year to the front of the line.

Major Indices Performance

Session

2020 YTD

NASDAQ Composite

+1.9%

+26.7%

S&P 500

+1.7%

+5.8%

Dow Jones Industrials

+1.9%

-0.8%

Russell 2000

+2.1%

-3.4%

 

Message of the Session

S&P 500 Index

+1.74%

Communication Services XLC

+0.73%

Consumer Discretionary XLY

+2.29%

Consumer Staples XLP

+1.08%

Energy XLE

+1.41%

Financials XLF

+1.68%

Health Care XLV

+1.89%

Industrials XLI

+2.21%

Materials XLB

+2.57%

Real Estate XLRE

+0.28%

Technology XLK

+1.83%

Utilities XLU

+0.61%

 

November 4th Positioning

Politics intriguingly influenced the market, as stocks rallied in sectors expected to do well no matter which candidate is victorious next month.

The media went apoplectic over President Trump’s tweets about pulling the plug on fiscal relief negotiations until after the election. Most inaccurately, the media suggested he was walking away completely - and yet, the stock market still took off. Not only does a deal seem more assured, but there is also a potential bidding war on how much money to provide.

The three best performing sectors will reap the rewards no matter which candidate wins.

Consumer Discretionary names will be big winners when the next round of $1,200 stimulus checks are deposited directly into bank accounts. My investment thesis on beaten-down brick-and-mortar survivors was working big time yesterday, as more of these names and others not in the S&P 500 were among the biggest winners.

Consumer Discretionary

Tapestry (TPR)

Gap Stores (GPS)

Etsy (ETSY)

Carnival Cruise (CCL)

Aptiv (APTV)

 

Material names should be big winners when we get that next infrastructure deal. I admit I’m skeptical that it’ll get done, but the Street is beginning to position itself just in case.

Materials

Freeport-McMoRan (FCX)

Martin Marietta Mat (MLM)

Mosaic (MOS)

Celanese (CE)

LyondellBasell (LYB)

Industrials got a lift from airlines that have been asked to hold off on further furloughs, as leaders in both political parties have voiced their commitments to stave off mass layoffs.

Industrials

American Airlines (AAL)

United Airlines (UAL)

Parker-Hannifin (PH)

Robert Half (RHI)

Delta Airlines (DAL)

There are other sectors, industries, and niches that are on fire at the moment. Buyers will continue to flock because the fact of the matter is the stimulus is not priced into this market. A $2.0 trillion fiscal injection will turn the rally parabolic.

Consumers Reload

At the onset of the coronavirus crisis and mass national lockdown, many experts suggested there would be an explosion in credit card debt. There was a bump of $6.02 billion in February, but the numbers have declined each month since.

In August, credit card (revolving) debt declined by $9.4 billion, leaving outstanding credit card debt at its lowest level since June 2017. Non-revolving debt, such as student and auto loans, edged up to $2.2 billion. The overall debt is down $7.2 billion – it was way off the mark of expectations of +$13.5 billion.

One part of the problem is tightening lending standards for everything from home mortgages to credit cards. The other part is a more disciplined consumer, perhaps weary of the next move from Congress.  

The result may be that American consumers with savings above $2.0 trillion and a 14% saving rate, coupled with a decline of hundreds of billions in credit card debt, are poised to carry the U.S. economy.

Momentum

Market breadth was fantastic with 2,219 winners on the NYSE and2,677 on the NASDAQ Composite.

The S&P 500 advance-decline line reached an all-time high this week, which usually suggests an additional upside for the index.

Hotline Model Portfolio Approach

We added a new position in Communication Services yesterday and took profits on two positions in the Model Portfolio, where the investment proposition declined the most.   We are adding a new position to Consumer Discretionary this morning. If you are not a current Hotline subscriber, contact your account representative or email Info@wstreet.com and to get started today on achieving your financial goals.

Today’s Session

Its been a very busy morning with lots of news, data and speculation.

IBM (IBM)

Finally does the right thing and will spin off stuff to focus on the cloud.  The street loves the news (it’s only three years late).

This spinoff news is huge for IBM, but it also underscores the investment opportunities in cloud computing.

McDonalds (MCD)

Comp store sales in the United States climbs to 4.6%, the street was looking for 1.9%.  The company points to “strong average ticket” and larger orders.

Morgan Stanley (MS)

The big Wall Street bank makes another acquisition.  The offer to buy asset manager Eaton Vance (EV) for $7.0 billion is a huge premium, as EV closed at $4.69 billion market cap yesterday.  This follows the $13.0 billion takeover of Etrade.

Stimulus SOS

President Trump was on Fox Business this morning making positive comments on stimulus talks…even complimenting Nancy Pelosi.

During his interview, news on initial jobless claims came across the tape.

Initial Jobless Claims

840,000 against consensus of 825,000 from 837,000 last week.

Initial Jobless Claims

There was better news on continuing claims, which plunged to 10.98 million and far better than 11.40 million Wall Street consensus.  It’s a high number, but it’s a remarkable achievement against current backdrop.

Continuing Claims

 


 

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