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Morning Commentary

RIDING THE RAILS

By Charles Payne, CEO & Principal Analyst
10/12/2020 9:00 AM

Last week was fantastic for the market. Not only because all major broad market indices moved substantially higher, but the upside bias was firmly entrenched, and the market ignored or shook-off a bunch of headlines that at various points derailed it during 2020.

Message of Market

On Friday, Energy took it on the chin, which served as a reminder that just because a sector has underperformed, it’s not automatically an opportunity. Meanwhile, Technology came on strong, led by semiconductors, which could be on the cusp of industry consolidation. Even without a rash of takeovers, it looks like this will be a monster earnings season for chipmakers.

Consumer Discretionary names continue to ride the stealth rally in brick-and-mortar names.

S&P 500 Index

+0.88%

 

Communication Services XLC

+0.60%

 

Consumer Discretionary XLY

+1.04%

 

Consumer Staples XLP

+0.78%

 

Energy XLE

 

-1.60%

Financials XLF

+0.12%

 

Health Care XLV

+0.90%

 

Industrials XLI

+0.37%

 

Materials XLB

+0.77%

 

Real Estate XLRE

 

-0.27%

Technology XLK

+1.53%

 

Utilities XLU

 

-0.02%

Transportation Watch

Anyone familiar with the Dow Theory knows a big component revolves around the performance of transportation stocks. The theory goes back to a series of essays written over 100 years ago when the transportation of goods was a more precise proxy for the overall economy. But even in the digital age, it’s very important for transportation names to outperform, and they are beginning to sizzle.

These names are not the sexiest and periodically move like lumbering giants, which is how they were acting, especially the largest holding stock in the index, known as FedEx (FDX). But Fred Smith & Co. turned it around after a wakeup call from Amazon (AMZN). You must have exposure in your portfolio:

S&P Transportation Index (XTN)

FDX

FedEx Corp

2.91%

AAWW

Atlas Air Worldwide Holdings Inc

2.88%

UPS

United Parcel Service Inc

2.83%

CHRW

CH Robinson Worldwide Inc

2.81%

EXPD

Expeditors International of Washington Inc

2.72%

UNP

Union Pacific Corp

2.71%

CSX

CSX Corp

2.69%

NSC

Norfolk Southern Corp

2.67%

R

Ryder System Inc

2.66%

MIC

Macquarie Infrastructure Corp

2.66%

KSU

Kansas City Southern

2.63%

XPO

XPO Logistics Inc

2.62%

DAL

Delta Air Lines Inc

2.59%

LUV

Southwest Airlines Co

2.59%

LSTR

Landstar System Inc

2.59%

Transportation Breakout

The S&P Transportation Index (XTN) is right at a major resistance point after a solid series of higher lows created a very impressive trading channel.  A breakout took the index to the top of the channel, which is right at another major hurdle.

Earnings Season

It’s all about banks, transports, and consumer staples, as earnings season moves into a higher gear:

Tuesday

Wednesday

Thursday

Friday

High Expectations

One year ago, Wall Street saw the third-quarter 2020 (3Q20) earnings up 13.2% year-to-year. Since then, it’s been downhill except in the past few months. In July, the consensus was for a decline of 25%, and now it’s 21.4%. In the early going, the first 21 reports have seen a 90% beat on revenue and earnings.

There will also be a lot of questions about fourth-quarter financials with Congress dragging its feet on fiscal help and worries about new lockdowns and restrictions as more coronavirus cases rebound.

Hotline Model Portfolio Approach

On Friday, we added to Consumer Discretionary in the Hotline Model Portfolio. This morning, we closed a stock in Consumer Staples and added to Industrials.

Today’s Session

Equities have gained strength all morning long and it's not from positive headlines or scuttlebutt form Washington. D.C.  

Bias turned higher, and it is gaining momentum as we head into earnings season. 

There is also positive anticipation about the Apple (AAPL) phone launch and Amazon (AMZN) Prime, which is becoming an industry holiday, that coupled with Halloween, could spark big retail spending sooner and replace Black Friday in importance. 


Comments
Love your program on Fox Business

Liz Clark on 10/12/2020 10:08:41 AM
 

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