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Morning Commentary

CAN MEGA GROWTH SAVE THE DAY (AGAIN)?

By Charles Payne, CEO & Principal Analyst
10/28/2020 9:31 AM

The market continues to stumble along and has begun to break down as important technical support points fail to hold. Once again, there is serious bifurcation, as investors are gravitating back to growth and work from home names. Yesterday, with mega-growth leading, only two sectors finished higher in a sea of red.

Communication Services

These are the names in the eye of the political storm, with several heading back to Capitol Hill. However, investors are less concerned with the stifling of free speech due to the fact these companies have the ability to control communication. The abuse of that power could lead to breakups, but that would be years from now, and more than likely, it will only mean adjustments to Section 230.

Today, Jack Dorsey will try to convince lawmakers that removing liability protections for social media companies would result in a handful of giant and well-funded companies dominating the space. As a citizen, I think Silicon Valley’s anti-conservative actions have been very harmful and unfair and must be dealt with. As an investor, I think the company has the foundation for greater growth and profitability. 

Only nine listings (eight names) out of 26 were higher. Their collective weights are 70.7% of the sector.

Communication Services

Sector Weight

Close

Change

% Change

Twitter

3.86%

49.00

+2.31

+4.71%

Facebook

23.52%

277.11

+6.18

+2.23%

Take-Two Interactive Software

1.88%

165.05

+2.31

+1.40%

T-Mobile US

4.44%

111.78

+1.04

+0.93%

Alphabet Inc A

11.94%

1584.29

+14.59

+0.92%

Alphabet B

11.71%

1590.45

+13.81

+0.87%

Activision Blizzard

4.57%

80.49

+0.47

+0.58%

Charter Communications

4.28%

582.13

+1.52

+0.26%

Netflix

4.48%

488.24

+0.69

+0.14%

Technology

Technology (XLK) stocks were powered by mergers and earnings results. There was a nice mix of older names and newbies among the top ten winners. After the close, Microsoft (MSFT) posted strong results that outpaced Wall Street’s consensus in their three main business sectors. The stock edged lower, but the fundamentals of the group justified higher multiples once the broad market got over its jitters.  
 

Technology

Sector Weight

Close

Change

% Change

Xilinx Inc

0.36%

114.55

+9.80

+8.56%

F5 Networks

0.10%

125.57

+10.69

+8.51%

Salesforce.com

2.83%

241.98

+8.32

+3.44%

IPG Photonics

0.09%

195.33

+6.46

+3.31%

Nvidia

4.17%

525.65

+10.22

+1.94%

PayPal Holdings

2.97%

197.22

+3.21

+1.63%

Microsoft

20.42%

210.08

+3.17

+1.51%

Apple

23.75%

115.05

+1.55

+1.35%

Paycom Software

0.24%

378.42

+4.28

+1.13%

 
Communication Services (XLC) and Technology are keeping NASDAQ elevated, but other indices are more vulnerable.

Handicapping the Keepers

Tomorrow, the biggest publicly traded companies report their financial results amid a backdrop that has become increasingly hostile toward earnings results. These keepers of the digital economy have been very volatile when posting results. 

In the most recent quarter, however, most of them popped the same day and were higher a week out.

Initial Reactions

Apple

Amazon

Alphabet

Facebook

1 day

+9.4%

+3.6%

-3.2%

+8.3%

1 week

+17.2

+5.6%

-2.0%

+13.3%

 

But longer term, it’s been tough sledding for Amazon and Alphabet, which have seen their shares often take hits on the same day and week. 

Reaction Trends

Apple

Amazon

Alphabet

Facebook

1 day

+6/7 releases

-4/7 releases

-5/8 releases

+5/7 releases

1 week

+5/7 releases

-5/7 releases

-5/8 releases

+5/7 releases

 

I find it ironic Greenlight Capital’s David Einhorn came out against Technology yesterday, calling the sector a bubble, so everything else sold off.

Portfolio Approach

There were no changes yesterday in the Hotline Model Portfolio.

Today’s Session

The market is becoming more defensive and strong earnings and guidance are not enough to stop it at this very moment.

The turning points for the market yesterday, which was mostly trading sideways, was the release of the latest Consumer Confidence from the Conference Board. 

The 100.9 read was less than consensus of 102.0 and the prior month 101.3 (revised). 

Swing State Confidence

The decline in expectations signals concerns about a lack of stimulus, dealing with Covid19, and a greater chance Joe Biden could win the presidency. 

Key Swing State Consumer Confidence Declines

The Comfort of US Bonds

Note: these levels are still high but moving sharply in the wrong direction on the eve of the election.  I still think President Trump can pull this out, but the market seems to be adjusting to a potential Biden win.  

Meanwhile, there are new restrictions happening in Europe to combat rising coronavirus cases, and that has many on edge.  That anxiety has reversed the flow of funds back into bonds pushing yields lower, just as it was clear money was going to rotate into equities.

The ten-year yield uptrend is still intact but resting right at a key support point. 

10-year yield

Going for the Greenback

The world is also beating a hasty move back to the US Dollar, just as we have been seeing big time Wall Street players short the greenback.

The move reaffirms the fact the dollar will not be replaced anytime soon as the world’s reserve currency. 

It will be interesting to see if the dollar rallies back to highs made in September.  Note: this is not good news for multinational companies and could be a reason some have been under pressure, in addition to the obvious business slowdown from demand interruptions with renewed lockdown efforts in Europe.

US Dollar Index (DXY)

Covid19 Watch

In the United States, cases are on the rise, but deaths are only moderately rising, and now are significantly lower as a percentage of cases.

Covid19 Trends                 

Apr 25

Oct 27

Cases

29,227

65,258

Deaths

2,358

768

 

https://www.statnews.com/2020/03/26/covid-19-tracker/

Earnings Season

If you own shares in a company that posted financial results that beat consensus on revenue and earnings, and management hiked its own guidance for the current quarter or farther out, and the stock got hit, I would think long and hard before closing that position.  More challenging is holding names that beat on the top and bottom line, but management offered no guidance.

Yesterday, 3M (MMM) and Caterpillar (CAT) were slammed for not offering guidance.

Behavior is playing a bigger role than fundamentals at this very moment, and it’s when long term investors need to avoid the herd.

That being said, major equity indices are near or below their 50-day moving average, which signals more weakness.  This is near term stuff that will give us great entry points for names at the top of our buy list.


Comments
What the heck GUYS, you say buy CTXS yesterday at 124.23, set STOP 118.40 it hits stop today for a loss, however it still shows up as open in the swing open report. this has happened over numerous occasions this year. I realize the has been an up and down year, but I am beginning to wonder if I will renew my subscription when these situations keep occurring. Charles new market was vulnerable yesterday on his show, why are we buying into that market, and why place stop in this type market. Dont ask me who my representative is because I don't know,talked to a gentleman couple of weeks ago, he said someone would contact me, have NOT heard back.

Harold Bailey on 10/28/2020 10:57:23 AM
Hello Harold I apologize for the issues you are going through.  I agree 100% we need to make sure there is no confusion with the positions and our thinking.  I am putting in a lot of time trying to provide that guidance (this mornings report is a reflection of that) but you should know you rep and we cannot make dumb easy to fix mistakes. We will get better.  CP

Charles Payne on 10/28/2020 11:41:56 AM
 

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