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Morning Commentary

FEAR OF (bigger) GOVERNMENT

By Charles Payne, CEO & Principal Analyst
11/12/2020 9:28 AM

It’s still about rotation, or in the case of yesterday’s session, re-rotation. Money came out of blue-chips names and back into mega-cap and momentum names. But the so-called Covid-19 stocks were mixed- and on balance, a disappointment.

Although the market bias is to the upside on any given session, your positions can be hit hard, and that is frustrating. That was the case yesterday with Main Street industries from restaurants to auto dealers.  Under pressure from the opening bell, things didn’t get any better after New York governor Andrew Cuomo announced curfews for a number of businesses. 

Lockdown Fever

Cuomo’s action follows an even more strict lockdown edict in Chicago and reports of the Biden team wanting a universal nationwide lockdown for six weeks this spring.

Such a mandate would be met with stiff opposition and test the independence of individual states. For many, the issue isn’t - and never has been the wearing of masks, per se - but being ordered to do so by the government. 

When the federal government assumes that much power, people become nervous.

Even if 100% of Americans agreed on the idea of wearing masks, the federal mandate is a slippery slope. The next time such a mandate takes place, the public might be in an 80% agreement with the course of action.

The time after that, perhaps it’d be 40% - but by then, there would be little room to push back since precedence would be established.

There are mental health issues, economic issues, states’ rights issues, and individual rights issues that will be ignored with a mandated order.

For investors (and I stress investors rather than traders), this volatility and hits to positions can be demoralizing. I would use the upside surge on vaccine news as a reminder these names will reverse higher quickly when the coast is clear. Right now, the bigger threat is locking down the entire nation for six weeks, which would lead to more economic carnage.

I am least concerned about the stock market as I am to what happens to the nation and what happens to our voices. Most publicly held restaurant chains and auto dealers will be fine and take market share by default, while smaller single family-owned businesses are pushed into the abyss of bankruptcy.   The stronger public names will roar back, but too many small businesses will vanish forever.

 Market Breadth

As you might imagine, the NASDAQ enjoyed positive market breadth, although declining stocks were higher than what a 2.0% move would suggest.

Market Breadth

NYSE

NASDAQ

Advancing

1,531

1,983

Declining

1,513

1,512

52 Week High

47

97

52 Week Low

7

8

Up Volume

1.71B

2.37B

Down Volume

2.76B

1.33B

Hotline Model Portfolio Approach

We added a new position in the Hotline model portfolio. I am spying taking a few names for less than I initially wanted to raise funds and mitigate near-term angst. 

It’s important to keep your head on a swivel under these circumstances and not panic. Note: managing risks and building cash is not the same as panicking.

Today’s Session

Keep an eye on the bond market, which was closed yesterday in observation of Veterans Day. The ten-year yield has taken off like a rocket and is now racing toward 1.00%. Those folks that might have just climbed out of a time capsule from 2019, or any year before then, would be shocked this is even a conversation.

However, breaking out through a 1% yield on the ten-year yield has become a big deal. The yield flirted with 0.50% in early August, so it’s on the verge of doubling. There would be some psychological resistance there, but the next big technical test begins at 1.50% through 2.00%.

I think the move is good news for the economy and should help stocks, as big chunks of money come out of bonds seeking new homes. 

The relationship between rising bond yields and ta higher stock market is remarkable. It’s not about day-to-day actions, but over a period of time, which is far longer than a year, the returns average 20%. Keep that in mind as you add the ten-year yield to your stock screen.

US 10 Year

Right now, those yields are lower in part to rising concerns about Covid19 spread and the unrelenting reporting in financial media. 

Moreover, the Biden team pushing for a six week nationwide lockdown is very worrisome stuff.  Many of those nimble, hard working medium and small businesses that have held on would endure a final economic blow.

Chipping Away But Pandemic Red Flags

Initial jobless claims declined to 709,000 from 751,000 against consensus of 740,000. This is more positive news. 

United States Initial Jobless Claims

Continuing claims also came in better than expected to 6.79 million (the street was at 6.90 million).

United States Continuing Jobless Claims

There are still more than 21.0 million Americans on some form of unemployment benefits.  Pandemic Emergency Unemployment Claims +159,776.

Technical View

When indices open demonstrably higher or lower than where they closed, gaps are created in the charts.  According to stock market technicians, those gaps have to be filled, which means at some point, the price returns to that prior closing price.

For example, on Monday the gap was actually filled on the same day (see arrow).  The big run in the stock market since last week has left a trial of gaps (circles).  I do not believe gaps have to be filled, but they are good guides for potential resistance and support points.

Key support for the S&P 500 is 3512.


Comments
FEAR OF (bigger) GOVERNMENT

........correction.........> FEAR OF GOVERNMENT.....


"while smaller single family owned businesses are pushed into the abyss of bankruptcy"

...........that's the game plan ( democrat states ).....it's easier to contain/control a concentrated blob of the large as opposed to a mish-mash of millions of seperate entities....hence lockdowns for the purpose of the destruction of the small........the small then become dependent on the govt checks of survival = endless political control...

.........example....urban areas of concentrated one way voters....they are easier to canvass and brainwash.


prettydirect on 11/12/2020 9:28:45 AM
This statement mentioned above tells me all I need to know about Charles Payne. "I am least concerned about the stock market as I am to what happens to the nation and what happens to our voices." Charles is a true American. Thank you.

William Foresman on 11/12/2020 9:49:16 AM
Charles is our man for the working men and women, not just the banks! We , the small investor, need to keep our eyes on what's happening in Wall Street and Washington. Trump is a people's President! He's in it for us as is Charles.

Lorin Kenfield on 11/12/2020 12:23:06 PM
Excellent points made...
On government mandates, declining public acceptance, and precedents, people on both sides of the political spectrum already don’t trust “the government”. As for precedents, the democrats and the left have set the precedent

Tim Abbott on 11/12/2020 10:11:33 PM
Runoff.

US military is last trusted institution in this country - and they run elections in war zones.

They can do it here.

No recount of phony ballots.

Robert on 11/12/2020 10:39:36 PM
Excellent comments.
Charles, thank you for your great encouragement to invest, your passionate heart of a teacher, and mature & positive outlook. Also, thank you for serving!!


Diane on 11/13/2020 7:43:04 AM
It is sad that government officials forgot, Don't disrupt the middle class and you will not have a problem.

Thomas Goclowski on 11/13/2020 9:17:15 AM
Really ? Trust our government ? You gotta be kidding ! The most incompetent and corrupt government our country ever experienced...!

Chester Bojarski on 11/13/2020 2:50:28 PM
 

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