When the market stumbled out of the gate yesterday, there was never a sense stocks would stage a reversal. The biggest question stands: would a run-of-the-mill pullback morph into something more problematic?  I have to say, however, I was surprised at the level of resolve that saw buyers emerge into the closing moments of the session.

Positive vaccine news helped so-called reopening stocks, but there were three distinct industry winners.

Semiconductors, led by Advanced Micro Devices (AMD), continues to give Nvidia (NVDA) a run for its money as the industry bellwether. Both have edged out Intel (INTC) in terms of growth and influence. Also, software looks compelling. 

Drug companies, led by Pfizer (PFE), and medical testing companies led by PerkinElmer (PKI): 

IHS Markit	XLI	92.58	+6.88	+7.43%
Advanced Micro Devices	XLK	87.19	+5.47	+6.27%
Xilinx	XLK	137.49	+8.06	+5.86%
Qorvo	XLK	150.11	+6.57	+4.38%
Skyworks Solutions	XLK	136.16	+5.01	+3.68%
Danaher	XLV	216.78	+7.85	+3.62%
Iron Mountain	XLRE	26.62	+0.88	+3.31%
Teleflex	XLV	371.05	+11.70	+3.15%
S&P Global	XLF	341.57	+10.21	+2.99%
Pfizer	XLV	37.23	+1.08	+2.90%
PerkinElmer	XLV	129.26	+3.74	+2.89%
Electronic Arts	XLC	124.17	+3.58	+2.88%
Autodesk	XLK	272.81	+7.42	+2.72%
Becton, Dickinson	XLV	228.96	+5.88	+2.57%
Thermo Fisher Scientific	XLV	453.40	+11.58	+2.55%

Fire on the Mountain – Run, Boys, Run

The Devil Went Down to Georgia

He Was Lookin’ for a Soul to Steal

-Charlie Daniels Band

On November 4, it felt like a slam dunk that Republicans would win both Georgia Senate runaway contests. Now, it only feels like a layup. The election will be the most expensive non-presidential race in history, and billions are pouring into the state from special interest groups outside Georgia.

Democrats, which now count Hedge Fund managers (they will never pay the highest taxes that would destroy small and medium-sized businesses), Hollywood, sports, and entertainment as key money sources, will raise and outspend their rivals. Republican in-fighting has become a wildcard, and it is the main reason why these race outcomes are no longer taken for granted.

I find it amazing to watch this all play out. GOP Rep. Doug Collins should have never run. And President Trump should have gotten down to the state when internal polling showed it was up for grabs. The market is still assuming one or both GOP candidates will win, but that assumption was a lot easier a couple of weeks ago.

Faltering V

Yesterday’s financial release from the Dallas Fed included several special questions that tried to get a handle on expectations. 

The report came in at 12.0 against a consensus estimate of 15.8 (FactSet consensus was 13.3) and down from 19.8 in October. Against this decline, Texas businesses are less confident than they were back in June. Interestingly, there were gains in employment just as there was in the Chicago Purchasing Managers’ Index (PMI) that was otherwise a disappointment.

• New orders: 7.2 -13.0 points
• Capacity utilization of 6.9 -16.1 points
• Shipments: 13.7 -8.2 points
• Employment: 11.7 +3.0 points

There was a noticeable increase in how long businesses think it will take for revenues and headcount to return to pre-Covid-19 levels. 

The number of businesses that do not expect revenue or a headcount to ever come back edged higher as well.  When Texas starts getting nervous, we all should get nervous.

Texas Business Outlook Surveys	When do you expect your firm’s revenues to return to pre-COVID levels?		When do you expect your firm’s head count to return to pre-COVID levels?
	Jun. '20 (percent)	Nov. '20 (percent)	Jun. '20 (percent)	Nov. '20 (percent)
Less than a month	0.4	1.7	5.0	4.9
1-3 months	11.6	6.4	12.6	4.9
4-6 months	21.1	20.6	17.0	14.6
7-9 months	15.5	11.6	10.7	9.7
10-12 months	16.5	18.5	9.4	16.8
More than a year	31.3	36.9	26.4	30.8
We do not expect return to pre-COVID levels	3.5	4.3	3.5	4.3

Portfolio Approach

This morning, we added a new position in Materials and lowered Cash to 0.

Today’s Session

The market is poised to surge higher at the start of trading in anticipation of the joint appearance of Steven Mnuchin and Jerome Powell before Congress. The heads of Treasury and Federal Reserve have different ideas on how to get funding into Main Street, but there should be a sense of urgency from both.

There are trends that should be flashing red lights.

I am most concerned about the jobs picture and how difficult it will be to get folks back into the labor force as they linger longer in unemployment.  There is no doubt so much of this is self-inflicted reactions to Covid19 that persist in areas that are suffering the most job losses and highest degrees of income inequality.

Pressure is mounting on Congress to take action before leaving for their Christmas break. 

The market understands getting everyone vaccines will be a longer-term endeavor and would like to see one more tranche of cash act as a bridge to that point when the crisis is clearly in the rearview mirror.

I continue to predict a package happens at $1.5 to $1.8 trillion.  It would be smart to see this before the stock market shifts into panic mode.

Hot Money         Chinese EV Stocks

Overnight, electric vehicle (EV) sales in China came in stronger than expected.  The news has pulled hot money back to the space which took a pause. 

• XPEV sold 4,224 vehicles +342%
• NIO sold 5,291 vehicles +109%

Other names looking higher include CAAS, which we last featured in 2014.  Which brings me to the fact I have seen several iterations of the electric vehicle craze over past decade+.  I will say this time it’s different in the sense governments are forcing the issue and Wall Street is providing funding. The only thing missing is organic demand. 

I say trade these names, but be nimble, and understand all are overvalued.  For those reason, I have been reluctant to feature them on the Hotline, which is more conservative in nature.

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