It was another monster session for the stock market, especially for smaller cap names and indices.  For all the press the short squeeze stocks have received, momentum in the Russell 2000 and Microcap names has gone on for some time and looks unstoppable near term.

Like the short squeeze saga, the moves are more than just individual investors. It is also a reflection of how broader Main Street participation is changing the selection process.  Individual investors are focused on sizzling industries and underdogs that reflect themselves. 

In many ways, this is that the so-called barbell approach espoused by so many on Wall Street these days.  In this instance, its about sexy growth names like Penn National Gaming (PENN) and the surge in online betting. But it is also those names that could become behemoths in the next few years.

Index	Session	YTD
FDM First Trust Dow Jones Select Microcap Index Fund	+3.35%	+9.35%
Russell 2000	+1.98%	+11.52%
NASDAQ Composite	+1.23%	+6.90%
S&P 500	+1.09%	+3.08%
Dow Jones Industrial Average	+1.08%	+1.47%

Market Breadth

The two major exchanges saw overwhelming strong breadth, but once again, the story was the NASDAQ.  It’s where all the action is, and few are going to leave the party while the music is still playing.

Market Breadth	NYSE	NASDAQ
Advancing	2,252	2,810
Declining	969	1,099
52 Week High	201	320
52 Week Low	3	2
Up Volume	2.49B	4.14B
Down Volume	1.61B	2.57B

The Market

The S&P 500 saw 10 of 11 sectors higher on the session.  As I pointed out in yesterday’s commentary the steepening yield curve and growing chance of higher inflation is great for Financials.  Brick and mortar retailers also continue their improbably run with several among the top 15 gainers.

S&P 500 Index	+1.09%
Communication Services XLC	+0.60%
Consumer Discretionary XLY	+1.07%
Consumer Staples XLP	+0.73%
Energy XLE	+1.10%
Financials XLF	+2.22%
Health Care XLV	+0.42%
Industrials XLI	+1.07%
Materials XLB		-0.36%
Real Estate XLRE	+0.56%
Technology XLK	+1.60%
Utilities XLU	+0.78%

Not Enough Exuberance

The financial media has spent a century convincing us that when individual investors are excited about the stock market, it was a sure sign to get out.  This viewpoint is really despicable.  I watch everyday stocks that only individual investors were buying in 2020 fetch upgrades and higher targets. 

According to the AAII, individual investor bullishness peaked on December 2, and it is currently at its lowest level since October 28, 2020.

Portfolio Approach

There were no changes in the Hotline Model Portfolio yesterday. This morning, we are taking profits in Materials and adding a new position in Technology. If you are not a current subscriber to our premium Hotline service, email info@wstreet.com to get started today. 

Today’s Session

1. Watch transportation stocks today. 

Treasury Secretary Buttigieg says there are “very active” conversations ongoing between the White House, Congress and stakeholders to provide additional assistance to the transportation sector.

Canadian Prime Minister Trudeau says his government is having “great discussions” with airlines about possible aid.

1. Watch Disney

California legislators have sponsored a bill to reopen theme parks. 

Jobs

There was bad news on the jobs report, however optimism is growing.  Forty-nine thousand jobs created in January as some of the stay-at-home restrictions have been lifted. However, the expectation was for 105,000 new jobs. 

The report was a major disappointment for several reasons:

• Participation declined to 160,161 from 160,567
• Long term unemployment (27 weeks plus) 4,023,000 from 3,956,000
• December revised to -227,000 (Leisure lost 536,000 jobs)

Retail trade lost 37,800 as restaurants and travel industries suffered more cuts.

On the positive side:

• Wages +5.4% from +5.0% against consensus of +5.1% y/y

Third Vaccine

Johnson and Johnson (J&J) applied for emergency use authorization (EMA) on Thursday. The FDA is expected to greenlight it in the coming weeks.

If it is authorized, the Covid-19 vaccine would be U.S.'s third, joining Pfizer-BioNTech and Moderna.

The company stated, "Today's submission for emergency use authorization of our investigational single-shot Covid-19 vaccine is a pivotal step toward reducing the burden of disease for people globally and putting an end to the pandemic."

Click here to read the announcement

Earnings Scoreboard

So far 263 companies have reported earnings:

Revenue

• 78% beat
• 22% missed
• Blended return +1.0% consensus Jan -1.4% Oct -2.8%

Earnings

• 83% beat
• 14% missed
• Blended return +1.6% consensus Jan -10.3% Oct -13.6%

 

Comments

Thanks Charles for mostly being ahead of trends and the market nobody gets it right all the time. Your words hold weight. Keep on your doing good. Thanks again. John Cowger on 2/5/2021 10:40:35 AM

Charles I really admire that you are a true advocate of empowering the retail investor! Frankly I'm pissed from being dissed constantly in main stream media as a retail investor. Thanks to your training to monitor my watchlists, I made $44k on GME after 2 weeks hold, and I've never been on a reddit blog. Power to the retail investor to take personal responsibility! Alisa on 2/5/2021 11:17:17 AM

Great comments on what's happening and why! Thanks Charles. Lorin K on 2/5/2021 11:35:07 AM

Just recently jumped on the Payne train and glad I did ... straight forward and frank, positive and informative ... I'm a novice ... 3/23/20 started with Schwab,it was easy then...nowhere to go but up Now I need some guidance . Love your show , ordered your books ...ready for the next chapter. Thx JIM on 2/5/2021 12:20:51 PM

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