Tuesday was a tough session that never really got going, even when the major indices were higher at the start of trading. Energy is the clear winner  as winter shutdown the oil industry will result in a supply shock. Financials continue to forge ahead and live up to the hype. 

Mega growth names in Communication Services helped to nudge the sector higher. The rest of the market was lower. 

Perhaps the most intriguing news was the spike in cruise line operators. Finally, the cruise industry seems to be reacting to the notion there is a light at the end of the Covid-19 tunnel - and they should have enough funds to get there. Once travelers get the green light, there is an assumption pent-up demand will result in strong initial demand for cruises.

Utilities were hammered, but the decline is nowhere near the level of incompetence across the country, where millions have been left without power.

For the most part, however, declines were relatively slim as the index almost finished in the plus column:

S&P 500 Index		-0.06%
Communication Services XLC	+0.48%
Consumer Discretionary XLY		-0.43%
Consumer Staples XLP		-0.18%
Energy XLE	+2.51%
Financials XLF	+1.71%
Health Care XLV		-0.99%
Industrials XLI		-0.10%
Materials XLB		-0.19%
Real Estate XLRE		-1.07%
Technology XLK		-0.32%
Utilities XLU		-1.12%

Market Breadth

There were still more winners than losers on the NASDAQ, which continues to see a surge in the up volume. Even the New York Stock Exchange (NYSE) saw stronger conviction among buyers than sellers.  Between the two platforms, there were more than 1,000 new 52-week highs against only 27 new lows.

Market Breadth	NYSE	NASDAQ
Advancing	1,515	2,125
Declining	1,745	1,896
52 Week High	383	622
52 Week Low	9	18
Up Volume	3.11B	4.93B
Down Volume	2.00B	2.73B

Inflation Story

A lot is being made about impending inflation as interest rates continue to climb. It is a good time to point out that the bond market enjoyed a 30-year run that made a lot of big-time investors very comfortable. That trend is still intact, and it doesn’t reverse until the 10-year gets through 3.00%.

That being said, I think the market starts to freak out as the yield approaches 2.00%. But like other moments of anxiety, including early on in the Covid-19 crisis when markets got wobbly at certain milestones, those knee-jerk periods should not derail the long-term rally.

Timber!

Lumber inflation, coupled with a lack of skilled labor, could begin to slow the housing boom. The Consumer Price Index (CPI) report will not reflect this or other areas of inflation. However, Main Street feels this, and there are chain reactions. In fact, one headline that caught our eye yesterday focused on the realities of food inflation.

FACING HIGHER COMMODITIES COSTS, KRAFT HEINZ (KHC), AND CONAGRA BRANDS (CAG) MAY CHOOSE TO RAISE PRICES.

State of Borrowers

There has been a demonstrable improvement in bank credit card charge-offs and delinquencies. It is just another factor in the value proposition of owning Financials.

January Card Metrics	Net Charge -offs			Delinquency Rate
	Jan	Dec	Nov	Jan	Dec	Nov
C	2.01%	2.11%	2.57%	1.38%	1.36%	1.82%
AXP	1.30%	1.60%	1.90%	1.00%	1.00%	1.00%
BAC	1.50%	1.67%	1.50%	1.55%	1.50%	1.46%
JPM	1.97%	1.70%	1.59%	0.99%	0.99%	1.02%
COF	2.54%	2.42%	2.57%	2.49%	2.41%	2.29%
DFS	2.57%	2.45%	2.55%	2.08%	2.07%	2.03%
ADS	4.60%	8.70%	5.20%	4.30%	4.40%	5.00%

Looking Ahead

Remember one of the key value propositions that I have been pointing out for many months- it’s all the dry powder out there.  Households have a ton of money in the bank, they have paid down debt, so their balance sheets are more pristine, and they are champing at the bit to get out there and spend that cash.

Corporations are piling on the cash via strong earnings after raising trillions via ultra-low rates.

Portfolio Review

We are adding to Consumer Discretionary this morning in our Hotline Model Portfolio.

Today’s Session

I keep watching these Covid-19 numbers, and soon, as recent gains are digested, the market will rocket higher.  Then the financial media, grappling for the simplest explanation, will mention Covid-19 progress.  

People are going to go outside and they are going to spend a lot of that cash in savings or on cleared credit cards.   Last month, we saw the impact of just $600 in stimulus checks. It’s not a stretch to see a monster boom in retail spending after another two trillion is injected and the economy opens up.

Retail Sales

• Headline +5.3% consensus 1.2%
• Ex-Autos +5.9% consensus 1.0%

More details on the afternoon note.

Inflation Signal

Producer prices came in much hotter than anticipated and its putting some pressure on the market.

• US PPI data for January 2021
• US PPI final demand for January 1.3%% vs. 0.4% estimate
• Final demand M/M 1.3% vs. 0.4% estimate
• Ex Food and energy 1.2% vs. 0.2% estimate
• Ex food and energy, trade 1.2% vs. 0.2% estimate
• Final demand Y/Y 1.7% vs. 0.9% estimate
• Ex food and energy Y/Y 2.0% vs. 1.1% estimate
• Ex food, energy, trade Y/Y 2.0% vs. 1.0% estimate

Comments

Don't forget the hidden food inflation where they don't mark up the same product's price. They create different sizes and charge higher prices proportionately without someone realizing it. Kraft single nolonger 16oz, the 1 1/2 liter of soda, nomore 1 qt OJ it's 56oz.. keep an eye out for things like this again christopher voccola on 2/17/2021 10:31:09 AM

Sounds positive Charles. On the other hand, we aren't even in Texas with their weather and power problems and this nasty weather; snow, wind, cold and even colder temps make it hard to look beyond today. Thanks Charles. Lorin K on 2/17/2021 10:43:39 AM

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