The S&P 500 finished the session fractionally lower, but seven of the eleven sectors closed in the plus column. Energy continues its magnificent 2021 rally, and banks continue to live up to the hype. Both sectors are enjoying the benefits of higher inflation that could provide support for multi-year rallies.

S&P 500 Index		-0.03%
Communication Services XLC	+0.29%
Consumer Discretionary XLY	+0.58%
Consumer Staples XLP	+0.37%
Energy XLE	+1.49%
Financials XLF	+0.50%
Health Care XLV	+0.36%
Industrials XLI		-0.28%
Materials XLB		-0.05%
Real Estate XLRE	+0.08%
Technology XLK		-0.88%
Utilities XLU	+0.08%

I appreciate sessions like yesterday, where the broad market is slightly under pressure, and market breadth underscores more selling than buying.   

It’s what was being sold that was the storyline of the session.

Market Breadth	NYSE	NASDAQ
Advancing	1,420	1,557
Declining	1,804	2,444
52 Week High	163	235
52 Week Low	10	18
Up Volume	2.08B	3.13B
Down Volume	2.42B	3.94B

Selling Grand Slams

Yesterday’s pressure came from profit-taking in the hottest stocks in the market. The good news is it looks as if most of the funds rotated into other sectors and industries. The question is what sparked the move. I’m convinced it’s the narrative of spiking bond yields. 

The S&P 500 has 328 winners this year, enjoying an average gain of 11.84%, with the top twenty winners average gain edging to its highest point of the year to 39.0%

 

The NASDAQ Composite has 777 winners against only 216 losers, with an average gain of 21.2%. The top twenty enjoyed an average gain of 131.2%, down from 137.5% on Tuesday and 145.0% a week ago.

Riding the Waves

The fact the biggest winners of the year are leaking helps to explain how so many amazing earnings results are being greeted with selling. Think about the dream financial release:

• Strong top-line organic growth, driven by pricing power that beats consensus: check
• Gross margins expand: check
• Costs held inline without sacrificing product pipeline leads to higher operating margins: check
• Strong cash flow: check
• Higher net than revenue growth: check
• Earnings that blow away the Street: check
• Management offers strong guidance that hints at market share gain: check

The above scenario has played out often this earnings season, and perhaps the initial move is higher, but during the session, the stock sells off. As an investor, you have to decide to bend to the whims of the crowd or focus on your modeling and value proposition.

Even when the checklist is not perfect, knee-jerk selling probably undermines your personal long-term goals. 

Portfolio Review

We took profits in Financials and added to Consumer Discretionary yesterday.

 

Today’s Session

The Ringling Brothers and Barnum & Bailey Circus have been on the road since 1871 but were declared defunct on May 21, 2017. The circus delighted fans of all ages with the Greatest Show on Earth. For those that missed the circus or never got a chance to go, you might get the next best thing as the circus comes to Washington, D.C. today. 

The House Financial Services Committee is set to grill the primary actors of the Reddit Retail Investor Revolution. There will be fireworks. Lawmakers will act as if they are angry with hedge funds but somehow drop the bucket of water on the heads of individual investors.

There will be unintended moments of embarrassment as folks that were just briefed on paying for order flow, shorting, synthetic puts, naked shorting, failure-to-deliver (which is a huge, perhaps nefarious, problem), and the difference in obligations between a fiduciary and a broker.

I am not sure who will clean up the mess when it’s all said and done but grab your popcorn and  be prepared to be amazed.

Earnings

Walmart (WMT) posted earnings and stated it will raise the wages for 425,000 employees after it reported strong holiday sales.

• EPS $1.39 VS $1.51 consensus
• Revenue +7.3% y/y $152.1B; consensus $147.02B
• Q4 Walmart-only US comps 8.6%; 5.8% consensus
• Q4 Sam's Club U.S. comparable sales ex-gas 10.8%; consensus 8.3%
• Number of transactions -10.9% y/y
• Average purchase +21.9%
• Ecommerce +69%, with strong results across all channels.

 

Segment Revenues

• Walmart US +7.9% $99.59B; Consensus $97.53B
• International +5.5% $34.87B; Consensus $33.72B
• Sam's Club +8.1% $16.59B; Consensus $16.33B
• Membership Income +2.9% $1.09B; Consensus $1.05B

Guidance

On the economic front, February Philly Fed came at 23.1, beating consensus for 20. New orders and shipments are down but still expanding.

Philly Fed Manufacturing	Feb	Jan
General Business	23.1	26.5
New Orders	23.4	30.4
Shipments	21.5	22.5

Comments

Very creative with the circus analogy Charles! Love it. Made my day. Our congress is a circus that is masquerading as a body of adults that care for the tax payers and citizens of our country, when all they really care about is themselves! Thanks Charles from Covid Country. Lorin K on 2/18/2021 11:43:24 AM

Your circus analogy made me belly laugh… It’s a shame that it is so true. Matthew Rattay on 2/18/2021 12:20:58 PM

...a cold bucket of water. They needed a reality check. This was a good one today --from the PRoB. MOYO on 2/18/2021 12:22:06 PM

I found your guest concerning short positions borrowed from public pensions extremely interesting. Of any shows available during the trading day I enjoy yours the most. Keep it real my good man. Z on 2/18/2021 8:20:11 PM

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