To my surprise, one hundred stories high

People getting loose y'all, getting down on the roof

Folks are screaming, out of control

It was so entertaining when the boogie started to explode

I heard somebody say

disco inferno

(Burn baby burn) burn that mother down

-The Trammps

It was a good fashion party, like back in the disco days when the party seemed like it would go on forever (or so I’m told). The energy, the excitement, and the urge to put on your dancing shoes permeated the air, and few were able to resist.

Sure, a few old-timers just quipped the rally was a bounce, using last Monday as the reference point, ignoring the moves for the year, and since March of last year and even back to March 2009. 

The Spark Got Hot

When my spark gets hot

(Just can't stop) when my spark gets hot

Perhaps the key characteristic of this rally is its resolve, and how quickly it rebounds from adversity. All it needs is a spark. When that spark gets hot, it’s off to the dance floor. And it is infectious and so much fun. There are times when you don’t even have to be doing the right dance moves.

Put on Your Dancing Shoes

Without a doubt, yesterday was one of those sessions, but after last week’s scare, who would begrudge a rebound?  Of course, that was more than a run-of-the-mill rebound - that was a statement. I think the real statement was - there are too many driving forces behind the rally for it to fizzle for too long. 

The driving force is simply money-gobs of money. And the perfect backdrop for the Gross Domestic Product (GDP) growth last witnessed under Ronald Reagan during the last days of the disco era.  Yesterday was also a memory - when the market spark gets hot, it just can’t stop…or be stopped for long. So, get out of the way.

So Much Money

There is so much money sloshing around in society,  it’s hard to not see where it will not fill in most of the nooks and crannies of the economy. Corporate cash was at a record $2.1 trillion at the end of June last year.

Manufacturing Renaissance

The Renaissance in the Middle Ages gave us art masterpieces like the Birth of Venus and revived a fading Europe from the Dark Ages.  The resumption of a Manufacturing Renaissance in the United States might not be connected to the new world of crypto. But it is reviving a sagging middle class in middle America.

The Institute For Supply Management (ISM) Manufacturing report rose for the ninth consecutive month, coming in at 60.8 from 58.7 and above the consensus of 58.9.  It’s the strongest report since February 2018.

• New orders: 64.8 consensus 61.1
• Production: 63.2 consensus 60.7
• Employment: 54.4 consensus 52.6
• Prices paid: 86.0 consensus 82.1 (highest since July 2008)

“The manufacturing economy continued its recovery in February. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories. Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential. Optimistic panel sentiment increased, with five positive comments for every cautious comment, compared to a 3-to-1 ratio in January.” - Spokesperson

Good Problems?

According to the ISM report survey, committee members reported several concerning issues:

• Issues with absenteeism
• Short-term shutdowns to sanitize
• Difficulties in attracting and retaining workers

Like so many other good news items these days, the question begs whether this is too much of a good thing - and the spike in prices paid was another negative omen for higher inflation. I saw this table yesterday that suggests tough sledding for the market based on the correlation with ISM Manufacturing.

Message of the Market

Although the market surged out of the gate, there was a cautious feeling to the action. But after an early pullback effort stalled, the subsequent move higher took on a more aggressive tone. Utilities went from the top-performing index toward the back of the pack while Technology, which was middling out of the gate, zoomed ahead of other sectors.

S&P 500 Index	+2.38%
Communication Services XLC	+2.56%
Consumer Discretionary XLY	+2.35%
Consumer Staples XLP	+1.01%
Energy XLE	+2.60%
Financials XLF	+3.13%
Health Care XLV	+1.31%
Industrials XLI	+2.56%
Materials XLB	+2.53%
Real Estate XLRE	+0.11%
Technology XLK	+3.22%
Utilities XLU	+2.21%

Market Breadth

The ratio of advancers to decliners was about as expected. However, I must admit I thought there would be more up volume. The message is clear, as there is still a fair amount of caution.

Another issue is finding cheap stocks. The key isn’t the share price, but a change in underlying fundamentals. Some stocks that look extended are actually beginning to trail their true value proposition.

Market Breadth	NYSE	NASDAQ
Advancing	2,624	3,300
Declining	651	790
52 Week High	218	224
52 Week Low	25	47
Up Volume	4.30B	4.22B
Down Volume	853.45M	846.00M

Portfolio Approach

We issued alerts to take profits on three positions in the Hotline Model Portfolio yesterday. And now our cash level is back up to 10%. We also made changes in the composition of the ideal portfolio. 

Today’s Session

The major indices are mixed this morning after yesterday’s huge performance.  Merck (MRK) announced they will be assisting Johnson and Johnson (JNJ) produce its new 1 shot Covid-19 vaccine.  This news is driving up shares of MRK.

There is no major economic news today, however, investors will be waiting to hear what Federal Reserve Lael Brainard has to say when she discusses the economic outlook at 1 pm ET, and Mary Daly speaks at 2 pm at the Economic Club of New York.

Comments

So when is this bubble going to burst? Can't keep dancing forever. Advance/Decline line cannot keep going up. When is the music going to end,(for now)? Allan Fleisher on 3/2/2021 10:03:34 AM

A bit too technical but I’ll learn something Thanks Robert LaFalce on 3/2/2021 10:09:16 AM

Charles, you made my morning better! You're a Silver tongued Devil! I bet your grades in creative writing were thru the roof! Really enjoyed you analogy between disco dancing and the market! I can see you out there " Getting Down!" All that money is what worries me! It takes me back to the dotcom bubble. Stocks were going up everyday like crazy and "professionals" were saying " It's a new day!" It'll ( the market) will never go down again, and then it did, 70 percent! Keep on dancing!! Until the music stops, and then be ready. Lorin K on 3/2/2021 11:11:21 AM

Great Insights! with humor mixed in. thx William c Trail on 3/2/2021 11:57:27 AM

I am getting all these email lately concerning the "next big thing" the biggest battery break though in a century!! What are they talking about?? Daniel Blain on 3/2/2021 5:43:04 PM

I have read your book 3 times and refer to it often, i have learned so much from you. read your commentary every day. THANKS you have made a difference in my investments. THANKS for all you do mike on 3/2/2021 9:18:19 PM

Great stuff! Juan on 3/3/2021 1:42:49 AM

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