Yesterday was one of those sessions that never really got out of the gate but had enough intraday shifts to paint a narrative. Growth was back and firm all session long, led by stalwart support in Amazon (AMZN), Nvidia (NVDA), Facebook (FB), Google (GOOGL), and Apple (AAPL). The moves were all about valuation and comfort, as these names have pulled back enough to represent a haven during this period of introspection and major upside potential.

S&P 500 Index	+0.15%
Communication Services XLC	+0.77%
Consumer Discretionary XLY		-0.30%
Consumer Staples XLP		-0.25%
Energy XLE	+0.35%
Financials XLF	+0.49%
Health Care XLV		-0.22%
Industrials XLI		-0.46%
Materials XLB		-1.72%
Real Estate XLRE	+0.12%
Technology XLK	+0.53%
Utilities XLU		-0.12%

I was impressed, even surprised, that buying widened into the close. But market internals were flaccid and weak; had negative volume, and there were more losers than winners. 

Market Breadth	NYSE	NASDAQ
Advancing	1,407	1,280
Declining	1,884	2,878
52 Week High	223	118
52 Week Low	10	29
Up Volume	1.88B	1.42B
Down Volume	2.21B	2.62B

That Gnawing Feeling

Question: What’s Eating the Market?

Answer: High Taxes

As President Biden and his team continue to make the pitch that higher taxes are long overdue and simply the right thing to do to pay for infrastructure that includes child and elderly care, the market is beginning to worry.

According to a survey from the Union Bank of Switzerland (UBS), investors are now more concerned about higher taxes than higher inflation. Moreover, there has been a sharp reversal in how investors see the policy backdrop for U.S. equities during the Biden term.

This is a major reversal, and the White House should pull back on pulling the wool over our eyes on what constitutes “infrastructure” and instead get down to brass tacks on a real bipartisan deal. Ramming two more bills through with reconciliation would be uncool, and it would also unnerve the stock market.

Of course, right now, bipartisan means liberal and moderate Democrats.

Worse Than Missing a Layup

I actually think weakness in Materials (XLB) and Industrials (XLI) reflects an underlying angst that the Biden Administration could be getting too greedy and perhaps blow a slam dunk with infrastructure. The market can sniff these things out and knows how to send red flares to those paying attention. I hope someone at the White House is.

Covid-19 News

Don’t look now, but they’ve made it official. The UK variant of Covid-19 is now the dominant strain in the United States. We are now seeing new hospitalizations for the first time this year, albeit at very tiny levels. However, we are monitoring.

 

Small-Caps Stumble

The Russell 2000 has been outstanding - but lately, it’s run out of gas, just as it’s forming a head-and-shoulders chart pattern.

• +95.2%: one-year
• +12.6%: 2021

I wouldn’t fret over an overdue pullback, and I would be on the prowl to pick up certain names, like Penn National Gaming (PENN). The Russell small-caps are a great proxy for the domestic economy and should also benefit as the U.S. Dollar (USDX) continues to inch higher.

Portfolio Approach

We made no changes yesterday in our Hotline Model Portfolio.

Today’s Session

Initial jobless claims rose again last week to 744,000 topping estimates for 680,000 and from the prior week's revised level of 728,000.  Claims in California, New York and Virginia increased, while Alabama, Ohio and Texas reported the largest declines.

The S&P 500 and Nasdaq are pointing to a positive open, while the Dow lags.  The dollar and the 10 year are down, as is oil.   

 

Comments

I agree, Biden's tax policy is scaring a lot of people because we remember when Obama put him in charge of the 2009 bailout/stimulus and he did an abysmal job. This is just more of the same stimulus for cronies and political allies, with no bi-partisan support. This is how Biden "Builds Back Better" by killing the economy. GAR Smith on 4/8/2021 4:35:48 PM

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