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Morning Commentary

Giants Tied Down

By Charles Payne, CEO & Principal Analyst
5/6/2021 9:28 AM

The big giants continue to stumble and more and more folks are jumping off the bandwagon. After years of looking up to those mega growth names, the Lilliputians are in charge.  That’s great news even if most of your portfolio is in mega growth names.  Investors are worried about being completely out of the market, and that’s great news, even if the combination of the laws of gravity and downside momentum is making you feel miserable.   

As for the niches of the market that are hot right now – they deserve to be.  It’s not just the consequence of fleeing growth and looking for value, these names were undervalued for a long time in the cold shadow of the giants that thoroughly dominated.   On that note, investors must take care not to whittle down their portfolio to a calendar year. 

By the same token, its nuts to allow big gains to evaporate.  So, for many the current phase of rotation creates a dual dilemma of not being in fresh winners and watching major gains fade.  

If you have double digit gains in names like Apple (AAPL), you simply stay the course, but if you just loaded up on hot names in the past year you are feeling the pinch.

My program has always been about riding them out to a certain point and ringing the register.  No system is perfect, so you are going to get stuck in a name that may or may not have laid an egg on earnings and got smacked so hard its logically tough to take the hit. 

This earning season has been perhaps the most frustrating ever.  The beats have been magnificent.  Guidance has been subliming. 

Earnings

Revenue

Coming into these earnings season, the street was looking for a 24% blended average gain up from 16% on January 1. 2021.  Now earnings estimates are surging for the next three quarters (see chart below).  I think these names with great results and guidance should be held if you have cash to buy fresh names. 

This brings me to the notion of taking losses.  I do not like taking losses on great companies.  Just make sure the data backs up such any assertion and not your pride and ego.

Message of the Market

Tech stumbled into the close to finish in the red while Energy is picking up momentum and Materials act great.  Financials held up nicely as well.

The current momentum winners probably continue to move much higher, as several are still making up for lost ground over the last three to five years. 

S&P 500 Index

+0.07%

 

Communication Services XLC

 

-0.20%

Consumer Discretionary XLY

 

-0.31%

Consumer Staples XLP

 

-0.07%

Energy XLE

+3.23%

 

Financials XLF

+0.82%

 

Health Care XLV

+0.18%

 

Industrials XLI

+0.10%

 

Materials XLB

+1.27%

 

Real Estate XLRE

 

-1.47%

Technology XLK

 

-0.24%

Utilities XLU

 

-1.69%

 

Market breadth was sloppy, but the blue chips on the New York Stock Exchange were up nicely.  New highs of 411 against 20 new lows are the kinds of number put up on NASDAQ earlier in the year.

In addition to being happy to see money stay in equities, selling on light volume is a lot better than selling on larger than average volume.

Market Breadth

NYSE

NASDAQ

Advancing

1,763

1,891

Declining

1,568

2,332

52 Week High

411

182

52 Week Low

20

82

Up Volume

2.59B

1.83B

Down Volume

1.66B

2.64B

Portfolio Approach

Yesterday, we added to Materials in our Hotline Model Portfolio.

After the Close

There was a ton of earnings releases after the close – most were big beats, but initial reactions were mixed.  PayPal (PYPL) stands out for rocketing higher while Uber (UBER) and Etsy (ETSY) took drubbings.

Economic data out this morning is applying some pressure on equity futures, but the ten-year bond yield is edging lower.

 

This morning, initial jobless claims came in at 498,000; a pandemic low after a solid 92,000 decline.

Continued claims are still an elevated 16,157,024, which is very alarming.

The issue is all the extra programs and to what degree they are truly needed in a nation that is rapidly opening up and with close to eight million job openings.

In January and February 2020, the nation paid out $28 billion and $24 billion, respectively, to cover unemployment. 

From May 2020 to March of this year, the government paid out $8.2 trillion, or an average of $685 billion each month.

Productivity

Productivity

Output

Hours worked

Compensation

Real comp

Unit labor cost

5.4%

8.4%

2.9%

5.1%

1.3%

-0.3%

 

Productivity +5.4% consensus +4.3%

Unit Labor Cost -0.3% consensus -0.8%

 


 

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