Thursday was a real tug-of-war session that essentially pitted the market against the perception of inflation as a beast that’s going to hang around for a while. When the number hit, there was no arguing it was a beast, and immediately everything went according to script, or like the title of the book: “When You See the Inflation Beast…Run!”           

So, bond yields popped, growth stocks moved lower, cyclicals opened higher.  Then the script flipped.   The sudden shift was sparked by one person who read the report’s details and began to buy the dip.  Then others started to buy the dip, and in a flash, the dip was gone. 

That’s because most of the inflation was flexible stuff - and not the hard-to-escape sticky version.

The so-called reflation trades associated with reopening the economy went bust for the session, and buyers moved back into the loving arms of growth. In the process, the NASDAQ Composite was the top performer, and the S&P 500 edged past the Dow Jones Industrial Average. The Russell 2000 took it on the chin, but it is still the best performer.

Year-to-Date:

• Russell 2000: +17.0%
• S&P 500: +12.9%
• Dow Jones Industrial Average: +12.6%
• NASDAQ Composite: +8.8%

Market breadth reflected the uncertainty of the session, although new highs dwarfed new lows.

Market Breadth	NYSE	NASDAQ
Advancing	1,765	2,269
Declining	1,558	2,023
52 Week High	332	183
52 Week Low	8	12
Up Volume	1.99B	2.31B
Down Volume	2.44B	2.50B

I  thought the NASDAQ should have rallied even more, considering how hard it was hit when the ten-year yield spiked in February. But another swoon like yesterday, and we could see the NASDAQ take off.

Message of the Market

Considering the market has become a game of musical chairs, where investors were lurching from one investment theme to the next almost on a daily basis, we should not have been surprised by the action.

S&P 500 Index	+0.47%
Communication Services XLC	+0.54%
Consumer Discretionary XLY	+0.47%
Consumer Staples XLP	+0.62%
Energy XLE		-0.13%
Financials XLF		-1.17%
Health Care XLV	+1.71%
Industrials XLI		-0.49%
Materials XLB		-0.60%
Real Estate XLRE	+1.02%
Technology XLK	+0.74%
Utilities XLU	+0.66%

Sectors that were late to the 2020 bull market have been super-hot, especially after the election. And they stayed super-hot for a hot second yesterday before turning lower.

It’s Been a Heck of 52 Weeks

Just think back 52 weeks ago, and there is no way anyone could have imagined we’d be at this place in the stock market, where there would be a chorus of folks saying everything is overvalued.

Of course, a year ago, 99% of these folks were saying, ignore the ‘bounce’ and get out to join them on the sidelines. Well, individual investors ignored the clarion call back then, and it’s unlikely the experts will sway them out now.

But there is growing angst because a year ago most stocks were clearly on sale. Now, you have to do a fair amount of work to make a case for unrealized value…especially in value stocks.  LOL.

But remember, even though a stock is up 100% over a period of time, it doesn’t mean it wasn’t:

A: Deeply oversold before the move

B: Has underlying fundamentals that justify the move…and more

C: It won’t consolidate the gains, then continue to rally

I think there are still  a number of individual names that check ‘all of the above.’

Portfolio Approach

We are adding a new position in Industrial to our Hotline Model Portfolio.

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