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Morning Commentary

Market Scare (but donít panic)

By Charles Payne, CEO & Principal Analyst
7/19/2021 9:20 AM

Question of the Week

Everyone keeps talking about inflation and consumers bracing to pay more.

Has your recent household spending changed, and have you adjusted your budget and spending for higher cost, especially on the so called "kitchen table" items?


Post your answer below.

The market set to open significantly lower this morning.

Its days like this when I wish I were a day trader.  There is a lot of confusion in the air, and the better part of valor is to retreat to safety. Hence, the only three winning sectors last week were the traditional havens.

Meanwhile, energy was crushed, and crude oil prices are lower this morning on news of an OPEC deal.

S&P 500 Index

 

-0.97%

Communication Services XLC

 

-0.96%

Consumer Discretionary XLY

 

-2.45%

Consumer Staples XLP

+1.27%

 

Energy XLE

 

-7.89%

Financials XLF

 

-1.61%

Health Care XLV

 

-0.07%

Industrials XLI

 

-1.53%

Materials XLB

 

-2.28%

Real Estate XLRE

+0.70%

 

Technology XLK

 

-0.60%

Utilities XLU

+2.59%

 

While stocks are tumbling, I think investors have to assess the message from the bond market.  For weeks, bond yields signaled a slower economy. But most on the street dismissed the notion, suggesting things like short covering.  This morning there are a number of reasons for bond yield weakness:

Message Bond Market

Ten Year Yield continues to plunge.

Two- & Ten-Year Yield Curve continues to flatten reflecting future economic slowdown.

Market Breadth

The guessing game on inflation continues, but it is less critical as restrictions begin to return, and there are even whispers of schools not reopening in September.   Market internals were already a disaster that saw decliners with a three to one ratio to advancers.

Market Breadth

NYSE Week

NASDAQ Week

Advancers

896

1,1106

Decliners

2,564

3,548

52 Week High

382

343

52 Week Lows

94

302

Up Volume

6.2 billion

9.1 billion

Down Volume

12.7 billion

12.0 billion

Right now, the Delta variant, while highly transmissible, isn’t resulting in spikes in hospitalizations or deaths.  Perhaps the greater economic threat is government shutting down the economy and keeping schools closed in September.

Crude Oil

Energy was the weakest sector last week and crude oil is breaking down after OPEC reached a new production deal.  If there is no hiccup in demand, this supply should not derail long term upward momentum, but this is a serious test for WTI which is right at the trend line.

Dollar Strength

More signs of global angst and moves to safety of the US dollar.  This has consequence for multinational earnings if its persistent. 

This is a scare, but the underlying fundamentals really haven’t changed much. In these kinds of markets, everything gets hit, but its nuts to close everything out.

Portfolio Approach

We raised some funds in the Hotline model portfolio and took a couple hits, but I want everyone to have some cash to take advantage of a situation that in many respects is already oversold. Our cash is now 20%.

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Comments
No change in household spending. Look for the best prices and quality in purchases and live within our means.


Terry Larson on 7/19/2021 10:13:26 AM
Good commentary. Hopefully this is more of a scare than long-term economic trends. The Biden government will lean toward austere Covid restictions, if the past is any indication. That won't help the economy at all.

Thomas G Schlehuber on 7/19/2021 10:30:04 AM
Deferring to my wife, who is the prime purchasing agent in our house, she's not sure. She says, no great standouts for food stuffs. Having said that, we have been retired for 20 years and don't buy over the top stuff. Wait a minute, she's just got out her grocery store receipts from Jan. 2021 and present month of July. Pie crusts- 0 increase, eggs- went from $1.48 to $1.98 , butter increase from 2.48 to 2.68, milk 2.29 to 2.39, carrots no increase, bananas 49 cents to 48. Other than that, last year, June 2020 we had a bid to build a shop for $33,000 and Jan 21 it increased to 65,000. Of course our gas has increase big time. Hopefully that helps. Thanks Charles and staff.


Lorin K on 7/19/2021 10:51:34 AM
I just got to Salt Lake City a few days ago from New Jersey. I have noticed any additional cost except for gasoline. Itís gone up 30% in the last two weeks.

Ed Lacovara on 7/19/2021 1:14:25 PM
We live a very simple life and enjoy the non-monetary benefits of living in the US which are usually free: family, friends, national/state/county parks, freedom, outdoor sports like biking, tennis, and pickleball. like home cooking. We know where every penny we spend goes and calculate our net worth every month. We evaluate each expensive purchase, I.E. budget. We are not afraid to drive the same car for 10 plus years and to the grave, live in a trailer home fo escape winter (in an amazing community in Fl) to stay in our budget and listen to Dave Ramsey!!! We calculate our earnings each month from multiple sources.

When we find an category that requires too much money for our budget... we adjust. Since so much of what we do requires little money, we have been able to handle the increases in gas and food prices.

Ann E Hawkins on 7/19/2021 1:41:21 PM
Yes we have raised our budget due to Bidenís total mismanagement of the country. Food and gasoline are some of the biggest increases

Rick Mathies on 7/19/2021 4:37:03 PM
I work in retail food and have seen cost of goods go up. I have started to watch my spending habits regarding food.

Tim Korth on 7/27/2021 10:52:38 AM
I use Imperfect Foods for produce delivery and have noticed the price of produce ticking up ever so slightly each week. Although Iím gluten-free, I donít buy the breads due to the price, choosing instead to invest those funds.

Kelli Denard on 7/29/2021 7:44:59 PM
Other than paying more for gasoline; I have compared unit costs and taken advantage of sell items/coupon discounts for years, when it comes to grocery purchases. The most notable increase has been in Beef and fresh produce. In the case of Beef, have had to adjust my limit of what I'll pay per pound upward, but it's still a limit.

Terry on 7/30/2021 10:25:42 AM
 

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