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Morning Commentary

Where is the Business Cycle?

By Charles Payne, CEO & Principal Analyst
9/1/2021 9:33 AM

Yesterday was a sloppy session out the gate and never got any real traction. By the same token, there wasn’t any sense of panic.  Market breadth was encouraging on all levels.

Market Breadth

NYSE

NASDAQ

Advancing

1,837

2,686

Declining

1,466

1,726

52 Week High

147

152

52 Week Low

33

56

Up Volume

2.57B

2.73B

Down Volume

1.69B

1.37B

Message of Session

I’m not a fan of investment managers pushing the notion of investors using a so-called barbell approach.  Without greater context and specifics, it’s kind of a cop out that allows them to claim they were right whether the market goes up, down or sideways.

Obviously, you want to have a balanced approach, but being evenly divided between growth and value stocks offers little guidance, in fact, it invites even more confusion.  The first question is what are value / cyclical stocks.

Q. Would you please explain for those of us less educated what you mean by "cyclicals" and "value sector." Maybe some examples would help. Thank you.

From John H

A. Value generally refers to stocks that trade at lower multiples (PE, PS and PB ratios) and outperform in a stronger economy.  Right now, many see the economic cycle moving from recovery to expansion, which has been a tailwind for value stocks. 

I’m not sure if we are in this part of the cycle, however. All the cash from the Federal Reserve and government has skewed the economic cycle.

Right now, the market acts like we are between expansion and peak, as more recently, the barbell that’s worked best is defensive (staples and real estate) and growth (communication services and discretionary).

S&P 500 Index

 

-0.13%

Communication Services XLC

+0.38%

 

Consumer Discretionary XLY

+0.24%

 

Consumer Staples XLP

+0.22%

 

Energy XLE

 

-0.68%

Financials XLF

 

-0.13%

Health Care XLV

 

-0.13%

Industrials XLI

 

-0.28%

Materials XLB

 

-0.29%

Real Estate XLRE

+0.59%

 

Technology XLK

 

-0.53%

Utilities XLU

 

-0.12%

Today’s Session

The ADP report came in well below Wall Street consensus. While it doesn’t mean we could get a dud on Friday, it does suggest the workers’ strike, rapidly changing business rules and general uncertainty are hamstringing the greatest jobs market in history. 

374,000 against consensus of 625,000 should give everyone pause.

Highlights

Lowlights

The news took some steam out of equity futures, which underscores my concern the market needs good news now that the Fed has made it clear tapering will be smart and take a long time and is not connected with hiking rates.  Weaker data underscores the notion that maybe the business cycle is toward the end of expansion. 

Portfolio Approach

There are no weighting changes this morning.

 


 

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