Daily Market Notes: 2-25-2021

In another astounding session, after the prior day’s “Turnaround Tuesday” saga, things began lower yesterday with the Dow down by 116 at 10am before turning positive at 10:20am. The S&P was weaker as has been the pattern lately with a 22 point decline not turning positive until 10:40am while the Nasdaq, the weakest of all, was lower by 179 and did not turn upward until 11:20am, a full hour after the Dow.

And in a repeat of the relationship that has been in place for many days now, it was the financial, energy and re-opening travel types that led the upside charge as the Dow kept pushing and pushing to the upside and finally ended at a record high of 424 to 31,961. It was the average’s seventh advance in the past eight days and for good measure the Dow Jones Transports also closed better than it ever has as well. The Dow was led by very large gains in BA, which accounted for over 100 points just by itself, in addition to GS, HON, CRM and V.

The S&P finally got going and ended with a nice gain of its own at 44 to 3925. The Nasdaq initially lagged due to weakness in AMZN, AAPL and FB but at least MSFT and GOOG did better which got this one going as it ended with a 132 point advance to 13,598. The Russell 2000 Index of small stocks also felt it on the upside and ended very strongly with a 53 point gain to 2284. Breadth numbers were nicely positive and the VIX slid back to 21.34 after being as high as 27 at the depths of Tuesday’s early plunge.

U.S. Treasury yields continued to head higher at the long end with the 10-year Note at 1.38%. Bank stocks benefited from the latest upward move in yields, which will allow them to charge higher rates on mortgages and other loans, increasing their profits. The yield curve between the shorter maturities and the long ones has now pushed out to its widest level in four years, which is good for bank earnings.

Investors are still anticipating another round of stimulus to help boost the economy. The House of Representatives is likely to vote on President Biden’s proposed stimulus package by the end of the week. It would include $1,400 checks to most Americans.

The afternoon rebound followed Federal Reserve Chair Jerome Powell’s appearance before the House Financial Services Committee in which he said that the central bank will not begin raising interest rates until it believes it has reached its goals on maximum employment and inflation.

As he did before the Senate Banking Committee on Tuesday, Powell told the House that the Fed was in no hurry to raise benchmark short-term interest rates or to begin trimming its $120 billion in monthly bond purchases which could put downward pressure on longer-term rates.

Powell said the Fed did not see any indication that inflation could race out of control. While price increases might accelerate in coming months, Powell said those increases were expected to be temporary and not a sign of long-run inflation threats. Inflation has been nonexistent in the U.S. for the better part of a decade.

The rise in bond yields has several implications for both the stock market and overall economy. Higher yields make stocks with lofty valuations less attractive. Those tend to be technology companies, which are priced typically for growth and not for a steady return of dividends like mature companies like makers of consumer staples, utilities and real estate.

As mentioned above, BA jumped by 8% after shedding 2.5% over the prior two days in the wake of an engine malfunction over the weekend in a 777 aircraft operated by UAL.

The plane, which took off from Denver and was bound for Honolulu, was forced to make an emergency landing Saturday after a fan blade broke and pieces of the engine’s casing fell on sidewalks and backyards. Federal aviation regulators ordered the grounding of planes with the type of engine used in this one.

And GME doubled in the last hour of trading in another burst of volatility for its best performance since January 27th. In addition, AMC, KOSS and even NAKD rose by large percentages as that upside frenzy returned after a few week’s absence. Apparently the former is replacing its C.F.O. at the request of some large shareholders and board members and this was ostensibly the reason for the large price jump.

For 2021, the consensus is for $175 in S&P earnings which means that the S&P is trading at a 23 multiple, higher than the historical average but not too much considering the record low interest rates currently in existence. The fourth quarter of 2020 is now projected to show a slight earnings gain of 2.8% which is much better than expected at the start of the earnings season last month with the largest profit declines expected in the energy and industrial sectors.

Earnings reports for the fourth-quarter of 2020 are winding down and this week will see the following: yesterday – SQ, LOW, TJX lower while SIX, INTU OSTK were higher; today – BKNG, LB, APA, VIAC, MRNA, NCLH, W higher while TDOC, NVDA, NTAP, BBY, PLUG, DPZ and PCG lower;  tonight – Dow component CRM in addition to ADSK, CVNA, WDAY, ABNB, CZR, BYND, DELL, VMW, SHAK, HPQ, ZS, SPCE, ETSY, LYV, NKLA, DASH, WDAY and WW;  Friday – DKNG and PCG.

Economic reports will see: yesterday – January new home sales rose by 4.3% and are higher for the year by 19%; today – weekly jobless claims fell to 730,000, January durable goods orders rose by 3.4% and ex-transportation was up 1.4% and 2.3% ex-defense, second estimate of 4Q 2020 G.D.P. was 4.1%; Friday – January personal income and spending, final February U. of Michigan Consumer Sentiment Survey.  

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.