Daily Market Notes: 3-10-2021

In another astounding day in an ongoing series of them, yesterday the market actually underwent another “Revenge of the Nerds” day except this time it was the badly beaten-down technology issues that finally had their time in the sun after the Nasdaq underwent an official correction of 11% from its February 12th all-time high.

And at the same time, it was some of those unstoppable former laggards, which have taken the upside spotlight away from those prior technology leaders these past few months, that cooled off somewhat.

And what I had predicted on Monday turned out to be absolutely prescient and correct based on what happened yesterday, and how do you like that?

I will repeat what I said in Monday’s notes and see how that predicted exactly what took place on Tuesday, and here we go – “In addition to this disaster (i.e. – the trendy newer type of tech stocks collapsing), the shares of former leaders AAPL (-14%), FB, GOOG, NFLX, NVDA (- 23%), MSFT and TSLA (-31%), took on severe selling and this downside shellacking does not include the newer trendy stocks that did so well in the fund run by the woman who did so brilliantly last year with a fantastic 125% gain but whose members have been vulnerable to high price/earnings multiples in a rising interest rate environment. They are now coming back down to a more realistic price level as the fund itself is now 30% off of its best levels of last month. Hopefully for those invested here, these oversold stocks will now try to find some support at the lower levels and dig in their heels with the hope of another upside, more moderate move as it now appears that they will have a  difficult time moving above their former highs in the near term, and this group includes TSLA, ZM, SQ, ROKU, SHOP, and others such as these. And one can now make the argument that after the severity of the recent selling, there could be some ‘buy on the dip’ mentality that might enter at current lower levels for these issues.”

Enough said, and now the question remains as to whether yesterday’s upside Nasdaq moonshot of 464 points to 13,073, the best day in four months, was just a one-day blip in a bear market for many of these issues or whether it is the start of a more sustainable recovery.

And naturally the better day came about because of investor’s neurotic obsession with the 10-year Note yield which thank goodness cooled off for a change and ended lower at around 1.54% after being as high as 1.61% recently.

As a result, the Dow began higher and kept going until it reached an intraday high of 348 points ahead at 12:30pm before going into reverse from there into the close and ended with “only” a 30 point gain to 31,832. It was hurt by declines in financial issues after their tremendous run-up lately such as AXP, GS, in addition to some cooling off by other recent hot issues like CAT, DIS, 3M and VIAC from the communications area that has been on fire lately.

The S&P, since it is still dominated by those large technology members, also came down from its best intraday levels of 82 ahead to end with a closing advance of 54 to 3875 while the Nasdaq held up the best after getting as high as 542 to close with that very strong advance of 464 to 13,073. And the Russell 2000 Index of small stocks also did well with a 42 point advance up to 2245. This index is still the leader among the major ones this year with a 14% gain while the S&P is ahead by 3% and the Nasdaq is up by 1.4%.

Obviously breadth numbers were very positive and the VIX retreated back to 24.03.

Yields have been climbing with rising expectations for growth and the inflation that could follow. Higher yields put downward pressure on stocks generally, in part because they can steer away dollars that might have gone into the stock market into bonds instead. That makes investors less willing to pay such high prices for stocks, especially those that look the most expensive, such as technology stocks.

Striking the “correction” level for the Nasdaq is also important for many investors and traders who use technical indicators to decide when to buy or sell stocks. A correction is typically seen as a healthy moment for any market, giving investors a chance to pause and re-allocate their investments without the volatility and stress that a bear market decline of 20% or more from a high can bring.

Investors have been betting that the $1.9 billion stimulus package will help lift the economy out of its coronavirus-induced malaise. There are also investors who are betting that stimulus and an improving economy will result in some inflation down the road.

This economic aid package, passed narrowly by the Senate on Saturday, provides direct payments of up to $1,400 for most Americans and extends emergency unemployment benefits. It is a major political victory for President Biden and his Democratic allies, and final congressional approval is expected this week.

Meanwhile, how about GME, which jumped another 27%, giving the stock a gain of more than five-fold over the past two weeks for five straight higher days and a price of $247, still well below that infamous $483 intraday craziness on January 27th. Its roller-coaster ride started early this year, when it was trading below $19 a share before becoming the focus of an army of online investors seeking to drive it higher.

In a strange way, it has drawn in many unsophisticated option buyers who push up the price of the far out of the money call options with strike prices as high as $800, and who eventually lose all their money as these higher strike prices items end up expiring worthless because the stock never gets up to those levels, and the same pattern seems to be developing for this week’s Friday expiration as well.

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 and starting to be negatively affected by the recent rise in interest rates. The fourth quarter of 2020 has shown a slight earnings gain of 2.8% which is much better than expected at the start of the earnings season .

Fourth-quarter earnings are finally coming to an end with the following lineup this week: today   – CASY, SFIX, DKS lower; today – MDB higher and tonight we will have BMBL, ORCL, CPB, CLDR; Thursday – DOCU, ULTA, MTN; Friday – KIRK.

Economic reports will have – yesterday – February small business optimism index rose to 95.8 but this is still below the 47-year average of 98; today  – February P.P.I. which came in at a gain of 0.4% while the core rate excluding food and energy was up by only 0.1%. The year over year advances are now 1.7% and 1.3% respectively; Thursday – weekly jobless claims; Friday – February P.P.I., mid-March 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.