Daily Market Notes: 3-11-2021

Wait a minute – this was not supposed to happen, as the market yesterday basically went against the “explanations” for its recent trends, as for instance the large technology leaders which had done so poorly lately had been hurt by the rise in bond yields and we all know the “explanation” for this. On the other hand, the financials have been helped by this higher rate trend and would ostensibly cool off if rates began to decline.

So what happened was that instead of benefitting from a drop in rates, the technology stocks y could not hold onto early gains and as a result the Nasdaq ended lower by 5 points down to 13,069 after having been ahead early with a 203 point gain. Two major issues in particular stood out in this regard, namely AMZN and TSLA, after opening higher with gains in the 40-50 point range, meekly gave them back and ended nominally lower, and this was not supposed to happen, was it?

On the other hand, based on the early going today and a further drop in the 10-year yield down to 1.50%, the pattern of the technology stocks doing better could be returning once again after that weak showing yesterday.

So the financials, instead of being weakened by the opposite trend that had pushed them higher and higher recently, basically ignored the lower rates and led the Dow to a record high close of 464 to 32,297. The late weakness in the Nasdaq did pull the former off of its best intraday level of being ahead by 557. It was led by a strong advance in BA, which we often see on days when this index really takes off to the upside, in addition to financial components such as GS and JPM.

Ditto for the S&P, which also came down from its best level late with a 23 point advance to 3899 after having been ahead by 41 and this weakish close was also a function of the large cap technology issues fading a bit from where they had been most of the session.

The Russell 2000 Index of small stocks gained for the fourth straight session in a row with a 40 point advance up to 2285 and the VIX went lower down to 22.56.

The February C.P.I. report showed that it rose by 0.4% last month which was the largest increase in four months while the core rate excluding food and energy was ahead by only 0.1% so one can see where the upward price pressures came from. Year over year, the former is ahead by 1.7% while the latter is up by only 1.3%.

These numbers resulted in the 10-year Note falling sharply down to 1.52% but as mentioned above it did not have the effect on equities that everyone was “sure” it was going to.

Bond yields have risen sharply over the past month due to expectations for faster growth and the inflation that could follow. The fall in bond prices attracted investors reluctant to pay high prices for stocks, especially tech stocks that looked most expensive.

Markets have benefited from calmer bond trading the last few days. The yield on the 10-year Treasury note fell to that 1.52% from as high as 1.61% a couple of times in the past week.

Investors are also betting the $1.9 trillion latest stimulus bill will help lift the U.S. economy out of its coronavirus-induced malaise. The House approved the sweeping pandemic relief package over Republican opposition yesterday, sending it to President Biden to be signed into law. The package would provide $1,400 checks for most Americans and direct billions of dollars to schools, state and local governments, and businesses.

GE fell by 5% for the biggest decline in the S&P after the company said it would wind down its GE Capital financing business and merge its jet leasing business with Ireland-based AerCap.

And how about the revolting price action in GME, which had the nerve to push out to an incredible gain of 98 points to 348.5 for its sixth straight advance at 12:15pm, at which point the stock was halted for trading. It then re-opened sharply lower and reached 172 for a decline of 75 points versus the prior day’s close and a drop from the highs of an astounding 174 points.

This means that if a person had bought near those highs over 340 and decided to put in a sell-stop order slightly below this level to ostensibly “protect” losses from getting out of hand, the exact opposite happened because once the trading halt was lifted, the stock gapped lower to as much as that 174 point decline which is most likely where a person who put in an order of this type would have been filled with no recourse!  And meanwhile the S.E.C. says that it is “looking into the matter” in order to assure “smooth functioning of markets” so that investors get a fair shake.

Meanwhile the stock is ahead by a mere 1,700% this year alone and 8,000% over the past 52-weeks and is this normal? And what about the ridiculous prices that some people are paying for the far out of the money calls as high as 800?  Are these levels going to be reached this week, and then what will these people have to show for it?

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: yesterday –  MDB higher ; today – BMBL, AMC higher and ORCL, CLDR lower; tonight – CPB, DOCU, ULTA, MTN; Friday – KIRK.

Economic reports will have – yesterday – 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; today – weekly jobless claims dipped to 712,000 which was the second lowest since the pandemic began; 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.