Daily Market Notes: 3-12-2021

After that technology upside moonshot on Tuesday and reversal on Wednesday, the market decided that it liked technology once again after all and the result was another very strong upside day yesterday, so powerful in fact that the Dow, S&P, Nasdaq, Russell 2000 Index and the Dow Transports all reached record highs and how do you like that for a day’s work?

And once again, it was the market’s neurotic obsession with interest rates that determined the direction and fortunately a decline in the 10-year Note down to 1.52% got the upside market juices flowing once again.

The Dow began higher and just kept pushing to the upside until it reached a gain of as much as 364 before its usual late in the day fadeout and finally ended with a closing advance to new record territory at 32,485. It was led by BA at a yearly high, HD, MSFT for a change, NKE, XRM and UNH. It was the fifth straight advance for the Dow.

The S&P followed the same pattern with another huge jump of as much as 60 before it also eased back late to end at a record closing high of 3939, helped by the technology giants for the second time this week. It was the third straight advance for this one.

The Nasdaq also did its thing with a 329 upside explosion to a record 13,398 as did the Russell 2000 Index of small stocks at 52 points ahead to 2338. Earlier in the week the Nasdaq had skidded more than 10% below its February peak but has now regained some ground but remains 4.9% below that all-time high.

Breadth numbers were positive at a 4 to 1 upside ratio and the VIX eased back down to 21.91. So here we have the market at record highs and the VIX still above that near-term support level of 20 and under and far, far away from its ultimate downside rock bottom area of 10 and under. This shows that despite the record levels, traders are pricing in some volatility movements greater than has been seen in the past.

The recent return of stability to the bond market has been reassuring investors after a sudden spike in long-term interest rates over the past month prompted traders to dump tech shares, which started to look expensive after months of gigantic gains.

Up until this week, bond yields have been steadily climbing higher as investors made big bets that trillions of dollars of coming government stimulus will result in strong economic growth later this year and potentially some amount of inflation.

Much of the uncertainty facing the market at the beginning of the year has faded as vaccine distribution ramped up and businesses reopened. The latest round of stimulus from Washington is also helping to lift uncertainty about the recovery.

President Biden signed into law a very large relief package that would provide $1,400 checks for most Americans and direct billions of dollars to schools, state and local governments, and businesses affected by the shutdowns, now a year old. .

The biggest IPO in years rolled out Thursday where Coupang, the South Korean equivalent of Amazon in the U.S., or Alibaba in China, began trading under the ticker CPNG. The stock soared by 41%. It is the largest initial public offering from an Asian company since BABA went public about seven years ago. And it is the biggest in the U.S. since UBER raised more than $8 billion in 2019.

GE fell by 7% for the biggest slide in the S&P for the second straight day. The industrial titan announced it would end its GE Capital business and merge its jet leasing business with Ireland’s AerCap. The company is in the midst of a multi-year turnaround plan, but investors have been concerned that it has been selling off too many of its more profitable assets. It also announced a controversial 1 for 8 reverse stock split to get its shares closer to the level of other industrial type of giants.

As interest rates have been easing back recently, the price of gold has seemingly found a bottom around $1,675 an ounce as the dollar has weakened a bit. But today the recent patterns are reversing themselves once again as interest rates are moving back up, the technology stocks are selling off with the Nasdaq opening with the largest declines and the price of gold back down to under $1,700 as this neurotic obsession with rates goes back and forth on a day to day basis.

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 – BMBL, AMC higher and ORCL, CLDR lower; today – DOCU, ULTA, POSH lower and MTN higher.

Economic reports will have – yesterday – weekly jobless claims dipped to 712,000 which was the second lowest since the pandemic began; today – February P.P.I. rose by 0.5% while the core rate excluding food and energy was up by 0.2%. Year over year the number was 2.8% and 2.5% respectively, a little on the high side;  mid-March U. of Michigan Consumer Sentiment Survey rose to 83 from 78.9.

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.