Daily Market Notes: 3-2-2021

What a difference a new month and a new week make, as after the Nasdaq suffered its worst week in four months last week, things reversed astoundingly strongly yesterday that it was almost impossible to believe that now everything was alright with the world after last week’s downside misery.

The major indices gapped open higher and did not look back until the Dow had gained 735 points while the S&P was higher by a hard to believe 102 before they both cooled off a bit as the session came to a close. It was still the best upside day since June 5th, or nine months ago for the latter and the best advances for the Dow and Nasdaq since November.

The former ended with a closing advance of 603 to 31,535 led by gains in the usual suspects on strong days such as this one and we all know the lineup by now – BA, GS, DIS, MSFT in addition to TRV. The S&P finished 90 points higher to 3910 while the Nasdaq finally got good support from the former high-technology leaders which one could see were starting to feel it on Friday before that bizarre extremely late selloff, as detailed in Monday’s Notes, got the better of them. It ended very strongly with a 396 point gain to 13,588.

The Russell 2000 Index of small stocks once again resumed its leadership role with a 74 point gain to 2275. Breadth numbers were extremely positive at an 8 to 1 upside ratio as 28 out of the 30 Dow members were higher and the VIX took a huge downside beating and ended at 23.35, still not near its ultimate downside support level of 20 and below.

The wave of buying came as investors welcomed a move lower in long-term interest rates as U.S. bond yields declined after surging in recent weeks. The yield on the 10-year Note fell to 1.43% after rapidly reaching its highest level in more than a year last week at an unsustainable 1.61%. Higher interest rates can slow the economy and discourage borrowing, so investors get jittery when there is a big surge in rates as we saw in the past couple of weeks.

After a strong start to the month, stocks turned lower in the last couple of weeks of February after a sudden, rapid rise in bond yields fueled concerns about higher inflation. Bond yields have been steadily climbing this year, as investors bet that vaccination efforts and more government stimulus will lead to strong economic growth. However, along with strong economic growth comes concerns of inflation.

A handful of high-level Fed officials will make speeches this week, which will perhaps give investors some additional information on how concerned the nation’s central bank is about the economy and inflation. Lael Brainard, an advocate for looser monetary policies, will give a monetary policy talk later today and Fed Chair Jerome Powell will give some thoughts on Thursday.

Investors also had their eye on Washington yesterday as a big economic stimulus bill advanced to the Senate. The House of Representatives approved President Biden’s $1.9 trillion pandemic relief bill very early on Saturday morning. The bill infuses cash across the struggling economy to individuals, businesses, schools, states and cities battered by COVID-19.

The stimulus bill would include yet another round of one-time payments to most Americans, including an expansion of other refundable tax credits like the child tax credit, and additional aid to state and local governments to combat the pandemic.

JNJ did very little after the Food and Drug Administration gave approval for the company’s own coronavirus vaccine, one that does not require extensive refrigeration like the ones made by MRNA and PFE, whose stock has done nothing except slide lower for months now.

In addition to the aforementioned gains in technology companies finally, those that rely on consumer spending also fared well as for instance ETSY jumped by 11% and cosmetics retailer ULTA gained 5%.

Crude oil prices slipped back to $60.35 a barrel and sad-sack gold continues its descent at $1,715 an ounce.

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.

Fourth-quarter earnings are in the home stretch with retailers bringing up the rear and this week will see the following: yesterday – XRAY higher ; today – ZM, KSS, TGT, AZO higher while  NVAX, NIO are lower; tonight – JWN, BOX, HPE, ROST; Wednesday – DLTR, MRVL, SNOW; Thursday – AVGO, COO, COST GPS, KR.

Economic reports will have – yesterday – February ISM Purchasing Managers’ Index rose to 60.8 from the prior month’s 58, the highest level since August 2018, January construction spending gained 1.7% and is higher by 5.8% year over year; Wednesday – February ISM Services Index, ADP estimate for Friday’s jobs report, Fed Beige Book; Thursday – weekly jobless claims, January factory orders, January durable goods orders; Friday – February jobs report for which the expectation is for 200,000 after 49,000 were added in January. 

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.