Daily Market Notes: 3-9-2021

In one of the most awful sessions in a series of awful sessions lately, the old battle between when the Dow is going one way and the Nasdaq is going the other way proved once again that the final result invariably goes to the latter and was illustrated in a terrible close for the S&P and Nasdaq in particular yesterday.

Things began well enough as a cooling off of bond yields got the upside juices flowing as the Dow reached a large gain of as much as 652 points at 1:30pm. And to no one’s surprise, it was once again led by the cyclical and value stocks as the major rotation away from the former high technology leaders continued very decisively once again.

So sure enough, as the Nasdaq lost steam from a weakish early unsustainable 81 point gain, the Dow ultimately gave back more than half of its best level to finally end with an advance of 306 to 31,802. And surprise, surprise, the best gainers were DIS at a new high, financials AXP, TRV, in addition to HD, 3M and UNH.

The S&P really got clobbered as it contains those former large technology leaders whose highest priced days seem to be behind them, as huge losses in AMZN, despite the pleadings of a prominent hedge fund guru (obviously talking his position), saw this one go from a gain of 64 based on this person’s bullish take, to an astounding 112 point downside reversal to a closing decline of 48, and how is that for a lack of respect for what this person had to say.

In addition to this disaster, the shares of former leaders AAPL, FB, GOOG, NFLX, NVDA, MSFT 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.

And the selling in these former leaders and others of this sort resulted in that brief 81 point advance turn into a close of 310 down to 12,609 for an official 11% correction from its all-time high on February 12th and a negative return for the year.

And talk about another downside disaster, the S&P, still heavily weighted to technology, turned a strong gain of 39 points at 1:30pm into a final lower close of 20 down to 3821. The Russell 2000 Index of small stocks gave back most of its best intraday advance to finish with a 10 point gain to 2203.

The VIX, lower in the early going on the gains mentioned above, ended higher at 25.47 and once again it is going to be very difficult to get it under its support level at 20.

Bond yields rose broadly. The yield on the 10-year Treasury note climbed to 1.60% from 1.55% late Friday and this resulted in the large banks such as WF and C doing well once again, with GS reaching a new record high again.

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

Investors have been betting that trillions of dollars in coming government stimulus 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 amount of inflation down the road.

Rising oil prices are a part of that picture. After plunging with the onset of the pandemic, as demand plummeted, prices have been recovering in the past few months but did cool off a bit yesterday. This price rise has mainly been due to the success of our friends in OPEC such as the Russians and Saudis agreeing to extend output cuts. The price of crude ended down at $65 a barrel but is still higher by 33% so far this year.

The Biden relief 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 the President and his Democratic allies, and final congressional approval is expected this week.

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; Wednesday – BMBL, ORCL, CPB, CLDR; Thursday – DOCU, ULTA, MTN; Friday – KIRK.

Economic reports will have – today – February small business optimism index rose to 95.8 but this is still below the 47-year average of 98; Wednesday – February P.P.I.; 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.