Daily Market Notes: 4-20-2021

The record setting streak for the Dow and S&P came to an end yesterday, but that does not mean that the bull market is finished, as an overbought market came back down to earth a little bit, hurt by declines in technology stocks due to a rise in bond yields.

As a result, the Dow drifted lower all day and finally ended with a closing decline of 123 to 34,077 as it lost around 30% of last week’s gain of 400 points. It was hurt by declines in BA which invariably goes in the same direction as the Dow, in addition to MSFT after this one reached a record high on Friday, plus NKE.

Ditto for the S&P, which drifted lower all day but similar to the Dow it was able to close off of its worst levels as losses in technology companies hurt this index and it shed more than one-third of last week’s gains as a result. Similar to the Dow, it had rallied for four straight weeks.

The Nasdaq was hurt by declines in those former stay at home and high-flying darlings as they appear to have made major tops and look like they are going to have trouble going much further for the time being, and this group would include TSLA, SQ, MSTR, PTON, ROKU, ZM among others. As a result, this index ended with a 137 point decline down to 13,915. The Russell 2000 Index of small stocks continued its recent sluggishness with a 30 point loss to 2232.

The VIX naturally rose from its recent low level that corresponded to the record S&P and Dow highs of Friday and ended up at 17.29 but was actually higher than this close at 18.61 when the major indices were at their worst levels of the session.

Stocks have rallied in recent weeks amid a string of encouraging reports on hiring, consumer confidence and spending that point to an accelerating U.S. economy. COVID-19 vaccinations and massive support from the U.S. government and Federal Reserve are fueling expectations for solid corporate profit growth as more businesses reopen after being forced to close or operate on a limited basis due to the pandemic.

A good amount of investor attention is focused on the bond market as government stimulus and the recovering economy have led to concerns about inflation. The yield on the 10-year Note  rose to 1.60% from 1.57% late Friday.

Even so, company earnings are front and center this week, as investors look to justify the recent rise in stock prices with the profits needed to keep the market going in this recovery. On average, analysts are expecting profits across the S&P 500 to be up 24% from a year earlier for the first quarter.

Member KO made a nominal gain after beating first-quarter profit forecasts and giving investors an encouraging update on improving sales. The big winner was HOG as it added 10% after handily beating analysts’ profit forecasts.

Outside of earnings, several stocks made big moves as mighty TSLA dropped by 3.4% after two people were killed in Texas in a crash of one of its models. Authorities say there was no one in the driver’s seat at the time of the crash and it is not clear whether the car’s driver-assist system was being used.

Another former high-flyer, namely PTON slid by 7% after regulators issued a safety notice over the exercise equipment company’s new treadmill. So far, the company has not been forced to recall the treadmill, and it is fighting the issue.

MO slumped by 6% following a published report that the Biden administration is considering requiring tobacco companies to reduce the nicotine level of cigarettes sold in the U.S.

The market is now heading into the busiest two weeks of the earnings reporting season as this week alone there are 81 S&P companies reporting which includes 10 Dow components. The lineup is as follows: yesterday Dow component KO higher in addition to HOG, while UAL was  lower; today – Dow components IBM,TRV, JNJ and PG are higher while PM and ABT are lower;   tonight – ISRG and NFLX; Wednesday – Dow component VZ plus CMG, LRCX; Thursday – Dow components DOW and INTC plus AAL, T, FCX, LUV and UNP; Friday – Dow components AXP and HON plus KMB and SLB.

Economic reports include: Thursday – weekly jobless claims, March existing home sales, March L.E.I; Friday – March new home sales.

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.