Market Rises, And So Does Pressure To Buy

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Posted: Jun 19, 2020 12:07 PM
Market Rises, And So Does Pressure To Buy

Source: AP Photo/Richard Drew, File

This week has seen extraordinary light volume and negative breadth, which has been masked by innocuous closes, even on down days.  One dilemma for investors is guessing forward guidance that is certainly understated in the official Wall Street estimates.  The recent wave of monster beats on economic data should also inform us on revenue and earnings growth.

In a different environment, current valuation would be a major deterrent for investors. Even now, many old school investors are hesitant.  They have also been watching this party from the outside with their noses pressed against the window, really wishing they were inside having fun.

One thing that should alleviate their anguish are yields, which are higher than bonds and other investment instruments. 

I think the pressure is mounting for professional investment managers to make client’s money rather than offer excuses.   This should lead to a wave of cash into the system.

More than likely the catalyst for this would be higher markets.  The higher the market goes the more pressure to be in the mix.  And this establishes unique opportunities.

Major Indices Valuations & Yields

PE Ratio

PE Y/Y

Yield

S&P 500

26.28

22.30

2.00%

Dow Jones Industrial

22.03

18.37

2.48%

NADSAQ

29.65

22.99

0.91%

Russell 2000

55.70

34.95

1.67%

Dow Transportation

24.06

16.56

1.98%

Dow Utilities

24.40

30.55

3.27%

Message of Session

  • Buy at the bottom of ranges: Energy getting bounce off key support levels.
  • Buy comfort stocks, those high-flying names that seem to always go higher: Communication & Technology.

These trends are persistent, but we will see buying spread out to other sectors.

S&P 500 Index

+0.06%

 

Communication Services XLC

+0.32%

 

Consumer Discretionary XLY

 

-0.36%

Consumer Staples XLP

+0.52%

 

Energy XLE

+1.23%

 

Financials XLF

 

-0.12%

Health Care XLV

 

-0.34%

Industrials XLI

 

-0.37%

Materials XLB

+0.07%

 

Real Estate XLRE

 

-1.24%

Technology XLK

+0.45%

 

Utilities XLU

 

-0.02%

Portfolio Approach

We are adding a new position to the Current Buys in Technology in our model portfolio this morning.


Today’s Session

China is stepping up its purchases of American farm goods in order to comply with the Phase 1 trade deal following talks in Hawaii with the U.S this week.  China, which is behind on its purchases due to the coronavirus, will be buying numerous agriculture products.

There could be more volatility today as it is quadruple witching, which happens when stock index futures, stock index options, stock options and single stock futures all expire on the same day.  This expiration of all four happens 4 times a year on the third Friday of March, June, September and December.

Happy Juneteenth

Today is a day to celebrate the nations victory over the insidious idea and practice of slavery.  The founding fathers, even with their own flaws, had the wisdom to create a document that would eventually lead to the moment of freedom for all Americans.  The slaves in Texas, however, learned two years after the Emancipation Proclamation.

Today marks the celebration of freedom and self-awareness and acknowledges even positive change does not come easy.

And today, the nation is also facing a seminal moment that will require not only the self-awareness of a nation, but each of us as individuals.  Once again, we can lean on our history of evolution rooted in the words of the Constitution.  I am confident we are moving in the right direction.  I have always been proud and know I am blessed to be an American.

And today that pride has never been stronger.

God Bless America