Fed Spreading Good News, Not Money

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Posted: Jul 09, 2020 11:18 AM
Fed Spreading Good News, Not Money

Source: AP Photo/Andrew Harnik, File

Equity Indices

NASDAQ Comp

S&P 500

Dow Jones

Russell 2000

July 8, 2020

+1.44%

+0.78%

+0.68%

+0.81%

YTD 2020

+16.9%

-1.9%

-8.7%

-14.5%

 

Yesterday’s session just about summed up the year, as the NASDAQ Composite was firm throughout the session before galloping strong into the closing bell. 

The Dow Jones Industrial Average continues to struggle for consistency, compromised from session to session by different culprits. One day, banks underperform; the next day, it’s airlines and Boeing (BA), followed by oil and chemical names.

The S&P 500 held up most of the session on the strength of Technology, and five other sectors edged into the win column at the closing bell.  Consumer Discretionary names, led by Amazon (AMZN), continue to impress. But it was Kohl’s (KSS) that enjoyed the best percentage gain in the entire index after an analyst at Bank of America raised the stock to a ‘buy’ from ‘hold’ and increased the share price target to $27 from $20, citing a balance sheet and other improvements.

S&P 500 Index

+0.76%

 

Communication Services (XLC)

+0.89%

 

Consumer Discretionary (XLY)

+1.05%

 

Consumer Staples (XLP)

 

-0.20%

Energy (XLE)

+0.07%

 

Financials (XLF)

+1.08%

 

Health Care (XLV)

 

-0.03%

Industrials (XLI)

 

-0.03%

Materials (XLB)

+1.42%

 

Real Estate (XLRE)

 

-0.20%

Technology (XLK)

+1.53%

 

Utilities (XLU)

+0.91%

 

The Fed to the Rescue

For all the concern about the Fed printing trillions to save the economy and stock market, it looks as though investors are more interested in good news rather than more accommodation.

Tale of Two Closes

With an hour of trading left in Tuesday’s session, Fed Vice Chairman Richard Clarida hinted at an unlimited ability to buy bonds, and perhaps stocks if needed to prop the economy. And yet, the market yawned on the news and slid into the close.

Yesterday, with an hour left in trading, St. Louis Fed President James Bullard (not a voting member of the current Federal Open Market Committee (FOMC)) had nothing but superlatives for the economy.  If he’s right, and unemployment free falls to 7% by the end of 2020, the Fed won’t have to add more accommodation.

Bullard sees an adjustment in human behavior, where mask wearers will become ubiquitous, and “we’ll have the disease under control.” He is minimizing the coronavirus (COVID-19) threat, allowing a boost to the economy. His observations are predicated on Congress that’s coming with more rescue funding at the end of the month.

Individuals Listening to the News are Missing the Rally 

I have been saying for the past several weeks that Americans will adjust and that more folks would eventually wear masks and practice social distancing. Stalled re-openings would pick up steam, and I think the market has realized that as well.

The problem continues to be the financial media. They’re singularly focused on breathless reporting that always hints at the economic ruin. No one wants to see the rebound in cases get worse. However, by the same token, no one wants the depression and economic  catastrophe of a mass lockdown.

Individual investors pulled $94 billion out of equity funds last quarter, as they were enjoying their best quarterly performances in decades. Mission accomplished. People are scared to death, and they are missing an amazing rally in the market. Last week, Investor Bullishness Sentiment hit 22%, the lowest of 2020.

To see the chart, click here.

Portfolio Approach

We sent an alert notifying subscribers that we took profits on Square Inc (SQ), of which we had intended on holding much longer, but the surge in such a short period created a dilemma. We rang the register, and we will spy the stock for potential reentry during some kind of broader market pullback. We also added a new position in Technology.

Today’s Session

Initial jobless claims were a bit better than expected, coming in at 1.31 million, down from a revised 1.41 million in the previous week.  While initial claims have been improving since hitting the high in March, they have been more than a million per week for the past 15 weeks.  Continuing claims declined to 18 million for the week ending June 27 from 18.8 million. 

In addition to initial claims, 1.04 million people filled for benefit through a temporary federal relief program.

The major indices are pointing to a higher open with the Nasdaq leading the way once again.