The market continues to stumble along and has begun to break down as important technical support points fail to hold. Once again, there is serious bifurcation, as investors are gravitating back to growth and work from home names. Yesterday, with mega-growth leading, only two sectors finished higher in a sea of red.
These are the names in the eye of the political storm, with several heading back to Capitol Hill. However, investors are less concerned with the stifling of free speech due to the fact these companies have the ability to control communication. The abuse of that power could lead to breakups, but that would be years from now, and more than likely, it will only mean adjustments to Section 230.
Today, Jack Dorsey will try to convince lawmakers that removing liability protections for social media companies would result in a handful of giant and well-funded companies dominating the space. As a citizen, I think Silicon Valley’s anti-conservative actions have been very harmful and unfair and must be dealt with. As an investor, I think the company has the foundation for greater growth and profitability.
Only nine listings (eight names) out of 26 were higher. Their collective weights are 70.7% of the sector.
Take-Two Interactive Software
Alphabet Inc A
Technology (XLK) stocks were powered by mergers and earnings results. There was a nice mix of older names and newbies among the top ten winners. After the close, Microsoft (MSFT) posted strong results that outpaced Wall Street’s consensus in their three main business sectors. The stock edged lower, but the fundamentals of the group justified higher multiples once the broad market got over its jitters.
Communication Services (XLC) and Technology are keeping NASDAQ elevated, but other indices are more vulnerable.
Handicapping the Keepers
Tomorrow, the biggest publicly traded companies report their financial results amid a backdrop that has become increasingly hostile toward earnings results. These keepers of the digital economy have been very volatile when posting results.
In the most recent quarter, however, most of them popped the same day and were higher a week out.
But longer term, it’s been tough sledding for Amazon and Alphabet, which have seen their shares often take hits on the same day and week.
I find it ironic Greenlight Capital’s David Einhorn came out against Technology yesterday, calling the sector a bubble, so everything else sold off.
There were no changes yesterday in the Hotline Model Portfolio.
The market is becoming more defensive and strong earnings and guidance are not enough to stop it at this very moment.
The turning points for the market yesterday, which was mostly trading sideways, was the release of the latest Consumer Confidence from the Conference Board.
The 100.9 read was less than consensus of 102.0 and the prior month 101.3 (revised).
- Present conditions 104.5 from 98.6
- Expectations 98.4 from 102.9
To see the chart, click here.
Swing State Confidence
The decline in expectations signals concerns about a lack of stimulus, dealing with Covid19, and a greater chance Joe Biden could win the presidency.
Key Swing State Consumer Confidence Declines
- FL 100.3 from 114.4
- PA 92.0 from 115.5
- MI 119.2 from 124.1
The Comfort of US Bonds
Note: these levels are still high but moving sharply in the wrong direction on the eve of the election. I still think President Trump can pull this out, but the market seems to be adjusting to a potential Biden win.
Meanwhile, there are new restrictions happening in Europe to combat rising coronavirus cases, and that has many on edge. That anxiety has reversed the flow of funds back into bonds pushing yields lower, just as it was clear money was going to rotate into equities.
The ten-year yield uptrend is still intact but resting right at a key support point.
Going for the Greenback
The world is also beating a hasty move back to the US Dollar, just as we have been seeing big time Wall Street players short the greenback.
The move reaffirms the fact the dollar will not be replaced anytime soon as the world’s reserve currency.
It will be interesting to see if the dollar rallies back to highs made in September. Note: this is not good news for multinational companies and could be a reason some have been under pressure, in addition to the obvious business slowdown from demand interruptions with renewed lockdown efforts in Europe.
In the United States, cases are on the rise, but deaths are only moderately rising, and now are significantly lower as a percentage of cases.
If you own shares in a company that posted financial results that beat consensus on revenue and earnings, and management hiked its own guidance for the current quarter or farther out, and the stock got hit, I would think long and hard before closing that position. More challenging is holding names that beat on the top and bottom line, but management offered no guidance.
Yesterday, 3M (MMM) and Caterpillar (CAT) were slammed for not offering guidance.
Behavior is playing a bigger role than fundamentals at this very moment, and it’s when long term investors need to avoid the herd.
That being said, major equity indices are near or below their 50-day moving average, which signals more weakness. This is near term stuff that will give us great entry points for names at the top of our buy list.