I continue to urge investors to be careful when making investment decisions using financial media headlines and talking points.
The rising cases of Covid-19 is a general concern, but no one is rushing to implement mass lockdowns in the United States. Even actions being taken in Europe do not match the incendiary headlines and breathless reporting in this country. And while it’s likely some states with draconian rules might be enticed to go into a full lockdown and make economic survival even harder, it’s unlikely most states will go into a full lockdown.
What’s interesting is the companies and stocks that benefited the most from work & learn and stay at home haven’t been acting like another wave of lockdowns is imminent. Maybe there was some profit-taking, but it would be odd for an event so powerful that it could smack the stock market, but not be an upside driver of the best-positioned beneficiaries.
Covid-19 Stock Winners
Oct 29th Close
Recent Peak Date
Recent Peak Price
Zoom Video (ZM)
Pelton Interactive (PTON)
Teladoc Health (TDOC)
When the market makes sharp swoons, like the kind we saw Monday through Wednesday, the best thing that can happen is the market regains its footing and equilibrium rather than see a sharp rebound that gives a false sense the worst is over. On that note, I am not happy with the way the market slumped into the closing bell.
It’s obvious the stock market continues to be vulnerable here, and I continue to think it’s mostly from the election, valuations, and the absence of a fiscal stimulus. With that in mind, I have said this before, but I like it when we get to the downside point that must be tested before turning sooner rather than later.
It’s easier to feel comfortable when the market firms and gyrations settle. That was not the case after the close when the biggest publicly traded companies in the market posted financial results.
Breadth and Leadership
Market breadth was a major reversal of what we had been seeing, but there were still a lot more stocks closing at new 52-week lows than highs. I was impressed with the up-to-down volume, especially for the New York Stock Exchange.
52 Week High
52 Week Low
We know three sectors have done the yeoman’s work, carrying the entire market during large swathes of time over the last couple of years, but other sectors have outperformed since the March 23rd low. Consumer Discretionary is getting help from Amazon (AMZN), but it’s been about brick-and-mortar names many investors had written off.
Materials and Industrials have been coming on strong, rewarding value investors that began to diversify over the summer. Consumer Staples was the initial Covid-19 winner, as consumers made runs on supermarkets and toilet paper (I know that does not sound right), but it peaked early. The biggest disappointment continues to be Financials – they suck – even though everyone on Wall Street loves them.
S&P 500 Sector Performance
Year to Date
Since March 23
Consumer Discretionary XLY
Communications Service XLC
Health Care XLV
Real Estate XLRE
Consumer Staples XLP
There was an avalanche of earnings posted after the close that all shared the same characteristics.
Beat on revenue & Beat on earnings
But we know that is not enough, especially for the most valuable stocks in the market with giant shareholder bases. There is always intense scrutiny over the results, and none of these juggernauts were immune to nitpicking.
Most of them initially rallied, but all stumbled after initially popping, and only Alphabet (GOOG) and Facebook (FB) held onto gains.
- Revenue: $64.7 billion consensus $63.7 billion
- Earnings: $0.73 consensus $0.70
- Revenue: $96.2 billion consensus $92.7 billion
- Earnings: $12.37 consensus $7.41
- Revenue:$21.47 billion consensus $17.65 billion
- Earnings $2.71 consensus $1.19
- Revenue: $46.2 billion consensus $42.9 billion
- Earnings: $16.40 consensus $11.29
- Revenue: $6.2 billion consensus $6.1 billion
- Earnings: $0.51 consensus $0.31
- Revenue: $836 million consensus $777
- Earnings: $0.19 consensus $0.06
- Revenue: $459.5 million consensus $441.1
- Earnings: $0.30 consensus $0.27
I have to say there weren’t any results that screamed ‘sell the stock’ even if that was the knee-jerk reaction (save for Atlassian, which guided its current quarter lower). It’s important these names hold key trend levels.
Hotline Model Portfolio Approach
We put on a new position in the model portfolio yesterday, but still have 10% cash in the Hotline Model Portfolio.
Overnight selling moved into sheer panic even after amazing earnings, but that has been the script since the start of earnings season. I continue to believe the bigger issue for the stock market is a potentiual Biden presidency, failure to get stimulus, and the finacial media overplaying coronavirus cases without discussing rates for positivity and death. There will be an enconomic impact of additional restrictions, but they will not match breathless reporting.
Looking Past Current Unknowns
The American consumer is well-positioned to drive the economy much higher – needs more confidence. Consumer income and spending came in higher than expected. The spending increases outpaced income resulting in a slight decline in savings to $2.51 trillion lowering the rate to 14.3% from 14.8%.
State of Consumer: September