Archive for July, 2020

• 17 Weeks Straight Above 1 Million
  Eddy Elfenbein, July 16th, 2020 at 10:40 am

  

  We had two important economic reports this morning. The jobless claims report topped 1 million for the 17th week in a row. Initial weekly claims came in at 1.3 million for the week ending July 11. Economists had been expecting 1.25 million. Continuing claims came in at 17.338 million.

  The retail sales report for June rose by 7.5%. That’s on top of the monster 18.2% increase for May.

  Economists had been expecting an increase of 5%. Excluding autos, the increase was 7.3%.

• Morning News: July 16, 2020
  Eddy Elfenbein, July 16th, 2020 at 7:10 am

  Europe Beats U.S. For Private Equity Mega-Deals

  India’s Reliance Seen Emerging As Bigger Threat for U.S. Firms Like Amazon, Walmart

  China’s Economy Rebounds From Coronavirus, but Shares Fall

  A Brazen Online Attack Targets V.I.P. Twitter Users in a Bitcoin Scam

  TikTok Enlists Army of Lobbyists as Suspicions Over China Ties Grow

  Communication Collapse: Inside Facebook’s Tussle With Brazil’s Central Bank

  Billionaires Hunt Real Estate Bargains in Shadow of Pandemic

  Bank of America Profit More Than Halves on Pandemic Woes

  Carson Block Warns Tesla Short Sellers: ‘I Wouldn’t Do That’

  Where to Invest $10,000 Right Now

  Professor Whose Formula Predicts Bankruptcies Has a Big Warning

  Joshua Brown: An Important Ratio

  Howard Lindzon: How to Succeed in Business by Bundling – and Unbundling…Financial Markets, Media and Malls

  Michael Batnick: Animal Spirits: This is A Bubble

  Ben Carlson: Investment Policy for Institutional Investors

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• Five-Week High
  Eddy Elfenbein, July 15th, 2020 at 11:38 am

  

  Yesterday the S&P 500 closed at a five-week high, and it’s up again today. The index is very close to the high from June 8 which is currently the highest close since the rally started on March 23.

  This morning’s industrial production report showed an increase of 5.4% for June. That’s quite good although we’re still well below the high from a few months ago.

  From the WSJ:

  The data suggest U.S. industries have started a slow recovery from April’s record decline. Despite the recent gains, the index for the second quarter as a whole fell at an annual rate of 42.6%, the largest quarterly decrease since World War II.

  We have news on Church & Dwight (CHD), Moody’s (MCO) and Danaher (DHR).

• Morning News: July 15, 2020
  Eddy Elfenbein, July 15th, 2020 at 7:09 am

  Blow For EU As Apple Wins Fight Against $15 Billion Tax Order

  U.K. Bars Huawei for 5G as Tech Battle Between China and the West Escalates

  Fed’s Brainard Sees Substantial Economic Risks and Slow Recovery

  Markets Walk Dangerous Tightrope Before U.S. Stimulus Expires

  Banks Stockpile Billions as They Prepare for Things to Get Worse

  ‘Hero’ Pay Raises Disappear for Many Essential Workers

  Google Buys 7.7% of Reliance’s Digital Unit For $4.5 Billion

  Electric-Car Subsidies Make Renaults Free in Germany

  Disney Parks Are Practically Empty and That Seems to Be the Idea

  Will Tesla Be Added to the S&P 500? Here’s How It Will Be Decided

  Howard Lindzon: Investing is Hard …and Tesla Topped

  Michael Batnick: Brand New “What Are Your Thoughts?

  Ben Carlson: It’s Easier to Start a Bull Market Than Prevent a Bear Market

  Nick Maggiulli: What Risk Isn’t

  Joshua Brown: CHART: The Modern History of Globalization & Musk vs Buffett, Gold vs the S&P 500

  Be sure to follow me on Twitter.

• Consumer Prices Rebound in June
  Eddy Elfenbein, July 14th, 2020 at 10:01 am

  The stock market couldn’t hold onto its gains from yesterday morning. After 2 pm, stock prices dropped, but this morning share prices appear to have stabilized.

  This morning’s CPI reported showed that after three months of deflation, consumer prices rebounded in June. The headline rate rose by 0.6%. That’s the highest in eight years. The core rate rose by 0.2%.

  The Fed is pumping money into the economy through extraordinary measures, including large-scale asset purchases and funneling loans to firms. Separately, the government has provided nearly $3 trillion in fiscal stimulus, contributing to a record monthly budget deficit in June.

  There have been fears that the unprecedented stimulus could stoke inflation. But with a record 33 million people on unemployment benefits, economists expect inflation is likely to remain benign.

  

• Morning News: July 14, 2020
  Eddy Elfenbein, July 14th, 2020 at 7:07 am

  As Europe’s Economies Reopen, Consumers Go on a Spending Spree

  How to Read U.S. Economic Data, Without the Spin

  America’s Jobless Are About to Lose Their $600-a-Week Lifeline

  Hong Kong Disneyland to Close Again, Days After Disney World Reopens

  Google Is in Advanced Talks to Invest $4 Billion in Jio Platforms

  TikTok’s U.S. Users Prepare for Life Without the Video App

  NBC Starts Streaming With a TV-Style Platform, Peacock

  SiriusXM Enters the Podcast Wars With Purchase of Stitcher for Up to $325 Million

  The Bronco Is Back, Thanks to Group of Obsessed Ford Employees

  Flour and Toilet Paper Are Back at N.Y. Supermarkets, but There’s a Catch

  Covid Conversations With One of America’s Richest Men

  Joshua Brown: Chinese Margin Madness

  Ben Carlson: Wealth Inequality & Lottery Tickets

  Howard Lindzon: Momemtum Monday…SPAC, SPAC, SPAC….Investing Is Soooo Easy

  Michael Batnick: Was That The Top? What Should College Students Do This Fall?

  Be sure to follow me on Twitter.

• Goldman Rates Disney a Buy
  Eddy Elfenbein, July 13th, 2020 at 10:48 am

  Goldman Sachs gave Disney (DIS) a buy rating and a price target of $137 per share.

  Analyst Brett Feldman wrote in a note that he believes the market is underestimating the potential of Disney+, Disney’s recently-launched direct to consumer (DTC) streaming service.

  “We believe Disney’s best-in-class brand, global distribution (breadth), production assets (build), sizable content library (backlist) and strong financial profile (balance sheet) position the company to build scaled DTC video platforms in the highly competitive streaming environment,” Feldman said.

  Disney is up to $119 per share. Disney World reopened this weekend.

• S&P 500 Crosses 3,200
  Eddy Elfenbein, July 13th, 2020 at 10:01 am

  

  The stock market is having a nice morning. The S&P 500 is back over 3,200. We haven’t closed above that level in over a month. In fact, we’re getting close to a new all-time high.

  The weak spot is that the overall rally continues to be very narrow. Tech stocks are surging while the rest of the market is rather flat. Speaking of tech, Analog Devices said it would buy Maxim Integrated for $21 billion in an all-stock deal.

  This quote from a recent Reuters article summed it up:

  “COVID-19 is now inversely related to the markets. The worse that COVID-19 gets, the better the markets do because the Fed will bring in stimulus. That is what has been driving markets,” said Andrew Brenner, head of international fixed income at NatAlliance.

  The Q2 earnings season is about to begin. Wall Street expects corporate profits to fall by 44%. If that’s right, it would be the worst quarter in over a decade.

  We have new highs this morning from FactSet (FDS), Check Point Software (CHKP) and Church & Dwight (CHD). Moody’s (MCO) is very close to a new high.

• Morning News: July 13, 2020
  Eddy Elfenbein, July 13th, 2020 at 7:05 am

  Google Will Invest $10 Billion in India Over the Next Few Years

  Federal Reserve’s $3 Trillion Virus Rescue Inflates Market Bubbles

  Wealthy Investors Worry About Lack of Cash If Pandemic Returns

  Did Uncle Sam’s Virus Aid Help Your Credit Score? Don’t Count on a Loan

  Analog Devices in Talks to Buy Maxim Integrated for About $20 Billion

  Google Search Upgrades Make It Harder for Websites to Win Traffic

  How May Google Fight an Antitrust Case? Look at This Little-Noticed Paper

  Tesla Lowers the Starting Price of Its Model Y Electric SUV

  Inside the White House, a Gun Industry Lobbyist Delivers for His Former Patrons

  Diageo to Launch Johnnie Walker in Paper Bottles in 2021

  Lawrence Hamtil: The COVID Crisis Provides Further Validation for Barbell Strategies

  Michael Batnick: How to Protect Your Portfolio

  Roger Nusbaum: Knowing When You’ve Won

  Ben Carlson: What Should College Students Do This Fall? & If We Can Print Our Own Money Why Do We Have to Pay Taxes?

  Jeff Carter: Scarcity & So You Want To Be A Trader

  Cullen Roche: The 2020 Podcast World Tour Continues

  Jeff Miller: Time for Some Hedging?

  Howard Lindzon: Halt And Catch Tech Stocks

  Be sure to follow me on Twitter.

• CWS Market Review – July 10, 2020
  Eddy Elfenbein, July 10th, 2020 at 7:08 am

  “The key to making money in stocks is not to get scared out of them.” – Peter Lynch

  Apparently, technology stocks didn’t get the memo that this is supposed to be a “dangerous” and “pricey” market. Since the S&P 500 reached its near-term peak on June 8, the S&P 500 has pulled back about 2.5%, but the S&P 500 tech sector has marched ahead another 6.3%.

  

  That’s quite a large gap for such a short amount of time, especially since tech is by far the largest sector in the index. It looks like the tech sector is leaving everyone else behind, and that’s a gain on top of a very nice run since late March. Since the market bottomed out four months ago, the tech sector has gained 53%.

  If you feel like you’ve seen this movie before, you’re not alone. This is somewhat similar to what happened 20 years ago when the Dot-Com Bubble and Bust turned Wall Street upside-down. The difference was that that case was, to use a technical term, totally bananas. This time, it’s merely worthy of attention.

  In this week’s issue, I want to discuss the dangers of a divided market, because that’s exactly what we’re seeing. On Wall Street, a rising tide does not lift all boats. I’ll break down what it means for us.

  I also have some Buy List updates for you. Several of our stocks have been hitting new highs like Ansys (ANSS), Church & Dwight (CHD), Danaher (DHR), Moody’s (MCO) and Trex (TREX). We’ve also had hot stocks like FactSet (FDS), which is up more than 20% in the last month, and Check Point Software (CHKP), which has closed higher for the last eight days in a row. But first, let’s dig deeper into this growing divide on Wall Street.

  The Divided Market

  When someone asks how the market is doing, it’s actually a more difficult question than it appears. The reason is that the market is the average of hundreds or even thousands of stocks, depending on the index.

  My preferred index, the S&P 500, is the combined market value of 500 different companies. Due to different class shares, the index is technically composed of 505 different stocks. Lots of stocks can be doing lousy while the overall market is just fine. Or some stocks can rally while the overall market is in the dumps.

  Lately, we’ve seen another phenomenon. The technology sector is rallying strongly while the rest of the market is puttering along. This isn’t noteworthy except in its degree. Even within technology stocks, the gains have been heavily skewed toward the big five tech giants.

  Just this year, Apple is up 30%. Microsoft is up 35%. Google is up just 13%. Facebook is up 19%, and Amazon is the winner with a YTD gain of 72%. Bear in mind that we’re talking about big moves in companies already worth more than $1 trillion. Combined, these five companies are worth nearly $6.5 trillion. In other words, 1% of the stocks in the index comprise close to one-quarter of its entire value.

  While these stocks had certainly done well before the coronavirus, they’ve become even more dominant since the economy closed up. The difference this time is that these tech giants are seen as safe assets. In normal markets, when investors flee to safety, that means stocks like utilities or blue chips. Now, many of the old safe sectors are doing the worst.

  Here’s another example. The Nasdaq Composite is heavily skewed towards tech stocks. The index recently completed a 30-day run where it closed higher 25 times. On Thursday, the Nasdaq notched its 26th record close of the year. Here’s a remarkable chart. This is the S&P 500 technology sector divided by the S&P 500.

  

  As a result, the entire S&P 500 is being impacted by only a few stocks. If you don’t own any of them, it’s like you’re playing a different game. On Wednesday, the S&P 500 was up over 0.75%. That’s a good day, but less than 300 members in the index closed higher.

  More and more of the heavy lifting is falling on the shoulders of fewer stocks. Apple, Amazon and Microsoft accounted for half of Wednesday’s move.

  Here’s another chart. This is of two ETFs. The blue line is the tech sector, and the red line is everything in the S&P 500 except the tech sector.

  

  There are some similarities between today and the tech bubble of 20 years ago. Of course, that bubble was driven by the emergence of the Internet, which was a new and exciting technology. (Remember Pets-Dot-Com?) The difference this time is that it’s almost entirely being driven by a small group of companies. There are no crazy IPOs with explosive one-day gains. Also, there’s no great new technology this time. Most of the buying seems to be FOMO, fear of missing out.

  The Big Five have become the mask and social distancing of investing. Everyone’s focusing on them for safety. But there’s an important question: how much will consumer behavior change in a post-Covid world? I’m inclined to think it won’t be much.

  Sure, Amazon has done well since the economy has been in lockdown, but many other companies are also doing well. I expect to see many high-quality companies get back on track as the economy reopens. Disney certainly hasn’t gone away. The coronavirus has temporarily altered consumer behavior, but it hasn’t permanently changed it.

  I won’t predict the bursting of a bubble, but I am leery of those stocks. While our Buy List doesn’t hold any of the Big Five, we’re not being completely shut out of the tech stocks. Ansys, Fiserv and Broadridge are all in the S&P 500 tech sector.

  Our Buy List has done much better than the S&P 500 Equal Weighted Index. That includes the same stocks as the S&P 500, but with all the companies weighted equally. What this means is that we’re doing better than most stocks, even though we’re running very close to the market-cap weighted index.

  I’m not trying to make excuses. We’re doing fine, but it’s important to understand the context of the current market. This trend of the Big Five can easily unwind at any moment.

  The important lesson here is to not be scared by a divided market. Our stocks are still very good businesses. We’ll soon get more proof of that when earnings season starts. You should also be wary of chasing after big gains. Good investing is disciplined investing. Now let’s look at some recent news impacting our stocks.

  Buy List Updates

  Here are some updates on our Buy List stocks.

  Shares of AFLAC (AFL) have been sluggish lately. Don’t worry. The duck stock is due to report earnings on July 28. This week, I’m dropping my Buy Below on AFLAC to $37 per share. I’m expecting good news.

  Danaher (DHR) has been looking very good lately. On Thursday, DHR touched a new all-time high of $187.19 per share. Earnings will probably come out in early August. Don’t chase this one. Danaher is like the Harris Tweed jacket of investments. It belongs in every gentleman’s portfolio.

  FactSet (FDS) continues to behave well for us over the last month. The stock reacted much better to its recent earnings report than I expected. For its fiscal Q3, FDS earned $2.86 per share. That beat the Street by 43 cents per share. The shares have rallied more than 20% in the last month.

  Disney (DIS)’s streaming service, Disney+, got a big boost this weekend thanks to Hamilton. From Friday through Sunday, the mobile app was downloaded 513,323 times globally and 266,084 times in the United States. “Raise a glass to freedom!”

  Becton, Dickinson (BDX) had some good news. The FDA gave emergency approval for its rapid antigen test for COVID-19. The shares recently broke above $258. Earnings are due out on August 6.

  Check Point Software (CHKP) has been on a very nice run. The shares have closed higher for eight straight days. In its last earnings report, Check Point said it’s seen a “dramatic rise” in the number of cyber-attacks related to the coronavirus. The company will report earnings on July 22. Wall Street expects $1.43 per share. The stock has floated above our Buy Below recently, but I want to hold off on raising the latter until I can see the earnings report. If you don’t own it, hold off for now.

  That’s all for now. We’ll get some key economic reports next week. On Monday, the report on the federal budget is due out. Then on Tuesday, the CPI report comes out. Consumer prices have fallen for the last three months. Wednesday is industrial production. The last three reports have been terrible. Then on Thursday, we’ll get another jobless-claims report and another report on retail sales. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy