Archive for September, 2020

• August Jobs Report
  Eddy Elfenbein, September 4th, 2020 at 8:35 am

  Last month, the U.S. economy created 1.371 million new jobs. The unemployment rate fell to 8.4%.

  In two months, the economy lost 22.16 million jobs. Over the last four months, we’ve gained back 10.61 million jobs.

  The labor force participation rate is up to 61.73%, which is still very low. Before the pandemic, it was running around 63%.

  The jobs-to-population ratio is at 56.5%. It was over 61% at the start of this year.

  Here’s a chart of non-farm payroll:

  

  Here’s the unemployment rate:

  

• CWS Market Review – September 4, 2020
  Eddy Elfenbein, September 4th, 2020 at 7:08 am

  “Become more humble as the market goes your way.” – Bernard Baruch

  After a spectacular run, the stock market suddenly got a case of the jitters on Thursday. Up until that point, the market had been enjoying an explosive rally.

  The numbers are truly impressive. Last month was the best August for the S&P 500 in 36 years. Before Thursday’s swan dive, the index had rallied nine times in the previous 10 days. Going out further, the index closed higher 19 times in 25 days.

  

  It seemed like the market was rising every day, and every day it was being led by the same big-name companies. Heck, Tesla closed higher not for anything they did but simply because they split their stock! (Elon, if you’re reading this, take note of this week’s epigraph.)

  I suppose the bulls thought they had scared away the last bear. Not so! On Thursday, the S&P 500 got dinged for a 3.5% loss. That was more than four times worse than any other day in the last six weeks (which probably says more about the last six weeks than it does about Thursday).

  Confused? Don’t worry. In this week’s issue, I’ll break down for you what’s happening. I’ll also highlight some recent economic news, which hasn’t been not terrible. I’ll explain what I mean. First, let’s look at Thursday’s Big Chill.

  The Rally Finally Gets Some Pushback

  One of the old chestnuts on Wall Street is that trends can last longer than you think. It’s natural for a market-watcher to think that some trend has finally exhausted itself, yet it still goes on. Thinking you can accurately spot the turning point is a dangerous game.

  I’ve been thinking about this lately since Wall Street has fallen under the spell of a few select stocks. Earlier I mentioned Tesla. On Monday, the stock jumped more than 12% when the company split its stock 5-for-1. To be clear, nothing happened. A stock split has zero bearing on the underlying share price.

  But Tesla doesn’t have shareholders, it has fan boys. TSLA is up more than 780% over the last 12 months. Here’s my favorite Tesla fact: the average share of Tesla is owned for ten days.

  But even Tesla got caught up in the selling. From Tuesday’s high to Thursday’s low, shares of Tesla dropped 20%.

  Check out the intra-day chart of the Nasdaq:

  

  Zoom is another superstar stock that had a dramatic week this week. I would have to say that Zoom has probably been the stock that’s most emblematic of 2020. It’s reached the level of Xerox and Kleenex—the brand name is also the generic name.

  On Tuesday, Zoom zoomed higher by more than 40%. The company reported earnings that demolished Wall Street’s estimates. For the most recent quarter, Zoom earned 92 cents per share. That more than doubled Wall Street’s consensus of 45 cents per share. This year, the stock is up 460%.

  One interesting side note about Zoom. The company’s founder had his visa application rejected by the U.S. government eight times. On Tuesday, he made $6.6 billion.

  But like Tesla, Zoom got tangled up in the selling. From Tuesday’s high to Thursday’s close, Zoom lost 22%, a drop similar to Tesla’s.

  Apple Is Now Worth More than the Russell 2000

  Shares of Apple also got a nice bump this week after they, too, did a stock split. At one point, Apple’s market value surpassed the market value of the Russell 2000. One company is worth more than an index of 2,000 stocks.

  And like the others, Apple got a super-atomic wedgie on Thursday. The company lost a staggering $180 billion in market value.

  In previous issues I’ve written about how the Big Five (Apple, Amazon, Facebook, Google and Microsoft) have nearly taken over the entire market. The companies are so big, and they’ve done so well, that they distort the rest of the market. These five companies now account for more than 20% of the S&P 500.

  So much of the relative performance this year boils down to the question: do you have exposure to the Big Five (or Zoom or Tesla) or not? Our Buy List does not. Despite this, I’ve been impressed by the way we’ve held our own. For example, our Buy List is running ahead of the S&P 500 Equal Weight Index. That’s the regular S&P 500, but with every stock counting the same.

  I have to explain that while our Buy List did reach new highs last week and this week, it generally lagged the market. That’s due to the nature of our stocks. Most of the stocks on our Buy List are stable companies and very high-quality. As such, they don’t quite ride the same updraft during a ferocious bull market such as we’ve had. Though to be clear, we’ve gone higher.

  Conversely, when the market broke on Thursday, we also fell, but not as much as the overall market. Yesterday, 16 of our 25 stocks fell less than the overall market. Two stocks, Eagle Bancorp (EGBN) and AFLAC (AFL), actually closed higher.

  Thursday was a good example of what market folks call a “contra-trend” day. That’s a fancy word meaning all the stuff that’s been doing great is having a rotten day. Meanwhile, all the stuff that’s been lagging is doing well.

  Contra-trend rallies are typical within larger rallies, but we can’t say that this spells the end of the superstar stock rally. Clearly, there are nervous investors out there, and the bears have shown that they’re willing to push back.

  There are parts of this market that have been almost entirely left behind by this rally. Value stocks, for example, haven’t done much. Here’s a chart of S&P 500 Value (blue) and S&P 500 Growth (black). Growth has outperformed Value, but the gap got dramatically wider this year.

  

  If you look closely, at the end of the chart, Thursday’s drop is visible for Growth, but Value was impacted much more.

  Also, the non-tech stocks in the S&P 500 haven’t done particularly well. There’s a decent chance that Thursday could mark the beginning of rotation away from the big Growth winners and toward the Value laggers.

  As a very general rule of thumb, the Buy List keeps up with the overall market during bull markets. But during bear markets has been where we’ve set ourselves apart. That happened again earlier this year when the S&P 500 lost more than one-third of its value in just over a month.

  The U.S. Economy Is Slowly Getting Better

  I also wanted to touch on a few of the recent economic reports. There’s been some brighter economic news, but I have to put that in the context of a very distressing economy for so many. The economy is getting better, but we have a long way to go until we get back to normal.

  Last week, the government revised Q2 GDP from an annualized decline of 32.9% to one of “just” 31.7%. In late October, we’ll get our first look at Q3 GDP.

  The big August jobs report is due out later this morning. On Thursday, the ADP payroll report said that 428,000 private jobs were created last month. That was well short of Wall Street’s guess of 1.1 million. I should add that the ADP is not a good predictor of what the government’s report will say.

  The most recent jobless-claims report came in at 881,000. That’s much better than Wall Street’s estimate of 950,000. This is the lowest initial-claims report since the lockdowns started nearly six months ago.

  The Labor Department also changed its methodology which may have overstated the jobless claims earlier this year. Continuing claims fell to 13.254 million.

  Factory orders for July rose by 6.4%. Perhaps the best news was the ISM Manufacturing Index. This week’s report came in at 56, which is its best reading in nearly two years. We also learned this week that home prices are rising at the fastest rate in nearly two years. That could be helping business for our friends at Trex (TREX).

  That’s all for now. The stock market will be closed on Monday for Labor Day. There’s not much in the way of economic news next week, but there are a few items I want to highlight. On Tuesday, the consumer-credit report comes out. On Wednesday, we’ll get another report on job openings. Thursday we’ll get another jobless-claims report. Then on Friday, the latest CPI report is released. 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

• Morning News: September 4, 2020
  Eddy Elfenbein, September 4th, 2020 at 7:01 am

  Wall Street Has Its Worst Day in Months

  Tech Selloff Seen as Removal of Froth Rather Than a Warning Sign

  2016 All Over Again? Investors Ready For Big Market Moves As U.S. Election Nears

  Unemployment Claims Show Layoffs Continue to Batter Economy

  Unemployment Claims Improve But It’s a Manipulation Mirage

  What the Fed’s New Long-Run Inflation Outlook Means for Your Portfolio

  Central Bankers Aren’t Using Their Climate Superpowers Yet

  Taking Power – Chinese Firm to Run Laos Electric Grid Amid Default Warnings

  Justice Dept. Plans to File Antitrust Charges Against Google in Coming Weeks

  The Fraud and Drug Binges That Helped Create a Billion-Dollar Shoe Company

  ‘Mulan’ Tests Subscribers’ Desire to Pay Up for Big-Budget Film

  Nick Maggiulli: Why Do Poor People Stay Poor?

  Cullen Roche: The COVID Price Compression in Technology

  Howard Lindzon: Daddy…What’s a Bubble?

  Ben Carlson: How Much Money Is Enough?

  Be sure to follow me on Twitter.

• A Contra-Trend Day
  Eddy Elfenbein, September 3rd, 2020 at 1:30 pm

  The market is finally down today. This is a good example of a contra-trend day. That’s when the opposite of everything that’s been happening happens.

  Here’s one example: From Tuesday’s high to today’s close, Tesla is down 19%. Here’s another: Zoom is down over 20% over the same span.

  How long will it last? That’s hard to say.

  We got some good economic news this morning. The jobless-claims report came in at 881,000. That’s much better than Wall Street’s estimate of 950,000. This is the lowest initial claims report since the lockdowns started in March.

  The Labor Department also changed its methodology which may have overstated the jobless claims earlier this year. Continuing claims fell to 13.254 million.
  Tomorrow we’ll get the jobs report for August. For July, the unemployment rate was 10.2%.

• Morning News: September 3, 2020
  Eddy Elfenbein, September 3rd, 2020 at 7:01 am

  As World Turns Inward, Shinzo Abe’s Japan Has Turned Outward

  Federal Borrowing Amid Pandemic Puts U.S. Debt on Path to Exceed World War II

  U.S. Job Gains Seen Hanging On In August With Tougher Road Ahead

  At 7 a.m. in New York, a Red-Hot Treasury Trade Starts to Unwind

  Why an Eviction Ban Alone Won’t Prevent a Housing Crisis

  Amazon Bucks UK Labour Market Gloom With 7,000 New Jobs

  Its Electric Grid Under Strain, California Turns to Batteries

  VW-Backed U.S. Battery Maker QuantumScape To Go Public At $3.3 Billion Valuation

  An IPO Expert Bats Back At The Narrative That Traditional IPOs Are For “Morons”

  WeChat Is China’s Everything App, and the ‘We’ Is Looking Suspicious

  K-Pop Band BTS To Become Multimillionaire Shareholders With Label’s IPO

  The Hamptons Hit Uncharted Waters: $75,000-a-Month Fall Rentals

  Ben Carlson: Animal Spirits: Asset Price Hyperinflation

  Michael Batnick: The Craziest Year Ever? What Are Your Thoughts?

  Joshua Brown: Buyers and Sellers, How Dare You, Sir! & Craziest Year Ever: Put-to-Call Ratio Plunges, New Dow Components and More!

  Be sure to follow me on Twitter.

• Another All-Time High
  Eddy Elfenbein, September 2nd, 2020 at 4:16 pm

  The numbers for this market are amazing. The S&P 500 rallied for the ninth time in the last ten days. It’s up 19 times in the last 24 sessions.

  On our Buy List, we had new highs today from Ansys (ANSS), Church & Dwight (CHD), Check Point Software (CHKP), Danaher (DHR), Intercontinental Exchange (ICE), Moody’s (MCO), RPM International (RPM), Sherwin-Williams (SHW) and Silgan Holdings (SLGN).

  On top of that, Broadridge Financial Solutions (BR), FactSet (FDS), Hormel Foods (HRL), Stepan (SCL) and Trex (TREX) came close to new highs.

  The market cap of Apple surpassed the market cap of the entire Russell 2000.

• Is Market Expecting Drama on Election Day?
  Eddy Elfenbein, September 2nd, 2020 at 2:22 pm

  In financial markets, an investor can invest in volatility. Bloomberg points out that the futures contract tied to volatility near Election Day is unusually high. The best explanation is that the market expects fireworks near Election Day. More properly I should say, “the odds” of fireworks are very high.

  “In the history of the VIX futures contracts, we’ve never had an event risk command this sort of premium into forward-dated vol at a specific tenor,” Bloomberg macro strategist Cameron Crise wrote in a blog post.

  The cliché is that the market hates uncertainty. My guess is that the big fear is an unresolved election. I can’t imagine anyone would enjoy the election descending into rounds of lawsuits that carry on for weeks.

• ADP: 428,000 Private Payrolls Added in August
  Eddy Elfenbein, September 2nd, 2020 at 10:39 am

  This morning, ADP reported that 428,000 private payroll jobs were created last month. That sounds impressive but it is still way short of Wall Street’s estimate for 1,170,000.

  Big business dominated job creation, as firms with more than 500 employees added 298,000 workers. Medium-sized businesses were next with 79,000 while companies with fewer than 50 workers grew by 52,000.

  Job creation skewed heavily to services, which added 389,000 compared with the 40,000 for goods producers. (The total doesn’t add up to 428,000 due to rounding.)

  After lagging through the early part of the pandemic recovery, leisure and hospitality led with 129,000 new jobs while education and health services contributed 100,000 and professional and business services grew by 66,000. Construction also added 28,000 and manufacturing was up 9,000.

  Tomorrow we’ll get another jobless-claims report. After persistent declines, that data series has been a little more volatile in recent weeks. Right now, we’re trending at about one million. Continuing claims have drifted lower and are currently at 14 million.

  The big jobs report comes out on Friday. The unemployment rate is currently at 10.2%. That may fall back into the single digits. Economists expect non-farm payrolls to rise by 1.4 million.

• Morning News: September 2, 2020
  Eddy Elfenbein, September 2nd, 2020 at 7:05 am

  Argentina Gains Room To Breathe With Crucial Debt Deal

  Australia In First Recession For Nearly 30 Years

  One of the World’s Richest Petrostates Is Running Out of Cash

  U.S. Election Priced as Worst Event Risk in VIX Futures History

  ESG Scores Aren’t Enough to Achieve a Net-Zero Future

  Amazon’s New Offerings Make India Centre Of Fintech Push

  Russians Again Targeting Americans With Disinformation, Facebook and Twitter Say

  Dating App Bumble to Plan IPO at $6 Billion-Plus Value

  In Hard Times, a Barrage of Ads Promises Peace of Mind

  Nick Maggiuli: What’s Driving the Rise of the Individual Investor?

  Joshua Brown: Big Trends Monthly: Here Comes September

  Howard Lindzon: Make Soup Great Again… And The Stay In Your Basement Economy

  Jeff Miller: Investing for the Long Run: Looking Beyond the Obvious

  Michael Batnick: All Wrapped In One

  Ben Carlson: The 2 Variables That Drive Stock Prices

  Be sure to follow me on Twitter.

• Zoom Zooms 38%
  Eddy Elfenbein, September 1st, 2020 at 1:34 pm

  The stock market’s amazing run continues. Yesterday looked to be the S&P 500’s eighth up day in a row. However, a quick dip at the close prevented it. No worries. We’re up again today.

  The superstar stocks of this rally are leaving everyone else behind. Yesterday, shares of Tesla jumped over 12%. Why? Well, they did a 5-for-1 stock split. Of course, a stock split doesn’t add any value, but that didn’t stop the bulls. The company also announced a stock offering to raise $5 billion.

  Apple also rallied on its 4-for-1 split. This was Apple’s fifth split since they went public 40 years ago. They’ve done three 2-for-1 splits, one 4-for-1 and one 7-for-1. That adds up to 224-for-1.

  Shares of Zoom exploded higher today after a very strong earnings announcement. The numbers are astounding. As I look at it, the stock is currently up $124 per share or 38%. That’s just today. Zoom is up 565% this year.

  We also had some key economic reports this morning. The ISM Manufacturing Index rose to 56. That’s the best reading in 19 months. Home prices recorded their biggest jump in 19 months.