Archive for January, 2021

• Morning News: January 21, 2021
  Eddy Elfenbein, January 21st, 2021 at 7:06 am

  Saudi Arabia’s Aramco Omits Carbon Data for Up to Half Its Real Climate Toll

  Biden Announces Return to Global Climate Accord, New Curbs on U.S. Oil Industry

  Biden Revokes KXL Permit in Blow to Canada’s Oil Sector, Ottawa Disappointed

  Trump’s Last-Minute Climate Maneuvers Face a Slow Dead End

  Yellen’s Call to ‘Act Big’ Reflects Long Re-Think on Big Government Debt

  Inflation Rippling Through Markets Is Just What Fed Wants to See

  How the American Unemployment System Failed

  Microsoft Invests $2 Billion In GM’s Cruise In Bid To Lead Autonomous Driving Revolution

  Morgan Stanley Profit Shoots Higher, Fueled by Wall Street

  United Airlines Offers Grim Outlook but Seeks to Rebuild

  50 Companies to Watch in 2021

  Joshua Brown: The Dow Jones Under Donald Trump

  Howard Lindzon: When Secular Trends Reverse…and Economic Time Bombs

  Jeff Carter: Scorecards

  Michael Batnick: Animal Spirits: Micro Bubbles

  Be sure to follow me on Twitter.

• Dow’s Return by Day of the Week/Month
  Eddy Elfenbein, January 20th, 2021 at 2:58 pm

  Here’s the Dow’s average return by day of the week/month. You can tell I’ve been busy with my spreadsheets.

  There are a total of 156 different day-week combinations. (Friday the 13th isn’t so bad.) There was a brief trading session on Saturdays up to the 1950s.

  The Dow’s best day is Wednesday the 4th which barely beats out Wednesday the 1st. The worst day is Monday the 25th.

  Days	Monday	Tuesday	Wednesday	Thursday	Friday	Saturday
  1st	0.070%	0.098%	0.274%	0.053%	0.215%	0.160%
  2nd	0.085%	0.142%	0.096%	0.177%	0.248%	0.122%
  3rd	0.087%	0.010%	0.159%	-0.073%	0.243%	0.136%
  4th	-0.078%	0.036%	0.274%	-0.052%	0.074%	0.129%
  5th	0.092%	0.134%	0.033%	0.014%	0.060%	0.135%
  6th	-0.018%	0.216%	0.128%	0.096%	0.096%	0.051%
  7th	-0.051%	-0.145%	0.012%	-0.061%	-0.069%	0.100%
  8th	-0.146%	0.017%	0.053%	0.056%	0.016%	-0.226%
  9th	-0.146%	-0.176%	-0.064%	0.017%	-0.018%	0.115%
  10th	0.006%	-0.047%	-0.048%	0.064%	0.048%	0.238%
  11th	-0.018%	0.074%	-0.046%	0.064%	0.030%	-0.141%
  12th	0.002%	-0.119%	0.015%	-0.151%	0.003%	-0.439%
  13th	-0.035%	-0.021%	0.012%	0.012%	0.057%	0.082%
  14th	0.028%	0.049%	-0.091%	-0.004%	0.128%	0.142%
  15th	-0.103%	0.042%	0.145%	0.002%	0.073%	0.157%
  16th	-0.124%	0.253%	-0.013%	0.190%	0.066%	0.046%
  17th	-0.139%	0.175%	0.040%	0.157%	-0.004%	-0.047%
  18th	-0.254%	0.129%	-0.019%	0.055%	-0.087%	0.129%
  19th	-0.248%	-0.095%	-0.056%	-0.025%	-0.062%	0.048%
  20th	-0.125%	0.135%	-0.012%	-0.044%	0.039%	0.102%
  21st	-0.134%	-0.046%	0.066%	-0.024%	0.022%	-0.103%
  22nd	-0.119%	-0.022%	-0.079%	0.015%	0.021%	0.030%
  23rd	-0.161%	-0.112%	0.068%	-0.045%	0.052%	-0.015%
  24th	-0.118%	0.088%	0.119%	-0.151%	0.018%	0.110%
  25th	-0.318%	-0.010%	0.099%	-0.048%	0.011%	-0.080%
  26th	-0.158%	0.149%	0.115%	0.003%	0.132%	0.086%
  27th	-0.179%	-0.037%	0.106%	0.149%	-0.118%	0.147%
  28th	-0.130%	0.084%	-0.034%	0.091%	0.117%	-0.074%
  29th	-0.147%	0.011%	0.023%	0.085%	0.168%	0.218%
  30th	-0.054%	0.209%	0.089%	-0.048%	0.157%	0.189%
  31st	-0.018%	0.030%	0.043%	0.033%	0.068%	0.096%

  One small footnote. Saturday the 12th really isn’t that bad. It includes December 12, 1914 when the Dow switched to a new index. The market shut down at the advent of World War 1. The Dow folks then started a new index and back-dated it to 1914. As a result, the new index is not continuous with the previous index. In my data, it’s listed as a big drop even though it never really happened.

• Biden is Sworn In and Stocks Rally to New High
  Eddy Elfenbein, January 20th, 2021 at 2:12 pm

  Big day in Washington as Joe Biden was sworn in as the 46th president. As I always advise investors, don’t confuse your politics with the market. For its part, the S&P 500 rallied to a new all-time intra-day high today. The index got up to 3,854.57 today.

  There’s not much stock-specific news today but I’ll pass along one item about Abbott Labs:

  Abbott Laboratories’ rapid COVID-19 antigen test is highly likely to correctly detect if people have ever contracted the virus and could help with earlier isolation, according to the U.S. Centers for Disease Control and Prevention.

  The test was less sensitive in detecting asymptomatic infection, but the CDC study found that the faster turnaround time can help limit transmission by more rapidly identifying infectious persons for isolation.

  

• Morning News: January 20, 2021
  Eddy Elfenbein, January 20th, 2021 at 7:05 am

  10 Challenges Biden Faces in Righting the Economy

  Biden’s First Year Could See Record Employment Growth. More Will Be Needed

  Pfizer-BioNTech Vaccine Found to Be Effective Against Covid Variant Discovered in the UK

  Google Sidelines Second Artificial Intelligence Researcher

  Parler Tries to Survive With Help From Russian Company

  Suriname Could Be Latest Big Oil Find as Industry Cuts Costs

  Casualty of Chocolate War Is Poor West African Farmers

  Cultured Fish May Go From Lab to U.S. Plates This Year

  Mercedes Joins Tesla, VW in Race to Sell Small Electric Cars

  Netflix Forecasts An End to Borrowing Binge, Shares Surge

  Jack Ma Emerges for First Time Since Ant, Alibaba Crackdown

  Joshua Brown: The ‘Burbs & Bullish with a Chance of Civil War

  Nick Maggiulli: 10 Investing Lessons from 2020

  Ben Carlson: So You Turned $300k Into $3 Million. Now What?

  Michael Batnick: Is David Bullying Goliath? & They’re On Fire

  Howard Lindzon: The Death Of Retail Is The Birth of Retail – Part 3…A Post Covid World… And More Gamestops?

  Be sure to follow me on Twitter.

• Yellen Encourages Congress to “Act Big”
  Eddy Elfenbein, January 19th, 2021 at 11:15 am

  The markets seem to be in a happy mood following the three-day weekend. The major indexes are up nicely. Once again, the Russell 2000 is leading the charge.

  We’re at the start of earnings season. Usually, the big banks go first. Earlier this morning, Goldman Sachs reported very strong earnings, but the shares are down in early trading.

  Our Buy List stocks will start reporting next week.

  At noon tomorrow, Joe Biden will be sworn in as our 46th president. (Washington looks like an armed camp.) Now everyone’s attention is on the big $1.9 trillion stimulus program. Janet Yellen, the nominee for Treasury Secretary, is currently testifying before the Senate Finance Committee.

  Janet Yellen, President-elect Joe Biden’s nominee for treasury secretary, urged lawmakers Tuesday to “act big” on economic relief for the coronavirus pandemic as she appeared before a Senate committee for her confirmation hearing.

  “I think there is a consensus now: Without further action, we risk a longer, more painful recession now — and long-term scarring of the economy later,” Yellen said in written testimony submitted to the Senate Finance Committee ahead of the hearing.

  On our Buy List, Cerner (CERN) got a doubled downgrade. B of A Securities lowered CERN to Underperform from Buy. The stock is currently down but only a little bit.

• Morning News: January 19, 2021
  Eddy Elfenbein, January 19th, 2021 at 7:04 am

  China’s 2020 GDP Means It Will Overtake U.S. As World’s No. 1 Economy Sooner Than Expected

  China Still Needs Australia to Power Its Economic Recovery

  Investors Flock Back Into Oil for Reflation Trade, Hedging

  The Trump Years: Tax Cuts and Trade Wars Overshadowed in the End By A Virus

  Yellen Faces Senate to Sell $1.9 Trillion Stimulus Package

  How Full Employment Became Washington’s Creed

  Business Makes the Case for a Post-Trump Reset

  Citrix Agrees to Buy Slack Competitor Wrike for $2.25 Billion

  BofA’s Wall Street Unit Falls Short of Rivals During Bumper Year

  BofA Clients With $561 Billion Say Bitcoin Is Most Crowded Trade

  Goldman Sachs Profit Surges Past Estimates on M&A, Trading Boost

  Why Medical Tourism Is Drawing Patients, Even in a Pandemic

  Joshua Brown: re: Trumpless Twitter

  Howard Lindzon: Momentum Monday – Is Small The New Big?

  Ben Carlson: Why Bubbles Are Good For Innovation

  Be sure to follow me on Twitter.

• Morning News: January 18, 2021
  Eddy Elfenbein, January 18th, 2021 at 6:59 am

  China’s Economy Picks Up Speed in Fourth Quarter, Ends 2020 in Solid Shape After COVID-19 Shock

  Trump Admin Slams China’s Huawei, Halting Shipments from Intel, Others

  German Inflation Will Turn Positive in January, Bundesbank Says

  For One British Industry, Brexit’s Red Tape Is Just Beginning

  Dollar Shorts Mount Before Yellen Outlines Market-Based Policy

  Biden Taps Gensler as SEC Chairman, FTC’s Chopra as CFPB Chief

  The Week in Business: Running for the Doors

  Behind a Secret Deal Between Google and Facebook

  Biden May Cancel Keystone XL Pipeline Permit As Soon As His First Day in Office

  Samsung Heir Jay Y. Lee Sentenced to 2 1/2 Years in Prison for Bribery and Embezzlement

  Michael Batnick: You Gotta Be Kidding Me

  Jeff Miller: Weighing the Week Ahead: What Will Biden Proposals Mean for Investors?

  Ben Carlson: How To Invest in a Bubble & Stock, Bond & Cash Returns: 1928-2020

  Howard Lindzon: Only On Twitter… & Howard Lindzon: Sunday Sentiment…Penny Stock Peddlers On Reddit and #WeekendsAreForCrypto on Stocktwits

  Joshua Brown: The Three Most Important Posts I’ve Ever Written & Talking SPACs and IPOs with Earn Your Leisure

  Be sure to follow me on Twitter.

• Retail Sales Fall Again
  Eddy Elfenbein, January 15th, 2021 at 11:22 am

  This morning, the Commerce Department said that retail sales fell 0.7% in December. Wall Street was expecting the number to be unchanged. This is the second monthly decline in a row for retail sales. This data is usually a good indicator of consumer spending.

  Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.9% last month after a downwardly revised 1.1% decline in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have decreased by 0.5% in November.

  The report followed in the wake of news last week that the economy shed jobs in December for the first time in eight months. Further job losses are likely in January as new applications for unemployment benefits surged in the first week of the month. The data are in line with economists’ expectations for a sharp slowdown in economic growth in the fourth quarter.

  President-elect Biden has announced his plans for a $1.9 trillion stimulus.

  Here’s what Biden calls for:
  • Direct payments of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments
  • Increasing the federal, per-week unemployment benefit to $400 and extending it through the end of September
  • Increasing the federal minimum wage to $15 per hour
  • Extending the eviction and foreclosure moratoriums until the end of September
  • $350 billion in state and local government aid
  • $170 billion for K-12 schools and institutions of higher education
  • $50 billion toward Covid-19 testing
  • $20 billion toward a national vaccine program in partnership with states, localities and tribes
  • Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

  Also this morning, JPMorgan Chase (JPM) reported Q4 earnings of $3.79 per share. That beat the street by $1.17 per share.

  U.S. consumer sentiment fell to 79.2 early this month from a final reading of 80.7 in December.

• CWS Market Review – January 15, 2021
  Eddy Elfenbein, January 15th, 2021 at 7:08 am

  “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Walton

  For the fourth time in U.S. history, a president was impeached this week. A Senate trial may not happen for a few more weeks, after President Trump has left office. The financial markets, however, took the news in stride, and stock prices are still close to a new all-time high.

  In last week’s issue, I cautioned that the December jobs report might not be a good one. I was right: it wasn’t. That, combined with other evidence, strongly suggests that the economy went into a nasty slide toward the close of 2020. President-elect Biden just unveiled plans for a massive stimulus program.

  

  However, the big news coming our way is the fourth-quarter earnings season. From mid-January through early February, hundreds of companies will tell us how business fared during the final three months of 2020. For Wall Street, earnings season is like Judgment Day. Investors will learn who’s been naughty or nice. On our Buy List, 22 of our 25 stocks follow the March/June/September/December reporting period. That means they’ll be reporting soon. As usual, I’ll provide a complete earnings calendar for you as we get closer to earnings season.

  In this issue, I have some Buy List updates for you. Some of our stocks are already up nicely this year. Trex, for example, is up close to 10%. That’s nice to see after last year’s big run. Miller Industries, a newbie this year, is already an 8% winner for us. Of course, it’s still early. Later on, I’ll lift some of our Buy Below prices. I’ll also highlight shares of Thermo Fisher Scientific. But first, let’s take a closer look at some recent economic news.

  The U.S. Economy Lost 140,000 Jobs Last Month

  Earlier this week, multi-gazillionaire and noted bluntsman Elon Musk tweeted rather mysteriously: “Use Signal.” Investors immediately sprang into action. Shares of Signal Advance (SIGL) skyrocketed from 60 cents per share to $3.76 per share. Within a few days, the stock eventually reached $70 per share.

  There was one wee problem. Signal Advance had nothing to do with the company Musk was tweeting about. Signal Advance is a tiny biotech stock that used to be known as Biodyne Development Company. Musk wanted people to use Signal, an encrypted-messaging platform that isn’t publicly traded.

  Still, the market took the wrong signal, literally, and the wrong Signal soared. With investing, people often talk of the Greater Fool Theory. This means that someone is overpaying but they’re buying in because they think they can unload it an even higher price. Here the theory became reality.

  Well after the Signal mix-up was discovered, shares of SIGL were still frantically bouncing around. On Thursday, shares of SIGL closed at $11.50 per share. That was a 36% gain in one day for a stock that has little true value.

  My point is that investing isn’t a rational business. Over the long term, sure, it’s pretty good. But in the short term? No way. The market is little more than a poorly-organized mob.

  Last Friday, the government released the December jobs report. Wall Street was expecting a loss of 50,000 jobs. Instead, the economy lost 140,000 jobs. The unemployment rate is now 6.7%. The situation is grim. There are currently more than 110 million people who are either out of work or out of the job market entirely.

  After digging into the details of the jobs report, we learned that most of the damage fell on the education sector as well as the leisure and hospitality sectors. In a net-net sense, all of the jobs lost last month were held by women. Male employment increased by 16,000.

  As I said in last week’s issue, I had been expecting bad news. Several other economic reports hinted that the economy was slowing down late in 2020. On Thursday, the initial-claims report rose to 965,000. That was the highest since August. It’s still about four times higher than the pre-pandemic average.

  On January 28, the government will release its initial estimate for Q4 GDP growth. Again, I’m not expecting good news. The New York Fed’s Nowcast currently estimates Q4 GDP growth of 2.2%. I think that’s too high. President-elect Biden unveiled his $1.9 trillion stimulus package.

  To fill the lingering holes in the economic recovery, the plan also includes more than $1 trillion in direct aid to struggling families through $2,000 stimulus checks, extended unemployment insurance, rental protections and nutrition assistance. The Biden proposal also allocates $440 billion to small businesses, local communities and transit systems on the brink.

  Well, that’s the proposal. What Congress approves may look quite different.

  One concern is inflation. The government has already spent lots of money, and it’s looking to spend ever more. So far, there hasn’t been much evidence of inflation. This week’s CPI report showed that headline inflation rose by 0.4% last month. That matched expectations.

  The culprit for higher prices wasn’t hard to find. For December, gasoline prices rose by 8.4%, and that accounted for 60% of the rise in December’s CPI. When we look at the “core rate” of inflation, which excludes food and energy prices, then inflation rose by just 0.1%. I tend to be a pragmatist on this issue. There are far too many folks predicting that massive inflation is just around the bend. Eh…maybe. I prefer to look at the data. We’re just not seeing a big increase yet, but it may soon come.

  I can’t help noticing that the bond market is reacting, albeit slowly. In August, the 10-year Treasury yield was as low as 0.5%. This week, it got as high as 1.2%. That’s still low, but I’m keeping an eye on it. Inflation may be back with us.

  Small Caps Soar

  One of the more remarkable events of recent months has been the tremendous rally in small-cap stocks. This comes after nearly a decade of the small-cap Russell 2000 Index’s trailing the overall market, sometimes badly. But not lately. The Russell 2000 ETF (IWM) is up more than 123% from its March low. The relative performance really took off at the end of September. Since then, IWM is up almost 49% while the S&P 500 ETF (SPY) is up “only” 17.5%. That’s a huge gap for that time period.

  Here’s a 20-year look at the Russell 2000 ETF divided by the S&P 500 ETF. See how raucous the last year has been.

  

  So what’s driving the little guys? I have a slightly heterodox view on this. I don’t think the Russell 2000 is a good indicator of small-cap performance. Instead, it’s an index that leans heavily towards the cyclical sectors, with some unusual features. Most prominently, the R2000 doesn’t have any of the mega-cap tech stocks. That means that whenever the Apples of the world sour, the R2000, by definition, sees a relative gain.

  The Russell 2000 leans towards energy and financial stocks. Those are the ones that have been doing well. This is further evidence of the trend we’ve discussed before. Cyclical and value stocks have been leading the charge, and that may continue. This has been mirrored in the bond market by those yields that we discussed before. What we’re seeing is a large shift from defense to offense. Related to this, consumer staples have been relatively weak, even good ones like Hershey (HSY) and Church & Dwight (CHD).

  It’s not so much that cyclicals are getting high valuations. It’s that they’re fed up with trailing for so many years. Not that long ago, Apple was worth more than the entire Russell 2000. That’s not the case anymore. I wasn’t surprised by this rotation, but the quickness with which it occurred did get my attention. I expect this rotation to continue on for at least several more weeks.

  Profile of Thermo Fisher Scientific

  I promised to go into greater depth on our new stocks. This week, it’s Thermo Fisher Scientific’s (TMO) turn. The best way to think of TMO is to know that they make all the stuff that makes labs run. That means all matter of scientific instruments. The company is also involved with diagnostics consumables and life-sciences reagents.

  This is a good business to be in, and a very good business to dominate, because customers buy the initial base of equipment. As that expands and upgrades, TMO gets a steady stream of recurring revenue. I didn’t select it as a Covid stock, but Thermo will certainly be an important player in the fight against the pandemic. In fact, the company recently launched two antibody tests. Wherever research money is spent, Thermo will get its beak wet. It’s simply the arms dealer to the pharma industry.

  In many respects, TMO has a business model similar to that of razors and razor blades. Once you get the customer to buy the razor, they’re tied in to buying many more blades. Nearly 80% of TMO’s revenue is recurring. Importantly, the company strives to have the best instruments out there. Thermo spends about $1 billion a year on R&D, and about 40% of TMO’s revenue comes from pharma and biotech.

  Last year. TMO offered to buy Qiagen (QGEN) for $11.5 billion. That was a lot of money, but QGEN shareholders shot down the deal. Wisely, TMO walked away. That impressed me.

  The stock is currently going for 24 times this year’s earnings estimate. That’s not cheap, but given TMO’s historic valuation, it’s not bad. The company’s ability to grow earnings consistently is truly impressive. Check out the long-term chart below.

  

  The share price is in blue, and it follows the left scale. The red line is EPS, and it follows the right scale. The two lines are scaled at a ratio of 16-to-1.

  The next earnings report is due out on February 1. Wall Street is expecting earnings of $6.47 per share. Thermo Fisher Scientific is a buy up to $490 per share. I may adjust that soon, but I want to see earnings first.

  Buy List Updates

  Our Buy List is up on the year. Thanks to the recent rally, a few of our stocks have jumped above their Buy Below prices. Right now is the quiet before the storm. There’s not much news about our stocks, but that will change soon. This week, I’m raising our Buy Below on Ansys (ANSS) to $390 per share.

  I’m also raising AFLAC’s (AFL) to $50 per share. The duck stock is due to report earnings on February 3. The current estimate on Wall Street is operating earnings of $1.05 per share. Since October 30, AFLAC has rallied 38%.

  I’m also raising our Buy Below on Intercontinental Exchange (ICE) to $123 per share. This week, ICE said it’s going to sell its Bakkt unit. The division will enter the public markets via a SPAC. That’s a special purpose acquisition company. It’s basically a shell company that’s listed on the exchange. It can buy up a company like Bakkt in order to avoid all the headache of going public.

  Bakkt focuses on digital markets. Initially, it made a big splash by having Bitcoin futures. Now it lets people trade all sorts of digital assets. The deal values Bakkt at $2.1 billion.

  As I mentioned earlier, Trex (TREX) is up nearly 10% this year after a spectacular 2020. I’m raising our Buy Below on Trex to $98 per share.

  Stepan (SCL) got out of the gate very strongly this year. At one point last week, shares of Stepan broke above $131, but they pulled back some this week. I’m lifting our Buy Below on Stepan to $134 per share.

  That’s all for now. The stock market will be closed on Monday is honor of Dr. Martin Luther King’s birthday. The civil rights leader would have been 92. On Wednesday, Joe Biden will be inaugurated as our 46th president. On Thursday, we’ll get another jobless-claims report. On Friday, the existing-home sales report is due out. 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: January 15, 2021
  Eddy Elfenbein, January 15th, 2021 at 7:02 am

  The UK Economy Is on the Brink of a Double-Dip Recession After It Shrank 2.6% in November Amid Surging COVID-19 Cases

  Unemployment Claims Rise Sharply, Showing New Economic Pain

  Biden Unveils Plan to Pump $1.9 Trillion Into Pandemic-Hit Economy

  Biden’s $1.9 Trillion Rescue Package Offers Bridge for Hard-Hit Economy

  Who Qualifies for a Second Round of Small-Business Relief?

  Why Finding Workers Is Getting Harder for U.S. Homebuilders

  The Stock Market’s Perplexing Rise Lifted Many Kinds of Funds

  U.S. Targets Xiaomi, Cnooc in Trump’s Late Anti-China Push

  Tesla Might Finally Have Some Competition. From Ford. & The Leaders in the Race to Build a Better EV Battery

  Disneyland as a Vaccination Site? Airports as Test Centers? The Travel Industry Pitches In

  Airbnb CEO Says Travel Never Going Back to the Way It Was Before Pandemic

  Intel’s ‘Chief Geek,’ Pat Gelsinger, Returns as CEO

  Ben Carlson: It’s Time to Prepare For Markets & the Economy to Get Weird

  Howard Lindzon: Bone Fide Wealth President Douglas Boneparth Joins Me on Panic with Friends to Discuss Financial Advice and Millennials

  Joshua Brown: Surprise, Surprise – The Stimulus Is Actually Stimulating & Crowdstrike CEO George Kurtz on The Compound Show

  Michael Batnick: The Power of Story Telling & Animal Spirits: Investing in Private Real Estate

  Be sure to follow me on Twitter.