Good morning. It's Thursday, and what a week it has been so far. The S&P500 yesterday came close to breaking its record high set back in February.
UPB HERE again. Thankfully JB will return next week and you will not have to endure my endless soap box commentary. So hold your nose here it comes....
How many people were saying the market would be soaring to new highs as we were in the middle of a record plunge in March? The WSJ was all over it.... if you can believe that. I think most were laughing when they called it a new BULL market just days after we bottomed on March 23rd 2020.
...And people were making fun of the WSJ for calling this a new bull market just days after we hit our lows in March
— UPBOptionMil (@UPBOptionMil) August 12, 2020
Here we are... just a pebbles throw from new record highs on the S&P500.... and I see more and more negative perspectives talking tops, and high p/e's....
They say things like "This is the first time the market has done this since 2000 or 1987."
The bearish folk will probably disagree with me but... I think it is different this time. Sure its a bubble. It's a bond and equity bubble. Surely it will pop again at some point as it did briefly in March.
But guess what? It will inflate again, as it has done throughout history.
My thoughts on high p/e and unsustainable stock market rallies?
It's all about the money. And money supply has NEVER been higher. Actually money supply has EXPLODED! On the flip side velocity of that money has CRASHED. To me, in my humble perspective, that means the money coming into supply is being saved, be it in stocks, bonds, savings, real estate etc. It hasn't gone out into the economy as far as buying to create inflation.
Until that changes, and assuming the FED keeps its foot on the gas pedal... asset prices will continue to rise.
And with that I'll get off the morning soap box. Phew! That was quicker than usual for some reason....
Bonds continued to sell off yesterday after the CPI numbers came in well above expectations.
Price action was strong yesterday early.. and then choppy late as it has been the last two sessions. The quick morning pops have offered nice chances to lock in profits. The mid-day chops have not been kind.
The NASDAQ after falling 3 days in a row, had a sharp move higher yesterday soaring over 2%.
What remains now is the S&P500 to hit new record highs. Today perhaps? New stimulus talks have hit a wall. Like almost everything else, like the DEBT ceiling, the sequester, the trade deal with China... etc.... this will get done. I think the market has pretty much priced that in.
Another round of stimulus checks might just be the fuel to get the SPY over $340 and headed toward $350.
Longer term... my goodness.. the Virus continues to exact more long term damage on the economy.
This may be one of the best cases ever of the stock market not equaling the economy. The market is pricing in more assistance from the government... but when/if that dries up, coupled with more companies closing shop, and jobs permanently disappearing...
There is a chance the shortest bear market in history could be followed by one of the shortest 'expansions' in history. Time will tell.
For now I remain bullishly cautious.
MMM reported some great number this morning. It looks headed to $170 perhaps by tomorrow.
I entered MDB calls yesterday on weakness... it looks to be still trying to get its footing. However it looks like a nice risk/reward from here and I may look to get calls for next week as well this morning.
The financials were loving the early bond carnage yesterday on the CPI #'s. And then they melted like a Popsicle in the summer sun.
I sold all my $GS calls early... thankfully. However I think there is more upside to be had to around the $225 level, and a break higher there sets up $250+? I may grab some $GS calls again on any weakness this morning.
BG got a nice analyst note this morning. This should keep NTR well bid. NTR has worked out well with the $36 and $40 calls offering nice returns. I think NTR can get over the $40 mark, perhaps even today on a strong rally. That would be a breakout point setting up the highs from earlier this year over the medium term.
and ROKU... looked poised for a big day yesterday. Again I'm happy to have taken advantage of the morning pop and premium build. The stock melted as well the entire rest of the day. However it remains a name to watch for upside. I have some $160 calls left still and may look for next week on any weakness today. Looks like it still hasn't shaken its post earnings hangover.
ANALYST REMARKS
- Oppenheimer upgraded Estee Lauder (EL) to Outperform from Perform as they now see a more rapid profit recovery than previously envisioned driven by the Chinese consumer, a resilient skincare category, and accelerated online growth. EL and CHD again rank equally as their top consumer staples picks.
- JP Morgan upgraded CNH Industrial (CNHI) to Overweight from Neutral on valuation. While firm believes investors will still need to see evidence that a new team can execute, given the abrupt changes in leadership in Mar'20, they view the current valuation as an opportunity to accumulate a position.
- JP Morgan downgraded Deere (DE) to Underweight from Neutral on valuation. North America large ag equipment demand has been relatively resilient in 2020 with retail sales of 100HP+ tractors and combines down low-single-digit YTD. As a result, firm sees limited upside to demand in 2021.
- Deutsche Bank downgraded Micron (MU) to Hold from Buy noting they are now more negative on the supply-demand balance for the memory sector over the next several quarters. They also expect consensus estimates to come down sharply from the current levels especially for the next two quarters, which will likely put pressure on the stock valuation.
- Goldman started coverage of Penn Natl Gaming (PENN) with a Buy, $60 tgt highlighting that PENN sits at the cross-section of a rapidly rebounding regional casino space and inflecting growth in sports betting. They also believe Barstool Sports' embedded customer base and content creation engine will drive one of the lowest customer acquisition costs in the sports betting industry, allowing PENN to quickly take share within firm's proprietary iGaming and Sports Betting models.
- BofA Securities added AES (AES) to the US 1 List and removed Ameren (AEE).
Conclusion
The market continues to baffle those looking at the economy, jobs, the Virus, and the countless negative headlines. I see more talk today about the market topping, P/E ratios out of whack, investors who are just blindly buying the market.... but in my humble opinion we are not even close to that 2000 euphoria... not even close. And the last two market tops didn't have a FED willing to inflate asset prices at all costs. Until there is a meaningful move higher in inflation expectations, forcing the FED to rethink its unlimited asset price support... this market will continue to baffle those expecting market carnage.