Drip, Drip, Drip

Drip, drip, drip.  Stocks posted another mixed close as certain sectors race ahead leaving others stuck in the mud.  Housing is booming while manufacturing languishes and technology… everyone needs technology.

N O T E W O R T H Y

Markets, meet Warren… 

Markets have had somewhat of a split personality lately… have you noticed?  Of course there are some very obvious common themes, but some tried and true axioms of the past seem to no longer exist.  That isn’t to say there is no logic behind the markets’ moves.  The logic is just… well… different.  In all fairness, these times are… wait for it… different.  Let’s start with this: The S&P500 closed just shy of its all-time high achieved just before the markets crashed back in February, the Nasdaq Composite closed at its 33rd all-time high of the year (it made 10 of them before the market crashed in Feb), the Dow Jones Industrial average can’t seem to keep up and lags behind the other indices in year-to-date returns, and bond yields remain near all-time lows.  All of these things can, of course, be explained, but their divergence should be noted. Bond yields typically go up when stocks rally, as they have since hitting their lows in March, but quite the opposite has occurred.  The principal reasons behind the bond buying are: 1) bond traders still expect trouble ahead, 2) bond investors are not worried about near term inflation, and 3) the Fed is buying lots and lots of them in order to support the market.  The Nasdaq has led the race up due to its heavy composition of technology and healthcare companies.  Tech is considered impervious to economic cycles and they have proven their worth by continuing to grow revenues through the recent economic downturn, and technology represents almost 50% of the index’s weight.  Though healthcare stocks represent only around 10% of the index, they have had their share of recent meteoric growth as investors have been reminded of their worth during this public health crisis.  So far, so good right?  Now there is the S&P500, up by +4.68% year to date and hovering just below its all-time high. Breaking down the index in sectors, we can clearly see the ones which have done the most pulling.  Information Technology is up by +25.06%, Consumer Discretionary is up by +21.66%, and Communications Services is up by +8.5%.  Losers include Energy which is down by -37.5%, Financials which is down by -19.63%, and Industrials which is down by -5.3%.  Just think of superlative stocks in each sector I just listed. Information Technology = Microsoft, Consumer Discretionary = Amazon, Communication Services = Facebook, Energy = Exxon Mobile, Financials = JP Morgan Chase, and Industrials = Boeing. That should put a finer point on it. Even though the Dow Jones contains heavy hitters like Microsoft and Apple (the two account for around 16% of the index weighting) which have clearly helped the index rise, it also contains companies like Boeing (4% weight), JP Morgan Chase (2.5% weight), Chevron (2.23% weight), and Caterpillar (3.41% weighting). With only 40 diverse components in the Dow Index,  it should be clear that while some have helped it rise, others have held it back.  Now there are some other interesting things that affect the markets on a daily basis.  One in particular are 13F filings.  All investment managers who manage more than $100 million must file a Form 13F with the SEC, detailing their holdings.  As you might guess, some investors would be interested to learn what certain managers deem to be good stocks.  Some money managers have more intrigue than others and Warren Buffett is always at the top of the list. Berkshire Hathaway’s 13F became available yesterday and reflected that Buffett added Newmont Mining to his holdings while he paired back positions in JP Morgan, Wells Fargo, and airline stocks.  Now, we don’t have to go into the logic of why, but the fact that he did certainly had an impact on the markets.  In yesterday’s session, American, United, Alaska Air, and Boeing topped the losers column along with Wells Fargo, Citi, and JP Morgan Chase.  In the winners column was Newmont Mining, which was up by +7.05% yesterday.  Of course, it helped that  Newmont announced a dividend increase.  Markets moving in response to Warren Buffett's investments is nothing new, but before you join the "Oracle of Omaha" in his investments, you might want to check in on his stock, Berkshire Hathaway, which is down by -1.91% year to date.  So, in hindsight, everything always seems quite logical when it comes to the markets.  The big question remains, can all of this give us any foresight on what to expect in months ahead?  If it were only that simple...

THE MARKETS

Stocks had a mixed close yesterday on mixed economic numbers.  The S&P 500 inched up by +0.27%, the Dow Jones Industrial Average -0.31%, the Russell 2000 Index climbed by +0.48%, and the Nasdaq Composite Index jumped by +1.00%.  Bonds nudged up and 10-year treasury yields slipped by -2 basis points to 0.68%

NXT UP

- Housing Starts (July) are expected to have grown by +5.0% after last month’s increase of +17.3%.

- Building Permits (July) may have increased by +5.4% after advancing by +2.1% in June.

- This morning Home Depot, Advanced Auto Parts, Walmart, and Kohl’s all beat Wall Street estimates.

daily chartbook 2020-08-18