Good Evening While stocks closed off the lows today, they failed to rebound as significantly as they have over the past few weeks. Indexes are still close to record highs but if we get more selling pressure over the next couple of days, it could spark the selloff we've been waiting on. I still don't think it gets as bad as the doomsayers and their calls for a 10% slide or more. The drop is largely driven by the increase in daily COVID cases which, as each of the surges has been, has a limited lifespan. It is giving the Fed enough ammunition to push rate hikes and tapering further out so that, combined with other economic forces, should provide for a strong rebound into the last few months of the year.

Let's Talk Money!

MARKETS

	NASDAQ	14,656	- 0.93%
	S&P	4,448	- 0.71%
	DOW	35,343	- 0.79%

• Markets:  All three major indexes sold off Tuesday with the tech-heavy Nasdaq down more than 1.6% at one point. The fact that the index was able to claw back more than half a percent of losses and stands within 1.6% of its record is a statement to the strength of this market. Interest rates managed to turn a weaker open into a gain by the end of the day which could indicate a bottom around 1.25% in the 10-year Treasury. A stronger dollar helped push commodity prices lower including safe havens like gold and silver. Bitcoin and other cryptocurrencies gave back some of their recent gains as the market forecast a pause after a 42% run over the past month.

BEST AND WORST SECTORS

• Sectors: Seven of the 11 stock sectors finished lower Tuesday with clear leadership in safety sectors as investors rushed to stocks in Utilities, Real Estate and Consumer Staples. Healthcare stocks saw strength in drug makers and medical devices with forecasts for both rising on the recent delta surge. The strength in drug makers was even more notable given an announcement by the government that it's ready to take companies to task for high drug prices...obviously the market isn't buying it.
• Sector Trends: Lockdown stocks also returned to strength with Kroger, Domino's and Etsy all finishing within the top 10 stocks of the S&P 500. The recent trend back into vaccine and lockdown stocks looks a little dangerous. Analyzing the delta variant in the U.K. last week, I estimated that the U.S. peak could be reached within three to four weeks. That could bring an abrupt end to the rise in these stocks and bring the hardest hit back just as fast including cruise lines, airlines and retailers.

TOP STOCKS

• Moderna managed to claw back recent losses on an expanded authorization in the UK and rising COVID cases in the United States. The shares were down 25% from the recent peak to Monday's close and remain relatively expensive versus Pfizer. Valuation could continue to be supported though on increased vaccine mandates, especially if we see more variants emerge and booster shots needed.
• The Kroger Co. rallied on a 13F disclosure that showed Warren Buffett's Berkshire Hathaway increased its stake in the grocer by 21% last quarter. Shares were also boosted on positive sales numbers from Walmart and continued strength in food sales.
• Vertex Pharmaceuticals regained all of its losses from Monday on broad sentiment for drug makers and biotech. Shares are still down 30% over the last year on weakness in its development pipeline and competition.

Economy

About those Fears of a Slowdown...don’t Count on It

The narrative over the last few weeks and especially today’s selloff was that the resurgent COVID infections would force new closures and sink all hopes for economic growth over the rest of the year. Consumer stocks have plunged, retail sales fell last month and interest rates have fallen back down to lows.

But fear in the market doesn’t align with facts on the ground and that could create an opportunity for those with the patience to wait it out. Retail sales fell more than expected last month, down 1.1%, but it was on the back of a 1.4% boom in the preceding month. The report was driven by a drop in auto sales which have been rising by double-digits and needed to cool off and doesn’t include much of the service sector spending which accounts for two-thirds of the economy.

Add to this the fact that households still have an estimated $2 trillion in additional savings built up during the pandemic. The savings rate boomed to 33% of income from an average around 7% for the past few decades but has come down to 9% over the last month. Consumers could soon return to their spending ways and unlock trillions in consumption.

It’s not just consumers either. Businesses are sitting on trillions in balance sheet cash beyond 2019 levels. These too could soon start putting that cash to work through stock boosting buyback programs and acquisitions.

More than anything though, the fear of a slowdown isn’t being seen by those closest to the consumer. Walmart CFO Brett Biggs told Yahoo Finance today that the delta variant doesn’t seem to be affecting spending decisions, pointing to strong back-to-school sales and other products. The world’s largest retailer booked sales growth of 5.2% during the second quarter, beating expectations for 3.1% growth and helping it to beat the downtrend in today’s market.

Against this, the plunge in shares of Consumer Discretionary stocks looks overdone. The sector is down 0.02% over the last week versus a 1% gain in the broader market and the SPDR S&P Retail ETF (XRT) is down 4.5% from earlier this month.

Stocks

Where are the Hot Investments of 2021 Now?

The Wall Street Journal is out with a swipe at GameStop investors with an article titled, “Investors will Get Bored of GameStop.” The opinion points to the volatility and losing investment in shares of GME since early March and argues that, since fundamentals don’t support the stock price, it trades on hype alone and that hype is wearing off.

It does make a good point though that the retail investor phenomenon is real and here to stay. More than 10 million individual investor accounts were opened in the first half of the year alone and we’ve seen more examples than just GME of how the army of small investors can force big price swings.

To that point, VandaTrack is out with an interesting chart (above) showing the different trend investments of the year and recent interest from retail investors. The chart shows weekly change in interest from retail investors across the bottom, in standard deviations from the average and anything above a Two being very high interest. On the left-side is shown the weekly share price change of stocks in the theme.

Vaccine-makers have jumped 22% with huge interest from retail investors, as well as institutionals I imagine. The delta variant has driven triple-digit increases in daily infections but I wonder how long the love for vaccine stocks can last. Gaming stocks have also gotten recent love from retail investors though there has been enough selling by big money players that shares have fallen by 4% over the past week. I recently added Take-Two (TTWO), Electronic Arts (EA) and Zynga (ZNGA) to our 2021 Portfolio on the longer-term potential here. Bets on cryptocurrency stocks has also come back into favor with retail investors and helped to drive a 19% return on the space.

Themes with falling investor interest include Solar stocks (3% return), Space Exploration (10%) and Cannabis (-3%). All three of these had strong performances in the earlier half of the year and could just be cooling off before regaining interest.