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Will Stimulus be any Relief for Stocks? - The Daily Bow-Tie Market Update

Published about 3 years ago • 11 min read

March 7, 2021 Sign Up

Good Evening Is the worst over? Friday’s booming markets could be the relief investors need or just another head fake to lower prices. It’s times like these you have to look at the causes and whether they will continue. Lately it’s all about interest rates and the selloff in high PE stocks in growth and tech. Unfortunately as we talked about in this morning’s livestream, the pain is likely not over for tech investors. That doesn’t mean you can’t still make money, just that what worked last year will not work this year.

Let's Talk Money!

MARKETS

 
NASDAQ 12,920 + 1.55%
S&P 3,841 + 1.95%
DOW 3,496 + 1.85%

  • Markets:  The markets looked to continue their downward momentum on Friday with all three major indexes in the red by mid-morning. A good but not-too-good jobs report helped turn it around and all three indexes closed significantly higher on the day. The S&P 500 even managed to eke out a gain of 0.8% on the week, breaking a two-week losing streak. What was most interesting was that on a ‘risk-on’ day, tech stocks didn’t outperform as they have in the past. While the 1.55% gain in the Nasdaq was a relief to investors, it still lagged the 1.95% return in the more diversified S&P 500 index. Within the S&P index, seven of 11 sectors beat the return on tech stocks for the day. That marks a clear sign of conviction in the rotation from technology and other growth stocks to value and cyclical sectors.

BEST AND WORST SECTORS

 
  Energy + 3.74%
  Industrials + 2.37%
  Real Estate + 1.15%
  Consumer Discretionary + 0.64%

  • Sectors: All 11 sectors finished higher on Friday led by the reflation and cyclical sectors with the yield-sensitive sectors lagging. Energy was again the big winner adding to its 39.7% run so far in 2021. For the week, only three sectors finished lower but the loss was remarkable. Technology, Real Estate and Consumer Discretionary all finished from 1.33% to 2.69% lower on fear of higher rates. While also yield-sensitive, stocks in Consumer Staples and Utilities managed to close higher on a rebound rally.
  • Sector Trends: With oil prices now at $66 a barrel and stocks in the energy sector posting nearly a 40% return this year, I’m wondering how much gas is left in the tank [couldn’t resist the pun]. I have a tendency to leave the trend too early and the say ‘the trend is your friend’ so I’m not quite ready to call an end to the easy money in oil & gas just yet but it is nearing. I still think stocks in the Financials and Materials, the other two reflation-trade sectors, and the Industrials (cyclical sector) can continue to outperform on the economic recovery. I’m also still holding out hope for Health Care stocks though the sector is one of the laggards on the year.

TOP STOCKS

 
  NOV Inc (NOV) $17.29 + 12.13%
  APA Corporation (APA) $23.25 + 10.82%
  Devon Energy (DVN) $25.61 + 8.43%

  • NOV Inc led shares of energy stocks higher and again on relatively little news, just a growing investor sentiment for the sector. The $6.7 billion oil industry equipment manufacturer reported earnings a month ago and hasn't announced anything recently. Friday's trading volume was more than twice the daily average which could mean a large purchase from an institutional investor. The fact that equipment and well servicing companies are now following the rest of the sector higher is a good sign for conviction.
  • APA Corporation is now 380% off its March low but still 37% from the 2020 high in January. As oil prices approach $70 a barrel, the companies with riskier balance sheets and overseas projects like APA will outperform on leverage and belief that even weaker names in the space can return to profitability.
  • Devon Energy is now 274% higher than where we added it to our 2021 Bow Tie Nation portfolio in November...if only I hadn't take profits at 54% return on investment. I took profits to reduce some exposure to energy but kept our stake in Diamondback which is now up 180% from October.

What to Watch

 

Can the Relief Rally Keep Running this Week?

 


The Labor Department reported 379,000 jobs were created last month, above estimates but not so high to keep investors worried about an overheating economy and the potential for Fed rate increases. The report helped slow the rise of the 10-year Bond yield and stocks jumped on the relief. The relief might be short-lived this week though if rates continue to climb on expectations for the economy.

The Senate passed its $1.9 trillion stimulus bill Friday and it’s likely to be on the President’s desk by the end of this week for signature. That would mean new $1,400 checks could start going out as soon as this month, pushing consumer spending higher for April as well as driving household savings up. It could also mean another relief rally in stocks on the promise of new month though much of it is already baked into prices.

The problem for investors is this is all a double-edged sword for stock prices. More fiscal spending pushes up asset prices but it also pushes inflation and interest rates higher. With rates being the leading narrative right now, any rise in rates will be a negative for Tech and other expensive stocks.

Wednesday and Thursday of this week are particularly dangerous with a $38 billion auction for 10-year Treasuries followed by a $24 billion 30-year Bond auction. If demand for either is lacking, as we saw in February, it will send rates zooming higher again and stocks lower. With a few weeks to 1st quarter earnings season and few remaining from 4th quarter, the rate story will likely lead stocks at least for the rest of March.

Earnings expected this week:

  • Monday: Stitch Fix
  • Tuesday: Dick’s Sporting Goods, H&R Block
  • Wednesday: Cambell’s, Oracle, Bumble, AMC Entertainment
  • Thursday: Ulta Beauty, DocuSign

Bitcoin

 

Why I Switched to BlockFi for my Crypto Investments

 


I've been in and out of bitcoin in the past but just recently in January took a longer-term position after reassessing the valuation and estimating a price of between $94,000 to $190,000 over the next three years. That's probably a conservative estimate considering growth in users and institutional investment.

I've talked about a few crypto platforms in the past but switched to BlockFi when the company reached out and showed me some of the benefits and programs it can offer investors. Between the high-yield interest the platform offers and the upcoming credit card, it was a no-brainer for me.

I'll be doing more videos as I use the platform, including a video this Friday using that same value analysis on seven other types of cryptocurrency...and why I'm now buying Ethereum as well as bitcoin.

  • Earn up to 8.6% APY with a BlockFi interest account
  • Borrow up to 50% of your account value with rates as low as 4.5% for 12 months
  • Invest and trade in eight cryptoassets including bitcoin, ethereum, litecoin, PAXG, USDC and USDT


Earn up to $250 when You Open an Account on BlockFi! Click through and get on the waitlist for the BlockFi credit card with Visa and earn 1.5% in bitcoin on all your purchases!

New Millennium Online Enterprises, LLC

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