- Jerome Powell keeps interest rates low and asset purchases in line with previous quarters.
- FB and APPL report record quarters to little positive sentiment.
- The market continues to be infatuated with the meme stocks.
THE SNOWMAN REPORT FOR 1/27/2021
DAILY DATA DUMP:
- MBA MORTGAGE APPLICATIONS (-4.1% W/W); DURABLE GOODS ORDERS (NEW ORDERS .2%, EX-TRANS. .7&, CORE CAP .6%); STATE STREET INVESTOR CONFIDENCE INDEX (100.7); EIA PETROLEUM STATUS REPORT (-9.9M barrels); SURVEY OF BUSINESS UNCERTAINTY (Sales Growth 5.15%, Employment Growth 5.28%); FED CHAIR PRESS CONFERENCE (Interest remains stay the same, asset purchases continue as per usual, no change on the horizon)
- MBA MORTGAGE APPLICATIONS (-4.1% W/W, 16% Y/Y): Higher interest rates coupled with higher home prices leads to less applications for mortgages week over week. Mortgage applications were still up 16% from the previous year so we have that going for the home builders and associated industries.
- DURABLE GOODS ORDERS (NEW ORDERS .2%, EX-TRANS. .7&, CORE CAP .6%): Prior month was revised upwards and this month came in weaker than expected but still positive. Numbers line up with the positive manufacturing price indexes we’ve seen over the last few weeks.
- STATE STREET INVESTOR CONFIDENCE INDEX (100.7): This is a measure of the percentage of equities that are held in portfolios and the change in that percentage. North America decreased to 96.0 from 103.3 while Europe increased 7.1 to 94.8. Asia led the charge increasing by 3.1 to 115.9. These are record levels that have not been seen in two years so take that as you will. Either the trade is crowded and we are due for a pullback (as I am prone to believe) or there’s been a tectonic shift in investing patterns and this is the beginning of a longer term move from bonds into equities (as Tom Lee believes.) Or we can both be right. All we really KNOW is that Asia is bullish as hell.
- EIA PETROLEUM STATUS REPORT (-9.9M barrels): Inventories are down and prices are up from the previous week. We are also shipping in less crude oil than we were at the same time last year to the tune of 1 million barrels a day. Seems we are slowly weening ourselves off of that black gold.
- SURVEY OF BUSINESS UNCERTAINTY (Sales Growth 5.15%, Employment Growth 5.28%): Now this survey only uses about 150 responses per month and is a survey of how businesses feel, not what they are planning on doing so keep that in mind. Either than that Sales and Employment growth remained positive and above 4% which is very good but did take a noticeable dip from the previous month. Hopefully these numbers were negatively impacted by the recent surge in Covid cases and we can move back towards that 6% level we were playing with in June.
- FED CHAIR PRESS CONFERENCE: I’m going to give you what really matters in 5 sentences so get ready.
- Jerome Powell does not care about any individual stock, be it GameStop or Apple and is only interested in operating within the strict parameters of inflation and unemployment
- Jerome Powell does not like being asked multiple times about what’s going on with GameStop’s share price and would like to get on with his meeting.
- Jerome Powell is going to keep interest rates low and keep on buying assets at the same rate until the virus is beaten and so far behind us we don’t even remember it.
- Jerome Powell feels that the virus is the biggest threat to the market and does not see any signs of inflation as of right now.
- Jerome Powell does not feel that the Federal Reserves actions have led to inflated stock prices as he is not responsible for WallStreetBets or Melvin Capital’s trading behavior.
EARNINGS OF NOTE: AAPL, FB, TSLA
- AAPL (Revenue 111.43B, EPS 1.68); WOW, this is just crazy. They beat on revenue in every single segment. IPhone revenue was 10% above consensus. Now they’re down after hours because this company is trading at a high P/E but you have to be impressed with Apple’s numbers. Services beat as well and now make up 10% of total revenue. Looking at these numbers there is no wonder this a company worth more than 2 trillion. They are on track to do 440 billion in revenue every single year. As long as they are the standard in phones this company is going to be murdering it.
- FB: (Revenue 28.07B, EPS 3.88); Down in after hours. Their DAU’s remain steady but that’s understandable as people are not spending all day at home right now. They increased revenue by 33% and beat EPS by .68. This is not a company that is doing poorly, this is a company that is hitting on all cylinders and trades at a fair valuation. I would be buying this bad boy on any single major pull back. How many times do you have “potential” legislation holding a stock price back?
- TESLA: (Revenue 10.74B, EPS .80); They beat on revenue in a huge way and you weren’t buying this thing for the EPS. Automotive margin continued to compress but that’s the price you pay for hitting those deadlines. The people who own Tesla are not seriously worried about EPS or margins – they’re in this for the car upgrades and an automotive landscape that is fully electric with Tesla being the hegemon. If I wasn’t selling last year I’m not selling now.
WHAT DID WE LEAR IN THE MARKET TODAY, MR. SNOWMAN?
- Sometimes the things we do have consequences beyond the scope we mean to affect. For example, who thought “dangerous language” would bring down the WSB discord server. Who thought buying a stock and forcing short sellers to cover would cause people to sell stock across the entire market causing a small pullback. WSB and Melvin Capital are the primary movers but they are affecting all of us. Maybe it took this act of war by WSB against the shorts to make people realize that maybe they were too long and things have gotten too crazy when a bunch of people spending stimulus checks and collecting federal unemployment can force a small cap stock to rally. Let’s all be mindful that in life as in on Wall Street what we do has effects far beyond our scope of influence.
MAP SUMMARY OF 1/27/2021
- Now I know you want to talk about Gamestop but lets all just hold on for half a moment and take a good look at what has happened in the market over the last few days. Stocks are pulling back and today was the day where the mega cap engines sputtered to a stop. First – the average stock trading below its ten day moving average is not a good sign. It is a buying opportunity long term but short term is a sign of weakness. Long term I see this as a time to load up on those stocks that have pulled back 10-20% and you wanted to get into. The Squares, Coupas and Union Pacifics of the world. You are not going to get 30 or 40% cut off the top in the current economic environment so be happy with a 25% pullback. Over the last few days we have seen market breadth evaporate and today it ran out of oxygen. So get ready for a few days of choppy trading, consolidation in the month of February or over the next few weeks and have your shopping list ready because you only get pullbacks like this a few times in a year.
BUY, HODL & SELL:
- BUY: FDX, BLK (sub 700$), SQ
- HODL: Until the story changes my friends, until the story changes.
- SELL: If you have no conviction, sell. Why would you buy if you have no conviction? Why would you put your future self through that trauma? What kind of sick person are you? Why must you always hurt yourself in the worst way?!
DISCLAIMER: Disclaimer: This was written for the sole purpose of leading a meaningful life while gainfully unemployed so take what you want and leave the rest. I do not claim to be a financial advisor, know how to write or in any way understand why anyone would listen to me so please keep insults and compliments to a minimum.
Analyst's Disclosure: I am/we are long FDX, BLK, SQ, FB, AAPL.
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