- Investors sell off as meme stocks continue to rally - investors derisking across multiple sectors.
- Secular growers sell off hard after a strong weak of earnings.
- Stock prices continue to drop relative their 10 day moving average as more stocks move into short term neutral to bearish zones.
- The past few days have shown market weakness and uncertainty. Now is the time to start to nibble on those securities you want to own 3-4 months from now.
The Snowman Report for 1/29/2021
DAILY DATA DUMP: Employment Cost Index (.7% Q/Q, 2.5% Y/Y), Personal Income and Outlays (.6% M/M), Chicago PMI (63.8), Pending Home Sales Index (-.03%),
- Employment Cost Index (.7% Q/Q, 2.5% Y/Y): Numbers came in at the higher end of the consensus range this quarter on a year over year basis and quarter over quarter. These numbers are somewhat muted and do not add any fire to the inflation thesis.
- Personal Income and Outlays (.6% M/M): Personal income recovered in December after dropping 1.3% in November. The price index rose 1.5% over the entire year and .3% this month trailing the Fed’s targeted goal of 2.0%. Personal consumption decreased .2% as well. Overall inflation appears to continue to stay muted as consumption stays neutral to negative and personal income increases at the same pace as inflation.
- Chicago PMI (63.8): Numbers came in far above the consensus range of 57.8 to 60.1. Employment fell by 5 points while backlogs in hiring continue to hit new records. Covid definitely affected this report and we are going to start seeing a rebound in hiring soon as the vaccine starts to work its way through the economy. With the federal government supporting unemployed individuals with extra stimulus and extending unemployment benefits for the foreseeable future personal income has stayed fairly consistent and the savings rate continues to hold at record highs while credit usage continues to decrease. Hopefully those tailwinds will lead not only to a strong PMI report but a strong employment outlook going forward.
- Pending Home Sales Index (-.03%): Pending sales continue to decrease slightly as interest rates move north and home prices hit record highs. This is an indicator of future home sales of existing homes and does not take into account new homes. There is a possibility that we have a hit a new record high in the market and home sales and prices are going to consolidate over the next few months.
- Baker Hugh Rig Count (1132): Rigs increased across the board this week as oil and gas consumption continue to increase with the global economic recovery. Rig counts are still down by a large percentage from last year though.
WHAT DID WE LEARN IN THE MARKET TODAY, MR. SNOWMAN?
- During a sell off you need a shopping list ready. This should consist of securities you want exposure to coupled with securities you need to increase your exposure to from a portfolio standpoint. Maybe you missed the move in financials and need more exposure. You thought it was over as financials rallied to all time highs. Well, they came back down today and if you were paying attention you had the chance to buy at reasonable prices. Long term exposure to multiple sectors and industries is key and multiple days of losses are a perfect chance to make your portfolio more diversified. Maybe you won’t get the bottom but that doesn’t matter as much as getting near the bottom. A number of names have gone from overpriced to cheap within a matter of weeks. There are times when you feel that you have to buy and the price will never come back but that is not true. Something always happens and when it does the market sells off.
- Market wide sell offs are rare and a chance to increase exposure in names that may be trading at a discount does not come along every day. Facebook (FB) is now trading at 16.55 times next years earnings. Maybe you have too much exposure to technology? In that case Blackrock (BLK) is trading at 16.41 times next years earnings. Oh, do you already have banks you bought during April and May? Maybe you would like to buy FedEx (FDX) which is trading at 13.56 this year’s earnings and substantially less for next years. Or maybe you were afraid you wouldn’t get a chance to invest in Pinterest because you didn’t want to pay more than 30 times price to sales. Well don’t worry because its now trading at 25x price to sales. ZM has pulled back from $580 and now sits at $369. Without risk there is no reward and these are the times you can increase your risk with a level of safety that these names do not usually afford.
- Over the entire week we have seen momentum slowly cease and start to change direction as more and more stocks move below their 10 day moving average and larger cap secular growers sell off. The action in the heavily shorted meme stocks definitely helped but the slowing momentum market wide had been evident coming into the week. At this point after the second day of major moves down and six or seven days of negative moves by the majority of stocks investors should start looking at increasing exposure in beaten down names and other assets that they may not have had a chance to buy during the recent run up.
- Over the past few days my take on the market has been to stay frosty and cautious. Earnings were coming in strong, revenue growth this quarter and forecasts for next year both were excellent and companies were selling off. Now is the time to take advantage of that weakness and start to buy shares in the companies you want to own for the next few months. That exposure that you didn’t have earlier to certain sectors or industries is available at a discount and I am a buyer into this market sell off.
BUY, HODL, SELL
BUYS TODAY: FDX, LYFT, CHWY, AMD, ADBE, BLK, BABA
HODLING: If the story hasn’t changed and your position isn’t 300% of what it should be then hodl that bad boy.
SELLING TODAY: If your position exceeds 300% of what it should be or you have no conviction it is time to sell that good boy.
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 or know how to write well so please keep insults to a minimum.
Disclosure: I am/we are long FDX, LYFT, CHWY, AMD, ADBE, BLK, BABA, FB
Analyst's Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FDX, blk, AMD, ADBE, BABA, FB over the next 72 hours.
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