The Snowman Report For 2/3/2021
Seeking Alpha Analyst Since 2012
Summary
- Economic data continues to come in strong with weak employment data but large backlogs in hiring, large increases in prices for producers and steady car sales.
- Market breadth returns to negative sentiment after a two day recovery from the meme fueled sell off.
- Market outlook remains cautious near all time highs with a balance of mid term positive data and rising yields.
The Snowman Report for 2/3/2021
ECONOMIC DATA OF THE DAY
- Numbers come in close to yearly highs as low interest rates and the continued push towards the suburbs. It will be interesting to see if GM (GM) takes market share as they make a push to be totally EV by 2035 and how autonomous vehicles will affect consumers yearly car consumption rates. We peaked a few years ago at 17 million and have never broken through those levels so maybe this is a mature car market?
- Wow, what a range! The number came in well within the upper band showing continued growth in the economy as businesses reopen and hire to fill those new positions. Hopefully this trend will continue as more individuals get vaccinated and businesses who do more revenue in the spring and summer start hiring in February to be ready for March and April. Especially important among hospitality workers who are the majority of the unemployed.
- Both numbers came in above the upper range of the consensus and show the economy expanding at an excellent clip. New orders and foreign orders are both near record levels as purchasing managers ramp up for an economy that is expected to exit lockdown at warp speed. We have also had positive vaccine news adding to the optimistic sentiment which is definitely skewing the numbers positively.
- Numbers coming in strong showing an expanding services economy although employment figures continue to show weakness. Suppliers are paying considerably more on aggregate and we should expect this to trickle down to the consumer over the coming months - accelerating inflation. The Fed may finally get their wish of 2% inflation.
- Inventories were mixed as crude oil imports increases sharply from the previous week. The continued pressure on the oil and gas market coupled with a population that will be traveling more over the coming months is keeping oil production stable and product demand slightly positive. Distillates are up 1.5% percent from the same time last year while gasoline is still down 10% from the same time last year.
IMPORTANT GRAPHS OF THE DAY:
(https://finviz.com/map.ashx?t=sec_all)
- When I look at this map it makes me wonder about where the market is going to go from here? I don’t see many more catalysts to support equity prices going higher while right now as we have already seen major earnings beats and stock prices have been slightly positive to negative. Today the only reason the major indexes didn’t finish much lower is due to the behemoth that is Google (GOOG) and Alibaba (BABA) skyrocketing. To support the big winners today was energy which at this point has become a defensive trade or maybe a value trade. The financials also rose (rising interest rates!) supporting the market indexes throughout the day. In summary the time to buy was last Friday and I’m waiting for a little more of a pullback before I shove all my chips in on this market. There are still a few sales out there but not many left and the market is far from risk free.
(http://www.indexindicators.com/charts/nyse-vs-nyse- stocks-above-10d-sma-params-x-x-x-x/)
- Stock market breadth today was mostly negative so don’t expect that green line to move any higher right now. I’m expecting more consolidation going forward so get your shopping list together and start to pick up shares where you are under weight. This market could easily consolidate over the next month or two while investors wait for some hint of confirmation that the economy will skyrocket as quickly as we all are expecting it to.
SUMMARY OF THE DAY:
(courtesy of Fidelity.com Active Trader Pro)
- The market today opened higher based on positive economic data and strong earnings from mega cap tech. Unfortunately, that momentum couldn’t handle the valuations that the market is currently trading near and we pulled back as the day went on. Looking forward I expect some consolidation across the board while the market digests higher revenues, inflation and fear of rising interest rates. This is not to say I’m expecting the market to drop, just not expecting it to increase by five to ten percent. As the 10-year yield continues to move up there will be more pressure on the risk curve while improving economic data and earning beats will support the bull thesis. I am increasing exposure in a few positions such as Costco (COST), Fedex (FDX) and Advanced Micro Devices (AMD) but am not starting new positions in any company that is extended at these market levels (which is most of them).
Analyst's Disclosure: I am/we are long GOOG, BABA, AMD, FDX, COST.
I am not a financial advisor. Do your own due diligence before investing in the market and be aware that investing carries risk and reward. This article is meant to be a short summary of my market outlook with recent security purchases and a quick summary of economic data and other important market changes.
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