The Morning Call--Diversify, Diversify, Diversify
The Morning Call
12/3/20
The Market
Technical
Wednesday in the charts. As stocks continue to rise, the long bond fell (if it closes below the lower boundary of its very short term uptrend today, that trend will be negated) as well as the dollar (if it closes below the lower boundary of its short term trading range today, it will reset to a downtrend; if it closes below the lower boundary of its intermediate term uptrend on Friday, it will reset to a trading range)---all signs that investors believe the economy is improving.
Bonds Bloodbath As Jobs Flop, Gold Pops, Dollar Drops
Rising yields (lower bond prices) impact on other markets.
Historically, when yields gradually rise off a low, that has been a sign of an improving economy which in turn has been good for equities. However, when the rate of increase begins to accelerate or if the initial move is a spike versus a gradual increase that has been an indication mounting of inflation worries which has not been good for stocks. The point here is to watch the rate of price decline (yield rise) as a harbinger of stock market direction.
Currently, the percentage of stocks outperforming the S&P is the lowest since 1999.
Snap AV: history doesn't repeat . . .
And momentum is weakening.
Fundamental
Headlines
The Economy
US
Weekly jobless claims rose 712,000 versus predictions of 775,000.
November light vehicle sales came at 15.5 million versus forecasts of 16.2 million.
November Vehicles Sales decreased to 15.55 Million SAAR
The Fed released its latest Beige Book report which contain no surprises. The slightly good news is that the economy and employment continue to recover. The slightly bad news is that four districts reported a falloff in growth beginning in early November.
Beige Book Darkens As 4 Of 12 District Sees "Little Or No Growth", Optimism Wanes On New Lockdowns
International
October EU retail sales rose 1.5% versus projections of +0.8%.
The November final Japanese services PMI came in at 47.8 versus consensus of 46.7; the Chinese Caixin services PMI was 57.4 versus 56.4; the German services PMI was 46.0 versus 46.2; the EU services PMI was 41.7 versus 41.3; the UK services PMI was47.6 versus 45.8.
The November final Japanese composite PMI was 48.1 versus estimates of 47.0; the Chinese Caixin composite PMI was 57.5 versus 55.4; the German composite PMI was 51.7 versus 52.0; the EU composite was 45.3 versus 45.1; the UK composite was 49.0 versus 47.4.
Other
Global manufacturing in November expanded at a rapid rate.
https://www.markiteconomics.com/Public/Home/PressRelease/8b69fe1b43dc4595912567f3ec437ed0
Cyber Monday spending hit record high.
Online Spending Hits Record On Cyber Monday
OPEC makes headway on production cut agreement.
WTI Extends Gains On OPEC "Headway", Ignores Slump In Gasoline Demand
The coronavirus
***overnight update.
Common sense, science and nonscience.
Common sense, Science and Nonscience - Adam Smith Institute
Bottom line. Diversify, diversify, diversify.
Updated valuation measures.
Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator
The Q Ratio and Market Valuation: November Update
News on Stocks in Our Portfolios
Kroger (NYSE:KR): Q3 Non-GAAP EPS of $0.71 beats by $0.05; GAAP EPS of $0.80 beats by $0.16.
Revenue of $29.72B (+6.3% Y/Y) misses by $310M.
Donaldson (NYSE:DCI): FQ1 GAAP EPS of $0.48 beats by $0.04.
Revenue of $636.6M (-5.4% Y/Y) beats by $21.4M.
General Dynamics (NYSE:GD) declares $1.10/share quarterly dividend, in line with previous.
Microsoft (NASDAQ:MSFT) declares $0.56/share quarterly dividend, in line with previous.
What I am reading today
Are you overinvested in stocks? The problem with this analysis is that if you up your exposure to bonds, in particular long dated maturities, you are also assuming a good deal of capital risk with no commensurate yield advantage. In other words, long bond yields are currently quite low. If stocks decline, one of the contributing causes will likely be rising yields (lower bond prices). So, which would you rather own today if they both go down in price tomorrow? ATT yielding 7% or a long bond yielding 2%
Are you overinvesting? Baby Boomers might be putting their retirement at risk.
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Analyst's Disclosure: I am/we are long dci, gd, kr, MSFT.
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