April. Over already.
Sell in May and go away? Maybe we should.
That adage does not always work out as is told. That said, the sledding for most years does tend to get a bit tougher for the six-month period that begins with May flowers and ends with a Thanksgiving turkey on the table. Hey, maybe we'll actually see relatives this year as we sit down around that bird.
No, I don't think I will sell in May and go away. My cash levels were at two-year highs just a few weeks ago, and at two-year lows even more recently than that.
As I have aged and have continued to learn, I think that's the key. I have always believed and taught since I was just a young, seawater-soaked pup crawling through the sand under a blazing sun that adaptability was the key to everything. I still do, but there is nothing in the world, or at least my world, like agility.
Over the years, I have become much more respectful of my ability to make mistakes, but much less afraid to make them if the intent was born through well-developed thought. Perhaps that has something to do with having adult children who are done with schooling (at least on my dime) and now have worked full-time for a few years. If I screw up, they don't necessarily go hungry. It is nice to not have that hanging over my head.
No, the year 2021 is not and will not be comparable to any other year, nor was the year 2020. This earnings season shows a stark contrast year over year from what would have been the comparable year-ago period. The gap between pandemic winners, losers and shut-ins becomes, for the first time, numerically visible. These comparisons should become tougher for pandemic winners later this year, but first, what we saw the beginnings of in this first quarter data will be exaggerated (or is it exacerbated?) in the second-quarter numbers.
So, while many have complained out loud about investors in high-profile stocks reacting to excellence in execution with less than increased élan than hoped for, this is not (or should not) be really all that unexpected, nor is it really all that unhealthy. These are the same folks who have whined on and on about absurd equity valuations.
Did you not expect, at least just a little, that maybe earnings would in a broad way have to grow into valuation? Maybe you would have preferred the alternative... that valuation would contract to meet earnings. No thank you.
Have we become spoiled, just a bit? We don't even complain about "down markets," we buy the dip, pretty much every dip, and then complain about "sideways." As the month draws to a close, there will be a few games played across our marketplace. Don't get shaken out of a core belief because something bizarre happens on the last trading day of any month or quarter. Still, the S&P 500 and the Nasdaq Composite both stand +6% for April. All 11 sector SPDR ETFs shade green for the month. The Dow Transports, Nasdaq 100 and mid-caps (S&P 400) are up 5% for April. The small-cap indices (Russell 2000, S&P 600) are both up 3%. This is sideways? This used to be a not wonderful, but a decent enough year.
Over time, equity markets have tended to contract annually a rough quarter of the time. So, understand that as fiscal policy remains expansive, what has been proposed might be far more expansive than what will pass legislatively. As the Federal Open Market Committee (FOMC) remains as accommodative as conceivable, this is peak accommodation... this is peak liquidity. As a nation stretches out, reopens and fear recedes, this will be a rolling "one-time" (we pray) event. The markets have not yet sold off, but they will. Will a coming correction be the birth of a cub that grows into an adult bear, or just another correction amidst what remains a multiyear running of the bull?
You cannot control that larger picture. You can, however, control you. Stay vigilant, be adaptive, be (as Arthur says) nimble, Understand this, that if you and your family have made it through the pandemic in one piece (health-wise and financially), that's pretty good. You will have to adjust fire as both challenges and opportunities present. We are grateful for every opportunity, as we are grateful for the strength to meet any and all challenges. I have now said a lot without saying enough. I really just wanted to remind you, as you work your tail off, to stop and smell the May flowers. They may never smell like this again.
Equity markets gapped higher on Thursday's opening, still digesting all that had been said by both the Fed Chair as well as the POTUS Wednesday afternoon into Thursday morning. Then sprinkle in the heaviest earnings day of the season and a first estimate for first-quarter 2021 GDP that, if it did not disappoint, certainly did not surprise to the upside. Hmm. Of course, this estimate will still evolve over the next two months, but two things became clear. Economic growth remains more reliant upon demand for goods and less reliant upon a rebirth in demand for services. Some took this badly. Others saw this as that last unopened Christmas present spotted by an 8-year-old after he or she thought that they were done. Demand for services will increase for those of you with little faith. That's a promise.
The S&P 500 and Nasdaq Composite both made all-time record intraday highs on Thursday morning before the U.S. 10-year note (representing the long end of the curve here) rallied from a yield of 1.69% all the way back to 1.64%, which is where that security traded here on Friday morning as I started to write this piece. I see that as time has progressed and the very earliest signs of dawn rise to the east that the 10-year now approaches 1.66% and equity index futures are responding in mildly negative fashion.
For the Thursday session, breadth was really far worse overall than index or sector-level performance might indicate. At the New York Stock Exchange, winners just edged losers as advancing volume and declining volume played to a draw. Uptown at the Nasdaq, losers beat winners, while declining volume absolutely trounced advancing volume. All on increased aggregate trading volume for names listed at both of these primary exchanges.
As markets coast into month's end at elevated levels, and as commodities such as copper flirt with decade-long highs, the global story remains worse than problematic. European GDP data broadly and German GDP performance (out this morning) in particular reflect this. Anyone able or willing to suffer a bit of heartbreak should read the piece written by Zabir Udwadia, published at the Financial Times on Thursday. Udwadia is a physician working in Mumbai. The author is more about blunt data than about telling the human interest side of the story. So, you won't be horrified by the "boots on the ground" story. You will be horrified by the author's assessment of India's reality.
Opportunity or Challenge
I spent all day really on Thursday trying to recognize and respond to opportunity. I chose to view the awful daily performance by both Ford Motor (F) as well as ServiceNow (NOW) as in the first case a chance to add to a rather large long-term investment, and in the second a chance to add to a position that had gotten away from me while still in its infancy (too small).
Yes, I think Ford Motor is the real thing, and will be an underrated force across markets for electric vehicles moving forward. The chip shortage and Ford's acknowledgement that 2021 just is not going to be their year was the catalyst. It did my heart good to see Jim Cramer choose Ford as his "draft pick" to be a top performer by the Super Bowl in Thursday night's "Mad Money" closing (BTW, Cramer's Action Alerts PLUS charitable trust owns Ford).
I may be right, I may be wrong, but I know I am in good company. Superior company. There are very few people that I am willing to admit I feel intellectually and cognitively inferior to, and Jim is one of them. My Dad is another. There are maybe, maybe two more people. That's it.
Now, ServiceNow is another story. Though even at these prices the stock trades well above my original net basis, that net basis represented little more than a trade because I never got a chance to build upon the first tranche. A gift, no? No. Still risky, but there is reason to believe in a business that is No. 1 in automated workflow management with little in the way of significant competition. Excellent performance. Good, but not great guidance. The CEO, Bill McDermott, is another of Sarge's all-time favorite CEO's. Think Lisa Su of Advanced Micro Devices (AMD) and Jensen Huang of Nvidia (NVDA) ... that's how highly I think of Bill McDermott.
Did you hear him on Thursday? The man speaks of concepts such as "victory". Can you smell victory? Robert Duvall can. (That movie was supposed to be an anti-war movie; I literally ran from the movie theater to the Armed Forces Recruiting Center in Flushing, Queens.). So can Bill McDermott.
ServiceNow has an "Investor Day" scheduled for May 10 that plays heavily into my plans. The stock closed at $505, which also happens to be the 200-day simple moving average (SMA). Overnight the shares have been trading around $502 and have found support around $501. I have been unsuccessful so far in making a significant purchase at $500. I have pulled my bid for now and will take another look after North American traders start waking up.
Then, of course, there was the grand opportunity of the day, or perhaps the week. Maybe the event of the season. Did I claim to be a wise man? With acknowledgement that Amazon AMZN reported spectacular earnings Thursday night and I had spent the better part of a week positioning myself for that release, I understand that Amazon will require a piece for Real Money all its own. See you in a few hours.
Economics (All Times Eastern)
08:30 - Personal Income (Mar): Expecting 20.2% m/m, Last -7.1% m/m.
08:30 - Consumer Spending (Mar): Expecting 4.2% m/m, Last -1.0% m/m.
08:30 - PCE Price Index (Mar): Expecting 2.1% y/y, Last 1.6% y/y.
08:30 - Core PCE Price Index (Mar): Expecting 1.8% y/y, Last 1.4% y/y.
09:45 - Chicago PMI (Apr): Expecting 64.9, Last 66.3.
10:00 - U of M Consumer Sentiment (Apr-F): Flashed 86.5.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 343.
The Fed (All Times Eastern)
No public appearances scheduled.