The Tulane University sports program? Uhm, no. The Nasdaq Composite (+0.8%) and, while we're at it, the Nasdaq 100 (+1.25%)? Yes, nine consecutive "up" sessions. Going for two solid weeks in the green, and on "Jobs day" no less? Nothing is impossible in 2021, but the road ahead could get muddy. Not because of the employment report, which I, at zero dark-thirty on Friday morning, expect to be pretty decent. Readers will see below that I am currently at 452,000 on Non-Farm Payrolls. I started the week at 412,000.
Equity markets became just a bit dicey on Thursday. The Dow Jones Industrials, Dow Transports, Dow Utilities, S&P MidCap 400, S&P SmallCap 600 and Russell 2000 all closed out Thursday's regular session below sea level. Among closely watched domestic equity indices, this left only the S&P 500 (+0.4%), which closed in the green for a sixth consecutive session, and the Nasdaq siblings with their incredible streak still fully intact. The Nasdaq Composite, at 15.940, stands at a 4.4% premium to its own 21-day exponential moving average (15,272) and 6% above its 50-day simple moving average (15,031). The premiums over these averages are even more stretched for the Nasdaq 100 at 4.9% and 6.7%, respectively.
This is about as far as these indices tend to get above those key moving averages prior to those averages starting to catch up. Not that any contraction has to happen on Friday, or even any day soon. I already told you, this is 2021. Nothing matters more than capital flows, and nothing is clumsier in setting prices where they need to go than an electronic marketplace largely run by algorithms designed to force overshoot. Add the fact that few humans still trade for themselves in 2021, and that those who write these algorithms rely upon folks like us who can actually read a chart, and technical analysis has never been more accurate than it is right now. The downside of this is that fundamentals, which are at the end of the day what should matter, have never counted for less. That day is coming. When? Spin the wheel. Pick a date.
Price discovery became a little choppy on Thursday. I believe my colleague Helene Meisler, who is on vacation, would probably refer to the action over the past day as a "chopfest" or an "either or" market. Breadth was really quite a mess for the day. Cyclicals in general outperformed defensive sectors, but it was growth that would dominate the session as a flattening U.S. Treasury yield curve collapsed key spreads, which exacerbated capital flows into the technology space. This had kicked off on Wednesday night as Qualcomm (QCOM) beat earnings expectations and raised guidance. Once Wells Fargo's five-star (at TipRanks) analyst Aaron Rakers increased his price target for Nvidia (NVDA) from $245 to $320 on Thursday morning based on Nvidia's position as a very likely benefactor from the $10 billion opportunity that Rakers sees the "Metaverse" as, the race was on. Semiconductors would lead.
While the Dow Jones US Software index would pick up 1.02% and the Dow Jones US Internet Index (part of the Communications Services sector) would gain 1.12% for the day, the Philadelphia Semiconductor Index scored an increase of 3.5% on Thursday, while the Dow Jones US Semiconductor Index simply exploded its way to a 5.29% one- day gain. The already mentioned Qualcomm and Nvidia ramped 12.73% and 12.04% respectively on Thursday, while Advanced Micro Devices (AMD) popped for a 5.34% gain and Applied Materials (AMAT) , KLA Corp. (KLAC) , Marvell Technology (MRVL) , ON Semiconductor (ON) and Taiwan Semiconductor (TSM) all experienced increases of at least 3% on elevated trading volume.
The capital that moved into tech and more specifically into the chip stocks moved out of the rest of the equity space. Two sector select S&P SPDR ETFs, the REITs (XLRE) and the Financials (XLF) , gave up more than a full percentage point on Thursday as losers beat winners at both of New York's primary exchanges. Advancing volume did beat declining volume for Nasdaq-listed names by the slimmest of margins, while declining volume comprised 64% of the aggregate for NYSE-listed names. Intel (INTC) ? Down for the session. Incredible.
Not sure. Well, it's news, anyway. Bloomberg broke the story late on Thursday night. The House is expected to vote on both the Biden $1.85 trillion-ish climate/social issue spending package as well as the $1.2 trillion (half of which is repurposed funds) infrastructure build-out bill that already had been passed long ago in bipartisan fashion by the U.S. Senate. Should the House pass the spending package, it would go to the Senate, where it would likely need to change in order to get past politically moderate and fiscally conservative Democratic Senators Joe Manchin and Kyrsten Sinema. That means that even if the spending package passes in the Senate, the edited version would go back to the House.
However, if the infrastructure bill passes in the House it then would go straight to the president's desk for a signature. This bill has markets excited as it would directly impact economic growth in a positive way at less newly created expense. Late changes made to the spending package involve drug pricing, deportation protections for illegal immigrants and increasing the SALT deduction cap significantly. We'll know more when we know more.
The latest version of this package involves, at least in theory, $1.48 trillion in increased tax revenue, well short of the $1.85 trillion-ish that the plan is expected to cost. That's according to the Joint Committee on Taxation. The historically highly inaccurate CBO (Congressional Budget Office) has not gotten its mitts on the plan just yet, and that office is likely to include revenues derived through increased IRS enforcement, which the Joint Committee did not. This should help close the gap.
Then again, the University of Pennsylvania's Wharton Budget Model suggests that this plan will not cost $1.85 trillion-ish over 10 years, as advertised, but probably more like $3.9 trillion. Like I said, we'll know more when we know more.
On Oct. 25, Hertz Global (HTZZ) announced that the company had placed an order with Tesla (TSLA) for 100,000 electric vehicles to be delivered by the end of 2022. There was no announcement from the Tesla side. Tesla CEO Elon Musk earlier this week tweeted that there had been no contracts signed. Hmm. The Tesla side seemed surprised by the Hertz announcement. There was talk of delivering maybe 10,000 vehicles per year.
Hertz, for its part, also announced an investment in global EV charging station infrastructure and tapped superstar NFL quarterback Tom Brady to promote the deal. Back to the Musk Twitter activity. "Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics."
Ladies and gentlemen, this was inevitable. Now, Hertz may wait patiently, Hertz may be willing to pay list prices for bulk orders. Those are its decisions. That said, there will be a next customer through the door, and then a next as not only auto rental businesses transition but also other kinds of transportation businesses, and then we move on to municipal fleets too many to imagine. Tesla will be the leader. Tesla and Lucid (LCID) have the best technology, but for right now Lucid is a luxury vehicle manufacturer. Even allowing for Tesla to lead and Lucid to probably capture the high-end market, this is how market share broadens. This is how legacy automobile manufacturers such as Ford Motor (F) and General Motors (GM) as well as others that are well behind technologically, but also much more experienced in mass production, can carve out a place in this space.
This demand for transition that only seems to accelerate is why I got myself long Albemarle (ALB) . This is why Livent Corporation (LTHM) , on this overnight dip, looks attractive, at least to me. Lithium. It's the new black.
Saw This One Coming
I had been a Peloton (PTON) digital subscriber. I canceled my subscription during this reporting period and kept my subscription with a competitor. It seems like I might have had some company. For its fiscal first quarter, Peloton Interactive posted a GAAP loss of $1.25 a share, well short of expectations. Revenue generation landed at $805.2 million, up 6.2% year over year, and also missed the street's mark.
Interestingly, in contrast, though joining a physical gym was not the reason that I canceled, Planet Fitness (PLNT) beat the street on both the top and bottom lines and raised revenue guidance while announcing plans to add between 110 and 120 new gyms next year.
Looking forward, Peloton now sees full fiscal year revenue of $4.4 billion to $4.8 billion, down from prior guidance of $5.4 billion. Gross profit margin is expected to decline to roughly 24% during the current quarter. At the end of the day, Peloton fitness equipment remains financially well beyond the budgets of middle-class Americans and there is nothing about the digital subscription service that differentiates Peloton from the competition. Just an FYI... and this is just my opinion. If one is already a fairly well-conditioned athlete, and I speak only for myself, you will probably want something a bit more intense. That's why I left.
Note to Readers: You may notice a long position in PTON in the disclosure below. No, I do not like the stock. I had been day-trading the stock after hours on Thursday and have a small position on my pad coming into Friday morning.
Pfizer (PFE) announced just as I almost hit "send" that its COVID-19 pill reduced hospitalizations and deaths in high-risk patients by 89%. Pfizer cancelled recruitment for ongoing clinical trials. This story is still in development as I go to press.
October Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 452K, Last 194K.
Unemployment Rate: Expecting 4.7%, Last 4.8%.
Underemployment Rate: Last 8.5%.
Participation Rate: Expecting 61.7%, Last 61.8%.
Average Hourly Earnings: Expecting 4.8% y/y, Last 4.7% y/y.
Average Weekly Hours: Expecting 34.8, Last 34.8 hours.
Other Economics (All Times Eastern)
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 444.
13:00 - Consumer Credit (Sep): Last $14.38B.
The Fed (All Times Eastern)
09:30 - Speaker: Kansas City Fed Pres. Esther George.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (TSE) (2.28)