On the surface, all seemed well enough. Day two of our seven-day "Santa Claus" period would appear to be a hot one.
The president had reluctantly signed into law the roughly $2.3 trillion spending bill that included both $1.4 trillion meant to keep the government running through the end of fiscal-year 2021, and $900 billion in Covid-relief funds. Futures markets had set the stage for a strong session overnight, well ahead of Monday's opening bell. Sure, by day's end, the Dow Industrials, S&P 500, and Nasdaq Composite would all reach record levels, yet again. However, the longer the day lasted, the more and more both what had set up the rally, as well as equity market internals simply deteriorated.
I wrote to you recently that sometimes things can get a little dicey this week. They can. Sometimes despite your best effort to get all of the ducks in a row, they just don't line up.
The U.S. dollar appears to be weaker versus most of its reserve currency peers (not the yen, though) this (Tuesday) morning. Same as at this time on Monday morning (it's about 4 a.m. ET as I write this). Just one thing. The dollar basically rallied hard after the opening on Monday, and then sold off hard again. Gold and crude moved opposite of the dollar on every move, while bitcoin interestingly held its ground at elevated levels. As for equities, I have told you that our most highly focused upon large-cap indices all set records, but this had to be one of the least impressive of record-setting rallies, to be brutally honest.
Unimpressive Composition
The headlines read well. However, breadth and composition would trouble the inquisitive mind. One glance at the sector performance tables tells investors that while the going seems good right now, maybe, just maybe we should be skating with our heads up.
I don't mind one bit seeing the Communication Services (when led by the internet), Consumer Discretionary and Information Technology sectors lead the way. The tech sector has been our friend again this year. However, this is deceiving. Peering within the tech sector itself, we see that the Dow Jones U.S. Computer Hardware Index rallied 3.4%, basically because Apple (AAPL) rallied 3.6%. In fact, all of FAANG was strong.
The truth is that hardware carried technology on Monday. The Technology Sector Select SPDR ETF (XLK) ran 1.1% on the day, despite the fact that the Dow Jones U.S. Software and Philadelphia Semiconductor Indices both contracted for the session (both roundable to -0.2%). Basically. information technology rallied without a lot of participation from a large swath of technology stocks.
Furthermore, take a look at the sector performance tables. Numbers 9, 10 and 11 (of 11) might have surprised investors amid a rally based on the expansion of deficit spending meant to improve the plight of small businesses and households. Those sectors at the bottom of the table were all cyclically oriented, and do best when an economy is expanding. The industrials, Materials, and Energy sectors all stumbled around on Monday.
To place an exclamation point on this statement, not only did the Dow Transports (part of the Industrial sector) close flat on the day (as Delivery Services and Trucking countered strength in the airlines and the rails), but the REITs, Consumer Staples, and the Utilities, all defensive in nature, all outperformed the three more growth-oriented sectors mentioned above.
Sure is a funny way to rally.
There's More
Breadth, to be blunt, was awful Monday for a day where the three large-cap indices that the media likes to talk about all posted gains of or close to 0.75%. Market watchers must understand that traders took profits in small-to mid-cap stocks. Makes sense. The Russell 2000 is currently on an eight-week winning streak. The New York Jets have not done that since 1986. To put that in perspective, that team's starting quarterback was Ken O'Brien. That was O'Brien's age 26 season. He's 60 now.
Even more interesting, while our three large-cap indices were spiking the football in the end zone at 4 p.m. ET on Monday, the truth is that winners just barely edged winners at both the New York Stock Exchange and the Nasdaq Market Site. Declining volume beat advancing volume at 11 Wall Street (yes, even with the indices at records), and it really wasn't even that close. However, trading volume was very light at the NYSE. In fact, aggregate trading volume for constituent members of the S&P 500 fell 26% short of its own 50-day simple moving average. In other words, there was more snoozing than selling for these more cyclical type names.
Not so, up at Times Square though. For Nasdaq-listed names, advancing volume clobbered declining volume by more than 3 to 2, while trading volume returned in aggregate to normal levels. In fact, for Nasdaq Composite constituent corporations, trading volume in total landed 13% above what would be its own 50-day SMA. These traders were not snoozing, thay had confined their interest, and that interest though broader than just a couple of stocks was centered squarely on FAANG.
Oh, remember that I mentioned that the Discretionaries had a good day? There's a story there.
Wonder Woman and Retail
Is it possible that a $2.3 trillion federal spending/stimulus bill passed into law -- with hopes for increased helicopter money still on the table that would likely add another $400 billion to $500 billion to the size of the package -- was not the driver for investor decision-making on Monday? Yes is the short answer.
You all know that "Wonder Woman 1984" is being viewed as a relative (for the pandemic era) success. The Warner Bros. release took in $16.7 million at the box office, which would have been awful nine months ago. AT&T (T) is the parent company of Warner Bros., and that stock sold off on Monday. That said, AT&T is also the parent of streaming service HBO Max, and AT&T reported that half of all HBO Max subscribers watched this movie on Christmas Day. Well, that's interesting. It's also very good news for the Walt Disney Company (DIS) , Amazon (AMZN) Prime, Apple (AAPL) TV+, the Peacock unit of Comcast (CMCSA) . Interestingly, Netflix (NFLX) underperformed the rest of FAANG, as well as the rest of the streaming universe on Monday, as this going forward seriously puts that firm's market-share leadership in long-term jeopardy. All of the above can bring new content without going to the bank, or debt markets should they choose not to.
Now, a word on retail. According to data released by Mastercard (MA) SpendingPulse, overall retail sales increased 3% year over year for the expanded holiday season starting with Amazon Prime Day back in mid-October. The pedestrian overall growth was driven by a raging 49% surge in e-commerce, which means that bricks-and-mortar retail basically plunged into darkness. E-commerce fell just short of the 20% mark for overall holiday shopping. For reference, e-commerce amounted to less than 9% of all retail spending for the calendar year 2017. Remember, this adds up to not just lost revenue for smaller retailers and retailers who do not do e-commerce very well, but e-commerce is for the retailer a much lower margin business than would be traditional retail. It's a lot better for the business if shoppers come to them. Amazon can make up for lower margin through advertising.
Yet another reason for the surge in shares of Amazon on Monday. This is also why Walmart (WMT) , Target (TGT) and Costco (COST) did well. They can all subsidize that last mile in order to stay competitive. That cute shop on Main Street? Not so. For them, that last mile delivery is cost prohibitive, and they can't sell advertisement space.
Inflection Point
As we have stated here today, it was a good day for most of FAANG. Facebook (FB) soared 3.6% to retake that stock's 50-day SMA. Alphabet (GOOGL) added 2.3% for the day, to really just center the last sale in the middle of a two-month trading range. Amazon tacked on 3.5%, and now becomes interesting as the shares looked like a rocket rebounding off of its 50-day line.
Now Apple is different, at least technically speaking.
We can talk about iPhone 12 upgrade supercycles all we want. That may or may not develop. We can talk about potentially life-saving wearables. We can talk about the ecosystem and the captive audience and that this will continue to evolve into a recurring revenue model. Fact is that all of these are positives, and the stock is at a point of inflection.
Remember this chart? This was the ascending triangle that we showed you, that has us expecting an imminent breakout. We now see that breakout, or at least part of it. Some may see a saucer here, that would place the pivot at the left side of the cup/saucer or at the $138 level. Some might think they see a "flat base," but it's just not flat.
What if we move the top of the ascending triangle (we're not sure this is correct yet), up to that $138 level as the shares now approach that point?
Much more impressive, if this is how it plays out. Know what I think? I think AAPL goes to $165. At least. For now, that's my target. As for a panic point, I'm just not selling AAPL anytime soon.
Need to Know
The House of Representatives backed President Trump's demand to increase the individual stimulus payment agreed to in the already signed law, from $600 to $2000, by a vote of 275 to 134, with 44 of the 275 yea votes coming from Republicans. The ball now rolls into the Senate with an entire nation, or more specifically the state of Georgia, watching. I do believe that Mitch McConnell will put it to a vote. Passage? I don't know, but this does put the few remaining fiscal hawks in government in an awfully tough position politically.
Separately, the House even more overwhelmingly voted to override the president's veto of the National Defense Authorization Act. This too, will now be up to the Senate. While I see the president's point on Section 230 of the Communications Decency Act, and I don't know why anyone on either side of the aisle would oppose taking another look at better regulating social media (both sides have lost one presidential election over the past two and have taken issue with social media in response), this is not the place to do it. In addition, as someone who has served the flag, I often wondered just why the heck I was serving on bases or walking down streets named after people who took arms against that very same flag. Just sayin'.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 6.5% y/y.
08:30 - Case-Shiller HPI (Oct): Expecting 6.9% y/y, Last 6.6% y/y.
16:30 - API Oil Inventories (Weekly): Last +2.7M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled for release.
(Amazon, Alphabet, Apple, Facebook, Disney, Mastercard, Costco and Walmart are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
