Stuck In Reverse

Stuck in reverse.  Stocks erased gains for a second straight day as investors fretted over risking global COVID cases.  Earnings are coming in well above estimates and investors are selling… because good results are already baked into the market.

N O T E W O R T H Y

Let it be.  Public service announcement:  stocks and bitcoin don’t only go up.  I should just end the note right there… but of course I won’t.  It has been an interesting, if not frustrating, few days for some investors.  Last Friday, indexes closed at or near all-time highs.  The days prior made it appear that stocks were just unwilling to compromise daily gains.  Bad news?  Overbought? No problem, rally into the close and head out to happy hour… or Barre Class, or whatever makes you feel good after 4:00 pm. Come on folks, snap out of it.  This is the stock market we are talking about.  Got it?  Good, let’s try to figure out what has gone on in the past two days.  Earnings season is here and the results, so far, are not just solid, but outright good.  So far, on average, companies are beating estimates by more than 30% according to analysts.  We can sometimes say that the bar was low, but it wasn’t this quarter as targets have been raised and raised leading up to the end of the quarter.  It is not often that we go two days in a row without any major economic announcements. Monday and yesterday were two such days.  Fed speakers?  Nope, they are in a blackout period leading up to next week’s FOMC meeting.  The absence of any catalysts seems like a good time to check in on the pandemic… which by all accounts is still here… and on the rise in the developing world.  India has emerged as the new global epicenter and global daily cases are nearing a record. That may be surprising, considering all of the restrictions being lifted in the US and vaccination tallies rising, but it is a fact.  What may be more surprising is that cases are climbing in EU countries as well, though at a significantly slower pace.  That news has got people thinking that perhaps the vaccine will not completely eliminate COVID-19, which means that the disease will be with us for some time.  That fear leads some to conclude that the re-opening, reflation, or back-to-normal trade may not be so clear-cut.  That line of thought may have contributed to some of the selling in the past two days as cyclical stocks appeared to take the brunt of the selling.  It could also be that the market is significantly overbought.  Quants like me track those metrics, not necessarily as a trading tool, but rather an indicator to give us insight into what might be going on.  When we say an index is overbought, we are usually referring to an index’s recent gains rising at an increasing pace.  If those conditions exceed a certain threshold, we can say the index is overbought because in the past, buying momentum usually wanes beyond it.  April has seen the S&P500 rise into that overbought territory and remain there through last Friday’s close.  That doesn’t happen too often, but when it does, stocks often pull back and take a breather.  It is clear that there is a tug of war between what we are experiencing today and what we are expecting… hoping will happen in the next few quarters.  Anything that challenges the thesis on either side is likely to produce volatility. Based on the early results, companies appear to be regaining solid fundamental footing.  Clearly it varies from company to company, but generally speaking, results are upbeat.  I am reminded of President George W. Bush landing on The USS Abraham Lincoln in May, 2003 to tell the world that the war in Iraq was over.  He drew a lot of heat from his statements that day, because the mission in Iraq was clearly far from over.  In fairness, there can be no clear demarcation for such a complicated task, and likewise with this horrific pandemic, there will be no clear demarcation for when it will end.  We can see improvement in economic conditions on the ground, and those improvements are beginning to show up in the numbers.  So, markets move around, they adjust, they absorb data, and that is how it works. Solid companies, solid management, and good results offer the best probability for long-term success, despite the current news cycle.  Do your diligence, stick to your core strategy, and stay focused on the long game. All of these are principals for success that have stood the test of time.

THE MARKETS

Stocks sold off for a second straight day as investors took profits when they took note of a rise in covid case counts globally. The S&P 500 fell by -0.67%, the Dow Jones Industrial Average lost -0.75%, the Russell 2000 Index dropped by -1.96%, and the Nasdaq Composite erased -0.92%.  Bonds climbed and 10-year treasury yields slipped by -5 basis points to 1.55%.  

NXT UP

– US Crude Oil Inventories (April 16) may have fallen by -3.2655 million barrels after falling by -5.89 million in the prior week.

– This morning, Lithia Motors, Signature Bank, Anthem, Halliburton, NextEra Energy, and Baker Hughes beat estimates. Verizon is expected to deliver results before the open and we will hear from Whirlpool, Chipotle, Equifax, SL Green, Spirit Airlines, Discover Financial Services, Lam Research, Crown Castle, Kinder Morgan, and Las Vegas Sands after the closing bell.

IMPORTANT DISCLOSURES.

Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.

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