EB Daily Market Report - Wednesday, August 25, 2021
I apologize, but I'm under the weather today so I will give you a shorter-than-usual update.
Our major indices are all higher once again. It's so hard to bet against this secular bull market. The S&P 500 crossed 4500 for the first time in its history and currently trades just beneath it at 4499. There's definitely a bit of a shift back towards value stocks today, though defensive groups mostly lag. Crude oil ($WTIC) is up fractionally to $68 per barrel, helping to lift energy stocks (XLE, +0.82%).
July durable goods came in slightly ahead of forecasts (-0.1% actual vs. -0.2% expected). If we strip out transports, durable goods rose 0.7% vs. the consensus estimate of +0.5%. The 10-year treasury yield ($TNX) is up 4 basis points to 1.33%, lifting several key areas in the market. Financials (XLF, +1.65%) are getting the biggest lift as banks ($DJUSBK) jump more than 2%. But rising yields typically benefit transportation stocks ($TRAN) and small caps ($SML) as rising yields can signal potentially stronger economic activity ahead. One word of caution, however. The second estimate of Q2 GDP will be released tomorrow morning and this is a report that can have a significant impact on treasury yields.
Should the TNX continue rising, the groups I mentioned above - TRAN and SML - can benefit disproportionately to the overall market, and banks typically do as well. Here's a chart to help illustrate this:
The obvious question is.....has the TNX bottomed? If so, then small caps, transports, and banks make a lot of sense. I'd stick with leaders in those areas, however. American Airlines (AAL) has been a leader among airlines ($DJUSAR). Old Dominion Freight Line (ODFL) has been a winner among truckers ($DJUSTK). I continue to favor Wells Fargo (WFC) in the banking area. These are just a few ideas.
Ulta Beauty, Inc. (ULTA) will report earnings after the bell today. ULTA is part of our Aggressive Portfolio. Its AD line and relative strength are both solid, so I'm looking for a nice report this afternoon. We know, however, that even the best of reports doesn't always translate short-term in higher prices. There are other big names reporting this afternoon that include CRM, SNOW, ADSK, SPLK, NTAP, ESTC, and WSM. Then, tomorrow morning, we'll see DG, CM, DLTR, BURL, and SJM.
SJM will be very interesting as it's testing very key price support ahead of its earnings:
I count 7 tests of this key support area between 126-127. The negatives heading into tomorrow morning's earnings report is an AD line at a 52-week low and an industry group as a 52-week relative low. If there's one silver lining, it's SJM's relative strength vs. its food products peers ($DJUSFP). That wouldn't be enough for me to take the chance here.
That's all I have for today. I hope to be back to a normal schedule tomorrow.
Happy trading!
Tom