EB Daily Market Report - Friday, December 17, 2021
EarningsBeats.com Holiday Schedule
I want to give everyone a heads up as to our upcoming holiday schedule. Trading Places LIVE will air as normal next week on Monday, December 20th and Wednesday, December 22nd, both starting at 9:00am ET. The Tuesday and Thursday recorded versions at StockCharts TV will be "Evergreen" shows, or previously recorded shows. They will not provide current content. Everything else next week will be as usual.
The week between Christmas Day and New Years - Monday, December 27th through Friday, December 31st - we will be working very limited hours. We will periodically review customer inquiries, but there might be more of a delay than usual. The Daily Market Report will likely be published once or maybe twice that week, but expect it to be abbreviated. I will be traveling out of town during the holidays, but there's always a Starbucks somewhere. :-)
I will publish the EB Weekly Portfolio Report, but it will likely be more abbreviated than usual. Also, I will do my best to publish the Monthly Short Report and Monthly Seasonality Report before the New Year as well.
Executive Market Summary
- Futures were weak and our major indices got off to a rough start, adding to Thursday's losses
- We've seen a swift recovery in growth stocks, however, after they led this morning's early selling
- The 10-year treasury yield ($TNX) is down another 2 basis points to 1.40%, though it's rallied off this morning's 1.37% low
- The U.S. Dollar (UUP, +0.43%) is up significantly, putting some downward pressure on energy (XLE, -0.90%) and materials (XLB, -0.21%)
- Financials (XLF, -1.32%) are retreating given the drop in treasury yields
- Meanwhile, real estate (XLRE, +0.42%) and consumer discretionary (XLY, +0.35%) are today's leading sectors thus far
- Volume is heavy on cruise line stocks and they're among today's top performing S&P 500 stocks; options expire today and these stocks had been beaten down with lots of net in-the-money put premium
- FedEx Corp (FDX, +6.47%) is a leader today after reporting stronger than expected earnings
Market Outlook
Market volatility and craziness has not settled down. And for the second time in four years, Jay Powell has taken on the role of The Grinch as the holidays near. During the trade war in 2018, Fed Chief Jay Powell turned incredibly hawkish, calling for rate hikes in 2019. What happened? Growth stocks were crushed in the short-term, but battled back when those interest rate hikes never occurred. In fact, there was an interest rate cut in July 2019. Jay Powell got it ALL WRONG. I'm not Monday morning quarterbacking either. I wrote about this mistake at the time in December 2018. You can CLICK HERE to read about it.
As Yogi Berra would say, "it's deja vu all over again!" The bond market isn't believing a word of this 3 interest rate hikes nonsense. Have you been following the bond market? There have been buyers EVERYWHERE, with treasury yields falling. Someone forgot to tell the bond market that rate hikes are coming. Check out this chart:
Treasuries were bought back in late 2018 just like they're being bought now. I firmly believe the bond market is where we should get our policy-making clues. Bond traders are smarter than stock traders - they almost always are. In time, I believe this all plays out in favor of growth stocks, but we may have more short-term pain to endure first. Timing major rotational shifts is very, very difficult to do and, quite honestly, I've never been able to perfect a timing strategy. You just have to be willing to take on considerable risk if you want to own growth stocks.
I believe the Fed is dead wrong again. In my opinion, they're being swayed by outside influences. If inflation persists into Spring, which I believe it will, then we could see one rate hike. And I wouldn't bet any money on that. Let's see how this plays out.
Sector/Industry Focus
The NASDAQ has drawn its "line in the sand" at 15000. That's where short-term support currently resides. If that support level breaks, then I would expect to see much more selling as we close out the year. Here's what I'm looking at:
The last low on the NASDAQ formed with the NASDAQ 100 Volatility Index ($VXN) spiking to a very high level above 33. That spike normally marks very important price support as you can see from previous spikes (black circles). The only time we've seen those support levels broken was back in late January. So it's not impossible. But I would say this. If 15000 price support is lost, I'd expect fear to ramp up quickly with another test at 14200 much more likely. THAT would be a HUGE support test.
One last comment here. Despite all the selling, check out the AD line on the NASDAQ, prepping for a possible breakout to an all-time high. It certainly appears to me that Wall Street is using this current environment of fear build positions in many of their favorite stocks. That usually works out well for the stock market in the end.
ChartLists/Strategies
There is utter confusion in the stock market right now. After the Fed announcement on Wednesday, we saw an explosion to the upside with growth stocks leading the way. Yesterday was "opposite day" (for Seinfeld fans) as growth stocks cratered. We opened this morning with more of the same - growth stocks getting hit harder on a relative basis. But since the open, we've reverted to growth stocks outperforming. However, the overall market environment is clearly bearish.
Despite the historically bullish second half of December upon us, I don't think it's very safe to commit much capital at all to the market. For those that want to be in stocks, but with less risk, you might want to consider simply being long ETFs. They have downside risk too, but they typically won't fall as fast as individual stocks.
Earnings Reports
Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.
Friday, December 17:
DRI, WGO
Monday, December 20:
NKE, MU, BRZE, CVGW
Economic Reports
None
Happy trading!
Tom