Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA $SPY $QQQ $RUTX $IRJ $XLF $VXX

Bulls believe in this recovery, drive Bears back, as the market rallies with each sign of economic recovery.

Recall the Bears growled alarms about putting faith in the Fed and chasing shares whose valuations swelled to a 20-yr high.

Last Week’s Action

Friday’s NFPs jobs report says the resilience reflects not only the Fed’s liquidity, but a market that correctly anticipated a quick turnaround, the market is always right.

Sure, there’s a lot of MSM noise about how Wall Street and Main Street are disconnected, but at the same time Wall Street depends on Main Street. So that Noise is Fake too!

Individual investors have gotten very savvy, as discount brokerages houses Charles Schwab and TD Ameritrade saw record new accounts opened and trading volume in 1-H of this year, trends that evoked dread among professionals and are now looking almost perfectly prescient.

Companies hit hardest by the lockdown soared Friday after the NFPs, a broad gauge of payrolls rose by 2.5-M in May, igniting stock-market bets that the worst is over for the economy.

A Goldman Sachs basket of companies with weak balance sheets spiked 9.8% for the best week on record. Hertz Global (NYSE:HTZ), the 100 yr old car renter that just filed for bankruptcy, has now more than 3X’d over 2 days.

The recovery trade went into hyper drive following the Labor Department’s report, amplifying gains that built all week as traders rotated out of stay-at-home tech megacaps and healthcare to embrace financial, energy and transport companies. The speed of the gains are impressive: an index tracking airlines was up 37 % over the week while banks rose 17%.

Stocks rose for a 3rd wk running, with the NAS 100 Index and the NAS Comp Index both erasing Bear-market losses to climb to an intra-day all-time highs. The S&P 500 advanced 4.9%, and the DJIA climbed 7%. Both posted their best week in 2 months.

The worse a company’s finances, the better it did this week. A basket of firms with the highest risk of default rose 12% through Thursday, 9% more than firms with better credit health. Since bottoming in March, those stocks with riskier finances have beaten their stable peers by 30%.

Gains are being driven by speculation that the corporations whose finances put them most at risk will thrive as the economy improves.

Also aiding the stocks is an increase in investor demand for shares trading at lower valuations.

That is a play that ETF investors followed, dumping tech darlings in favor of laggards such as banks and small-caps.

In the past week, they flocked to funds focused on small caps and financial firms, while pulling cash out of large-cap tech.

The Financial Select Sector SPDR Fund, (XLF), took in roughly $875-M last week. Investors poured $900 million into the iShares Core S&P Small-Cap ETF (IJR) Thursday, the most in 2 years. Meanwhile, the Invesco QQQ Trust Series 1 (QQQ) lost $2.3-B last week, the most since October 2018.

The end result of such rotation: a market whose technicals look healthier, instead of a lopsided 1 driven by a handful of tech giants.

This is reality not a bad old bubble.

The People are saying, “Hey, I am going to get going back to work, so I am going to buy some of these stocks that I think will benefit if spending starts pretty quickly.”

We have seen optimism trade during the past few weeks that we would get going faster than many analysts and pundits expected.

Technical Outlook

The major US stock market indexes are sitting on Top of solid moves higher last week

Some stocks have tested, but the vast majority have rallied.

The RedRoadmaster’s outlook for the major US stock market indexes is Bullish to Very Bullish across the board.

Have a healthy week, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.