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Arrow, Business, Crisis, Decline

Things you need to know

  • So, I wasn’t wrong when I suggested HOODWINKED vs. HOOD 1 month ago!
  • Amazon beats and disappoints…in the same report…PINS is losing users, traders hit the SELL button
  • Global markets lower on the final day of July.
  • Eco data supports Jay’s narrative – or does it?
  • Try the Flank Steak

Let’s make something very clear….the WSJ runs with a front page story featuring Vlad and Baijiu walking down Wall St, approaching the famed corner where the buttonwood tree once stood, hands in pockets, hair a mess, no ties, one of them in a blue suit while the other is in a celery suit….all very nice, but the image could not be further from the truth and the WSJ editorial staff should know better – even they ‘hoodwinked’ you….….….. You see –

Robinhood stumbled on its debut in Times Square – and I say that because HOOD chose the Nasdaq as it’s market center of choice and that market center is not the NYSE at the famed corner of Wall and Broad St’s – it is at the center of Times Square on 42nd and Broadway known more for the annual new year’s eve ball drop and the drama surrounding the theater rather than the drama of stock trading, but yesterday was a different story – ‘Broadway’ is still closed, not a light on, no feet dancing and no one singing – but there was plenty of drama…..

Robinhood – which priced their IPO at the bottom of the range, $38/sh, was set to launch…Goldman – the lead investment bank, tried desperately to create a dramatic day…You see, by pricing the IPO at what was the low end of range, and keeping 35% of the deal out of institutional hands – keeping it for all of the Reddit traders and the ambitious retail clients they made a bet….the bet was that this would guarantee a ‘POP’….a pop that they hoped would be in the 40 – 50% range on the opening, which would then create even more excitement and drama…..Oh boy….did they not understand the marketplace?  Did they not understand that the institutional market was lukewarm (at best) on the deal?  Did they completely misjudge the Reddit/retail demand?  I guess so….

You see the deal opened in the early afternoon – 12:24 PM, at the deal price – $38 (supported by Goldman) – in the same minute – it popped to $40.25 and then collapsed….falling to $33.35 by 12:43 pm….and then the rest was history, it struggled, as Goldman tried desperately to change the music, Jimmy Cramer discussing the ‘brilliance and fortitude’ of Vlad and Baijiu….all in an attempt to turn this around.  How’d that work out?   Vlad also telling Jimmy that he is not worried that the IPO was a disaster because he is building a business…. Did you expect him to say anything different?  By the end of the day – the stock lost 8.37% closing at $34.82/share. So much for those ‘diamond hands.

OK – but understand – Robinhood does NOT represent the market at all, and stocks represented by the broader indexes ended the day higher.  Early morning economic data driving the move – 2nd qtr. GDP rising ‘only 6.5%’ well below the expected 8.5%, Initial Jobless Claims rose to 400k vs. falling to 385k, Continuing Claims rose to 3.27 mil vs the expected 3.18 mil, Pending Home Sales m/m fell 2%, while y/y sales were down 3.3%…..The data all weaker than expected made Jay Powell look like a ‘brain surgeon’……the data affirming the concerns that Jay and the FED expressed on Wednesday…that while we are making progress – we aren’t there yet…..and investors went all in….Why?  Because the chatter yesterday was all about how the FED will remain committed to its current course – stimulus to continue at $120 billion/month, and rates to remain low (forever) and talk of tapering will remain just talk…. there won’t be any tapering anytime soon based on ‘this data’.

And so, it goes…by the closing bell the Dow added 154 pts or 0.45%, the S&P gained 18 pts or 0.4%, the Nasdaq up 15 pts or 0.11%, the Russell up 15 pts or 0.7% and the Transports gaining 114 pts or 0.8%.

The focus shifting back to the cyclical value-oriented trade…. Financials – XLF up 1.1%, Energy – XLE up 1%, Basic Materials – XLB +1.1%…. The SPYV up 0.7%.

But there is some confusion – you see the personal consumption component of GDP surged by 11.8% – above the expected 10.5% and that suggests that the recovery remains intact despite all the recent chatter surrounding the Delta variant of covid….and this implies that it’s all good….and that smacks directly into the face of Jay Powell – so what did investors do?  They just bought everything…. this way, they can’t lose…. something they own must win….and so it was….

Then there was the tension all day surrounding AMZN and to a lesser extent PINS (Pinterest)….which both reported after the bell….during the regular session – AMZN lost 0.8% while PINS lost 5% ahead of the announcements….and then they hit – and while the AMZN report was another tremendous report – posting their 3rd $100 billion qtr. in a row, beating EPS by 23% reporting eps of $15.12/sh vs. the expected $12.30 – not bad right?  Annual Revenue up 27%, not bad but not good when you consider that the 2nd qtr. of 2020 saw revenues up 41%…. Capisce?  CFO Brian Olsavsky whining on the conference call blaming it on ‘tough year over year comparisons’…they went onto say that 3rd qtr. would see sales between $106 – $112 billion – a wide guess…. but below the consensus estimates of $120 billion and that is all traders needed to hear…and BOOM down it goes in the after-hours session…. falling 6.4% or $230/sh…. this morning it is quoted at $3357/$3360

PINS got whacked even more as the trader types marched out the door on their story – they are losing ‘users’…. that stock down 20.8% or $15/sh.  This morning it is quoted at $57.70/$57.80.

And this morning US futures are down…. on the last day of July…. Dow futures off 90 pts, S&Ps off 30 pts, Nasdaq down 161 pts and Russell off by 10 pts.   10 Yr. yields at 1.24%….and the VIX is up 7% at 19….as darkness turns to light…Lots of chatter about HOOD, AMZN and how investment bankers and analysts could have had it so wrong….and do these three events raise the possibility that we are at a market top?

No, while it’s all very dramatic and gives the media something to discuss….these 3 events may be today’s reason for weakness, but let’s not kid ourselves….valuations are rich, monetary policy can’t go on unchecked, 10 yr. and 30 yr. rates are expected to end the year higher from here, the covid variant is also expected to force the gov’t to mandate masks again for everyone – vaccinated or not and that is sure to create a lot of ‘chatter’ and accusations about the vaccine and my body, my choice and we are about to enter the ‘danger zone’….the seasonally weak time of year that happens every August – October…..and then don’t forget – members of the FED are now free to talk to the media, we will start to hear conflicting points of view…..just as we did post the last meeting….So get ready…

And let me remind you – that is no reason to jump ship, but it is a reason to look at your portfolio, talk to your advisor, stick to the plan, don’t panic, and look for the opportunities that are about to be created.

Eco data today includes Personal Income of -0.3%, Personal Spending of +0.7%, Real Personal Spending of +0.3% (I never understood what personal spending and real personal spending meant – seems a bit ridiculous no?)  In any event if these numbers also disappoint it will only add to the negative story. And speaking of that – you can expect to hear more about how the variant is now going to be a headwind…. recall how I pointed out that on Tuesday that while it’s out there it ‘might become an issue’ in the future – which just meant – it will become an issue when they need to accentuate the negatives….and today is just as good as any….

Earnings today include CVX, (BEAT), AON (BEAT), CAT (BEAT), PG (BEAT) along with a host of others….

Asian markets ended the day lower by about 1.2%.  European markets are all down about 1% on earnings worries and ‘new data’ surrounding the virus and what that will do to the travel and leisure industries…think hotels, cruise, and airlines…. There is no eco data to consider.

Bitcoin is trading at $38,000, Ethereum is trading at $2300.

The S&P closed at 4,419 and if the weakness holds – we will test 4400 again on the opening…. if we follow in the footsteps of the other developed markets, we could see losses of about 1% today across the board…. – and while the trendline does provide room for further upside it feels a bit tired right here…. with earnings season winding down now, August tends to quiet down a bit and then we enter the ‘fall season’ which tends to be a seasonally volatile time under normal circumstances.

In any event – it is the end of month…. not surprised to see weakness after a strong month…no reason to think it is the beginning of the end…but the virus variants remain risk factors for the markets especially as we come into the fall which tends to be weak on its own….…. I am still thinking we get a 7 – 10% correction over the next 2 months….
In any event – stick to the plan…remember – investing is dynamic…keep some cash ready to deploy, but don’t be so quick on the trigger just yet…

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.
You can follow me on Twitter – @kennypolcari

Take Good Care

Chief Market Strategist, Consultant

Pan Seared Flank Steak w/ Red Wine Shallot Sauce

This is easy to make and will present like you spent hours in preparation. For this you need:

A Flank Steak, butter, garlic, s&p, Red Wine, Shallots, Balsamic Vinegar (a good thick one) and olive oil.

Preheat the oven to 400 degrees.

Begin by melting a stick of butter – now season the steak with s&p, add chopped garlic and massage. Now pour the melted butter and massage that into the meat as well. Cover and set aside.

In a small pan – melt more butter (1/2 stick) with some olive oil – so that the butter does not burn.  Now toss in sliced shallots – maybe like 4 shallots in total – sauté for 5 mins or so. Now add in ¾ cup of red wine (your choice) and 2 tbsp. of the nice thick balsamic vinegar. Bring to a boil and then turn to simmer. Reduce by half – will only take a couple of min. Turn off the heat and whisk in one more tbsp. of butter. (Can never have enough butter)

In a large skillet – add a touch of olive oil and heat up. When ready – add the flank steak to the pan and sear on both sides – 3 – 4 mins per side. Now remove and place in a Pyrex dish and put it in the oven for 5 – 8 mins (depending on thickness). Remove and cover – let rest for another 5 mins.

Prepare you to serve platter with fresh kale – When ready – slice the flank steak across the grain and arrange on the platter with the kale. Looks good, no? Now you can spoon the red wine shallot sauce over it all or you can keep it on the side and let your guests serve themselves. Serve this dish with smashed roasted potatoes and a lg mixed salad.

(*you can use this sauce on any type of steak you like… grilled rib-eyes, filet etc.)

Buon Appetito.