A story of two markets? New records for the Dow Industrials. Almost unchanged for the S&P 500. Something close to a decline for the Nasdaq Composite. Five S&P sector-selected SPDR ETFs gained ground on Tuesday, led by four “cyclical” -type sectors, all of which saw increases of more than a percentage point. The money was invested in energy (XLE), which rose 3.5% in reaction to OPEC’s announcement that the cartel would increase production by the expected 400,000 barrels per day, while expressing little concern about the potential negative impacts of a pandemic on global crude demand. ).
There has certainly been a significant movement at the industry level (under the sector). Within tech, it was yet another lousy day for the Dow Jones US Software Index, down 2.1%, but on the second trading day of the year, software was joined by the half- finals. The Philadelphia Semiconductor index fell 0.45% on Tuesday. Regarding the tech space trade, I used Tuesday’s sale to regain some cybersecurity exposure. I’m finally back in Zscaler (ZS) and increased (small) my existing long position in Palo Alto Networks (PANW). These positions are my only current exposure to this space, are weighted equally and still at an entry-level size (around 1/8 of my total planned allocation) as I don’t think this 2022 rotation that has just started , be over … now that professional capital has re-engaged in the market after taking a few weeks off. (This means I keep some dry powder, probably until January.)
Also, and still within tech, I found it quite interesting that the types of chipmakers that big tech relies on, who tend to be Sarge favorites, have all significantly underperformed the industry while that memory-type chip names such as Western Digital (WDC), Micron (MU), and even Seagate Technology (STX) have performed very well, even forming some very pretty “hammer” one-day candlestick designs, which indicate an intraday bullish reversal. This is illustrated below …
Readers will see that Micron also gave away a nice “hammer” on December 22, and appears to have taken a few bucks out of it. Different environment. We will see.
Elsewhere, steel stocks dominated the materials sector (XLB), and steel itself was led by Cleveland Cliffs (CLF), up 4.1% as well as Nucor (NUE), up 3.6%. In addition, aerospace and defense stocks dominated industrials (XLI). Raytheon (RTX) + 3.5%, Northrop Grumman (NOC) + 3.0%, Boeing (BA), + 2.8% and Lockheed Martin (LMT) + 2.2% all erupted when the news broke that the Japanese Coast Guard had reported what appeared North Korea was launching its first ballistic missile in two months into the Sea of Japan.
As a number of big names in tech have already made contact with their 50-day SMAs in 2022, and Amazon (AMZN) in particular is at risk of losing touch with the all-important 200-day SMA, this is the time. Nasdaq Composite itself which has once again found, broken through, and for the day at least … found support for this 50 day line.
Traders will note that the Nasdaq has traded in a fairly disciplined channel for most of 2021, and although the lower bound of that channel has been roughly parallel, but above the 200 day line for this Hint, the index clearly showed no respect for the 50 days, and when tested, at least on the last three declines of any magnitude (all since October), that line failed miserably.
Take that job and …
Markets on Tuesday absorbed two macroeconomic data points that came as a bit of a surprise to economists and traders. First, let’s take a look at the November JOLT report released by the Bureau of Labor Statistics. The number of headlines (jobs) printed at 10.562 million, which seems like a lot, but was a significant drop from a revised October version (11.033 million) and represents a fairly serious lack of consensus that predicted an increase to nearly 11.1 million. .
It appears that 4.5 million Americans quit their jobs in November, which would be a new record, is up sharply from 4.2 million in October, and is well above 4.1 million that economists in general had in mind. That’s a dropout rate of 3%. If I know 100 people who work, there’s a good chance three of them will quit in November. It’s mind-boggling and it’s also the highest quit rate since at least the year 2000. Another record in the record was the million hospitality and leisure workers who filled it. .
The question economists must now work on is why. The easy answer would be that the workforce is largely confident in their massive ability to find new jobs elsewhere, which would further limit participation and put upward pressure on wages. It is obviously inflationary. The most unpleasant response might be that as Covid infection rates began to rise in November, workers in fields where human contact is part of the job placed a higher value on their health in an uncertain situation than ‘to their ability to win, which is tragic.
Hot, but less hot
Along with this JOLT report, the Institute for Supply Management released its Manufacturing PMI survey for December. The headline number printed at 58.7, down from 61.1 and well below the 60 Washington and Wall Street were chasing. It appeared that although manufacturers were more prepared, as employment increased, this upward acceleration slowed down for new orders, production, deliveries, inventories and most importantly for prices. Prices? Yes … Price.
Is this the sign of a slowdown in inflation at the producer level? No. Remember that here 50 is the line between growth and contraction. The “Price” component printed at 68.2, which for most of my career would have been a searing impression. It’s just that the October print for the “Price” component hit the strip at an absolutely ridiculous, scorching level of 82.4. Keep in mind that this one component has increased for 19 consecutive months, as has the number of titles and the “New Orders” component which is the cornerstone of any manufacturing survey.
A note written Tuesday by Zach Pandl, co-head of global FX and EM strategy at Goldman Sachs, estimates Bitcoin’s float adjusted market cap at just under $ 700 billion. According to the note, this would represent a 20% share of the “store of value” market, which is made up entirely of Bitcoin and gold. I could argue that more than a plethora of investors rely on real estate and other durable assets as stores of value, but that’s not mentioned here. Neither do other cryptocurrencies, and some of them (Ethereum) are certainly consuming Bitcoin’s share of the crypto side of this market as well.
Anyway, the note also estimates the value of gold available for investment at $ 2.6T. The memo goes on to say that if Bitcoin’s share of the store of value market (which in my opinion, as I just mentioned, includes many more than two types of alternative assets) were to “hypothetically” increase to 50% over five one-year window in which the price of Bitcoin would rise to $ 100,000 for a compound annualized return of 17% to 18%. Okay … If the gelatin bears “hypothetically” tasted like peppermint, they would be minty fresh.
I have no doubt that Bitcoin, or cryptocurrencies in general, could take additional alternative investment market share from gold or other precious metals. Those my age and older have always preferred physical gold as a means of protection against the systemic abuse of fiat currency by monetary authorities. People a little younger than me seem to prefer Bitcoin, for the same purpose. Neither earns profits, pays interest or pays dividends. Both require destruction of the environment as demand increases.
I have a comment and a question. My point … Real estate will only become scarce over time. This is the kind of thing that defines the term “store of value”. My question is the following. I am sure that those who invest in precious metals one hundred years after my death will hold physical gold. Can someone who owns Bitcoin make a similar suggestion? Oh, I think the asset class is likely to exist in one form or another. Technology does not stand still, however. Cryptocurrencies are far from having reached the first part of their evolution. There will be regulations. There will be some kind of adoption by the big central banks that will work at some point (in my opinion) to eliminate independent competition. They are huge jokers. Precious metals have a champion. Most cryptocurrencies are absolute rubbish. Many are almost certainly not garbage. A champion though? It’s way too early for that.
Economy (All Eastern hours)
8:15 am – ADP employment report (December): Expecting 395K, last 534K.
09:45 – Markit Services PMI (Dec-F): Flashing 57.5.
10:30 am – Oil inventories (weekly): Last -3.576M.
10:30 am – Gasoline stocks (weekly): Last -1.458M.
The Fed (All Eastern hours)
2:00 p.m. – FOMC minutes.
Highlights of today’s earnings (Consensus expectations for BPA)
Before the Open: (RPM) (.83), (SMPL) (.34).
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