Those planes and trains … they keep on trucking. And, they do so with amazing consistency. The Dow Jones Transportation Average has been up each of the last 13 weeks, a streak beyond any in recent memory. We all know these streaks don’t last forever, and a small sample size makes it difficult to project otherwise. This, however, may miss the point. There may be no other group more representative of “re-opening.” And re-opening seems clearly in the forefront of the market’s attention. Monday’s market seemed a perfect example here, in that despite 2800 NYSE advancing issues, it wasn’t all that easy to make money. You had to be in the cyclical, industrial, and commodity stocks, and avoid most of Tech. Rarely do we recall a market this extreme and difficult, yet at the same time so simple.
Ask not for whom the bell tolls, it tolls for Tech. And the bell tolled pretty loudly late last week. All those over-owned Tech stocks reported and, with the exception of Alphabet (2325), did nothing or went down. Our initial concern was about the market. If it’s the market that makes the news, a market that ignores good news isn’t a good market. There may be something to that, but more likely the good numbers are simply about why the stocks are where they are, rather than where they’re going. That they are unlikely to go up, let alone lead, is about the market’s change in focus. This re-opening idea isn’t just about stuff that’s heavy to lift. After dealing with COVID for some time, hospitals now seem poised for more profitable business – see, for example, Universal Health (154) and Tenet (65). This should also be helpful to companies providing largely ignored medical procedures, like Intuitive Surgical (836) and Edwards Life (91).
We tend to use “Tech” rather loosely, while we find Tech to be of two varieties. There is the Tech that is out of favor for now, but not going away, and there’s the Tech that for investment purposes, could go away. As the economy reopens, wouldn’t most go to their own doctor, or their own doctor online? What do we know, but to look at the chart of Teladoc (151) it would seem so. Or, for that matter, to look at the aforementioned hospital and medical device stocks, it also would seem so. And then there’s Peloton (83). Gyms are re-opening, outdoors is re-opening, is Peloton still a must have? As often happens in the stock market, news follows price – the company has recalled 125,000 treadmills, citing risk of injury or death, according to Market Watch. Then there’s Zoom Video (289). Video conferencing may be here to stay, but will we Zoom?
When it comes to this re-opening idea, there are a number of ETFs which as a group, or even individually, seem to get the job done. Several we mentioned last time, including Materials, XLB (87), Industrials, XLI (103) and Infrastructure, PAVE (27). Two others we might highlight are Metals & Mining, XME (45), and Steel, SLX (64). We do so as steel has acted particularly well recently, as has ancillary stocks like Cleveland Cliffs (20) and Vale (22). And, of course, there is an ETF for those seemingly irrepressible Transports, IYT (273). Meanwhile, does oil know something the rest of these re-open stocks are missing? We doubt it and, indeed, the energy stocks also have acted better. For oil there is XLE (52) and XOP (84). Individually, it’s a group that when they go, you can pretty much throw a dart. Then too, hopefully our dart might land on Diamondback (82), Pioneer (164) or Northern Oil & Gas (15).
There is a cliché that comes around this time of year, one that most of us have come to hate. Then, too, there is the reality of summer months when we’ve seen the kind of four months we’ve seen. This pattern correlates well with years like 2013 and 2017, according to SentimenTrader.com, two other years that were well-suited for trend followers of the S&P, and difficult for everyone else. The Advance-Decline index just reached another high, and you know how we feel about that – no big problems. Still, the market divide is a worry. The bad have a way of dragging down the good. The obvious excuse for any weakness is a Fed which seems awash in that river in Egypt – DeNial. It has been suggested the next Fed appointee should be someone who goes grocery shopping. Then, too, the Fed has little choice, as any admission of inflation would imply a need to tighten. That’s not what the market wants to hear.
Frank D. Gretz
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