Nice Gain for our Buy List
Posted by Eddy Elfenbein on January 6th, 2021 at 11:32 pm

I live in Washington, DC, not far from today’s news. I’m in no danger but we have a 6 pm curfew.

I wanted to mention briefly that today was a very good day for our Buy List. It’s odd to focus on financial markets on a day like this, but that’s our job around here. The S&P 500 gained 0.57% while our Buy List gained 1.78%. Of course, that’s just one day so we don’t want to get carried away.

Stepan (SCL) was up over 6% and Miller Industries (MLR) rose by more than 5%. The Tech sector performed unusually poorly today. We’ll see how well that holds up this week.

The futures market suggests another up day tomorrow.

ADP Drops by 123,000
Posted by Eddy Elfenbein on January 6th, 2021 at 12:27 pm

We’re in Jobs Week and it has a traditional timeline. On Wednesday, the ADP report comes out. On Thursday, the jobless claims report is due out. Then on Friday, the official jobs report is released.

I suspect that Friday’s report will not be good. In fact, today’s ADP was pretty bad. According to the payroll firm, private payrolls dropped by 123,000 last month.

December’s decline countered seven straight months of job growth coming out of the massive furloughs instituted in March and April as large swaths of the U.S. economy shut down to combat the Covid-19 spread.

Companies laid off a net 19.4 million workers in April and have recovered 9.9 million since, according to ADP estimates that sometimes have differed widely from the official Labor Department nonfarm monthly payrolls tally. The decline in December followed an increase of 304,000 in November, a number revised lower by 3,000 from the initial estimate.

I should caution that the ADP figure isn’t always a good predictor of the official report. Also, both reports are subject to lots of revisions.

Today’s market reaction is unusual. First is that stocks are up. Second is that they’re up by a lot. Third, it’s a strongly divided market. Cyclical stocks are doing very well while the rest of the market is somewhat flat.

By cyclical stocks, I mean industries that are heavily tied to the economic cycle. Things like cars and homebuilders.

The four major cyclical sectors are Energy (XLE), Materials (XLB), Industrials (XLI) and Finance (XLF). Sure enough, these are the top four sectors today.

Morning News: January 6, 2021
Posted by Eddy Elfenbein on January 6th, 2021 at 7:04 am

U.S. 10-Year Treasury Yield Hits 1% for First Time Since March

Saudi Arabia Will Cut Its Oil Production, Allowing Russia’s to Grow

NYSE May Make Second U-turn on China Telecom Delistings Amid Confusion Over Policy

Trump Bars U.S. Transactions with Eight Chinese Apps Including Alipay

UnitedHealth to Buy Change Healthcare for $7.84 Billion to Build Up Technology Services

AmerisourceBergen to Buy Walgreens’ Distribution Business in $6.5 Billion Deal

Environmental Debt Risk Is Bigger Than Japan’s GDP

The 10 Ways Renewable Energy’s Boom Year Will Shape 2021

Henry Paulson Returns to Finance, to Run Climate-Focused Fund

Starburst Data Hits $1.2 Billion Valuation as Andreessen Invests

Amazon Buys Planes From Airlines Struggling With Pandemic Slowdown

Buffett Loses Spot on Wealthy List to China’s Bottled Water King

Ben Carlson: Updating My Favorite Performance Chart For 2020

Michael Batnick: One of The Great Bubbles of Financial History

Joshua Brown: There’s No Such Thing As A Local Advisor Anymore, It’s Worth What the Buyers and Sellers Believe It’s Worth & Bubbles Always Burst in January?

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Strongest ISM in Two Years
Posted by Eddy Elfenbein on January 5th, 2021 at 1:17 pm

Most of Wall Street seems to be focused on the state of Georgia today and its two Senate races. These may decide who controls power on Capitol Hill.

After a rough trading day yesterday, the stock market is making back some of those losses today. So far, cyclical stocks and small-caps look strong. Value is outpacing growth. Energy stocks are exceptionally strong today.

This morning’s ISM Manufacturing report looked pretty good. It came in at 60.7 which is the best number since August 2018.

The ISM’s index of national factory activity rebounded to a reading of 60.7 last month. That was the highest level since August 2018 and followed a reading of 57.5 in November. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index would slip to 56.6 in December.

But some of the surprise rebound in the ISM index was due to an increase in the survey’s measure of supplier deliveries to a reading of 67.6 last month from 61.7 in November.

A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution. But in this case slower supplier deliveries also indicate supply shortages related to the pandemic.

This is jobs week. Tomorrow, we’ll get the ADP private payroll report. Then on Thursday, another jobless claims report. On Friday, the big December jobs report comes out. I suspect that this may be a weak report.

Morning News: January 5, 2021
Posted by Eddy Elfenbein on January 5th, 2021 at 7:02 am

Ultra-Low Interest Rates Are Here to Stay: 2021 Central Bank Guide

Hedge Funds Raise Mining Shorts As COVID Vaccines Seen Tamping Gold Gains

In a Topsy-Turvy Pandemic World, China Offers Its Version of Freedom

NYSE Scraps Plan to Delist China Telcos in ‘Bizarre’ U-Turn

$900 Billion Won’t Carry Biden Very Far

Drugmakers Kick Off 2021 with 500 U.S. Price Hikes

Lineage Logistics Makes $500 Million Bet on Refrigerated Rail

A Simple Way to End Questionable Stock Trading by Lawmakers

Auto Sales in 2020 Expected to Hit Lowest Point in Nearly a Decade

Why Solar Energy Stocks Can Beat the Market Again in 2021

Haven, the Amazon-Berkshire-JPMorgan Venture to Disrupt Health Care, is Disbanding After 3 Years

Nick Maggiulli: Why I’ve Changed My Mind on Bitcoin

Howard Lindzon: Momentum Monday….Let’s Travel?

Cullen Roche: Three Things I Think I Think – Happy New Year!

Ben Carlson: Inflation Truthers

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The Dividend Indicator May No Longer Work
Posted by Eddy Elfenbein on January 4th, 2021 at 12:08 pm

Here’s the S&P 500 (blue line, left scale) and its dividends (black line, right scale). The two lines are scaled at a ratio of 50-to-1, meaning the yield is 2% whenever the lines cross.

Over the last 20 years, 2% has worked decently well as a fair value estimate, except for an 18-month stretch during the financial crisis.

The relationship started to break down in 2020 as many companies have suspended their dividends. For 2020, dividend payments rose but very slightly.

The chart may look scarier than it really is. The problem with any valuation measure is that the underlying factors may have changed. That could be happening here.

2021 Opens on a Down Note
Posted by Eddy Elfenbein on January 4th, 2021 at 10:41 am

The stock market opened 2021 on an up note, but we’ve already slid back into negative territory. On our Buy List, we’ve had new highs from Ansys (ANSS), Intercontinental Exchange (ICE), Stryker (SYK) and one of our newbies this year, Miller Industries (MLR).

(By the way, Senator Kelly Loeffler of Georgia, who is on the ballot tomorrow to fill out the rest of that term, is the wife of ICE’s CEO Jeffrey Sprecher. In no way is this a comment on the election or politics in general. I just wanted to point out this fact.)

Energy and Materials are doing well this morning, in a relative sense. Dividend stocks are doing the worst. This morning, we learned that construction spending rose 0.4% in November. In a few weeks, we’ll get our first look at Q4 GDP growth. So far, analysts seem to be all over the map. This Friday, we’ll get the December jobs report.

Also, Dogecoin jumped 125% in one day. This was due to improved fundamentals. No, I’m kidding. An adult actress tweeted about it.

Morning News: January 4, 2021
Posted by Eddy Elfenbein on January 4th, 2021 at 7:07 am

Bitcoin Falls Most Since March as Volatility Grips Trading

As Some Deficit Hawks Turn Dove, the New Politics of Debt Are on Display

2021 Will Be the Year of Guaranteed Income Experiments

Hundreds of Google Employees Unionize, Culminating Years of Activism

Peugeot Shareholders Approve Autos Mega-Merger with Fiat

MGM Makes $11 Billion Offer for Ladbrokes Owner Entain

Centene to Acquire Magellan Health in $2.2 Billion Deal

Roku Nears Deal to Buy Rights to Quibi’s Content

Wall Street Eyes Billions in the Colorado’s Water

‘A Slap in the Face’: The Pandemic Disrupts Young Oil Careers

Looming Delisting Jolts Chinese Telecom Stocks

Ben Carlson: Animal Spirits: The Best of 2020 & Drawdowns & Melt-Ups: The Year That Was in the Markets

Michael Batnick: The Year of Stimulus, and Other Great Charts & Advice for Giving Advice

Howard Lindzon: Selling Early… And Bitcoin Recap

Joshua Brown: Have Some Fun in ‘21 & Promises

Be sure to follow me on Twitter.

The S&P 500 Total Return Index (1936)
Posted by Eddy Elfenbein on January 2nd, 2021 at 10:20 pm

In addition to the S&P 500, the index provider also has an S&P 500 Total Return Index. It’s the same as the S&P 500 but dividends are reinvested.

The S&P 500 Total Return Index closed 2020 at 7,759.35. I believe that that index starts in 1987. Since the S&P 500 is currently at 3,756.07, that means that dividends have more than doubled the return of the index over that time. That comes out to a gain of 2.2% per year from dividends. Over the long haul, dividends really do make a big difference.

The S&P 500 also has an S&P 500 Total Return Index that has 1936 as a base. That actually goes back to before the S&P 500 had 500 stocks. That didn’t happen until 1957.

For reasons I can’t imagine, you can find this index quoted at Morningstar. Let’s dig in.

If you had started investing on March 31, 1936 and had reinvested your dividends, through Thursday, you would have registered a gain of 543,755.05%.

That was enough to turn $10,000 into more than $54 million. (I hate those kinds of stats.)

The return works out to 10.68% per year. That’s enough to double your month every six years and ten months.

True
Posted by Eddy Elfenbein on January 2nd, 2021 at 4:08 pm

To everyone who got into trading stocks this year, I have a little hard truth for you: You're not actually that good at it. You just caught a wild bull market. Take some money off the table.

— Chris Sacca 🇺🇸 (@sacca) December 23, 2020