The action (or weakness that is) we are seeing in the market is simply Wall Street, fund managers, market-watchers, and investors learning how to get by in a world where rates have begun to stair-step higher and at every juncture, it will shake some folks loose.
This is what I would say, best describes the action as I see it. The higher rates go, the more competition we see in terms of cash money going into guaranteed return vehicles (CD’s, etc.). But with an investor audience that is used to double-digit annual gains, boredom at current rate levels is likely a given and the appetite for risk will resume as it has always done since rates have remained in the doldrums for a decade plus. You don’t change risk-taking ways overnight and not the current levels rates currently touch. There will be plenty of bullish arguments being made that this is still a very low interest rate environment historically and that will be enough to get some of the beta-chasing stock cowboys back in business.
Notes From Friday’s Action
Relative strength standouts – AutoZone (AZO), Canadian Pacific Railway (CP) – positive analyst commentary, NextEra Energy (NEE), Concho Resources (CXO), WingStop (WING), Clorox (CLX), Wellcare Group (WCG), Eli Lilly (LLY) – positive analyst commentary, Lamb Weston Holdings (LW).
Notable names lagging during the session – Costco (COST) – earnings-related selling, Ulta Beauty (ULTA), Eastman Chemical (EMN) – cautious analyst commentary, Tesla (TSLA), FedEx (FDX), GW Pharmaceuticals (GWPH), Arista Networks (ANET), Illumina (ILMN), Netflix (NFLX), Beigene Ltd. (BGNE), Amazon.com (AMZN), Google (GOOGL) (GOOG), Booking Holdings (BKNG), Nvidia (NVDA), IPG Photonics (IPGP) – company guided lower, Spotify (SPOT).
Rosy Forecasts R’us
There are a lot of forecasts out there with higher earnings estimates and higher price targets. Finding anyone that is actually concerned about tough times ahead is few and far between. Crowded trades on the bullish side are just about all working and very few are worried a pullback is nothing but temporary. If you wonder why a stock suddenly drops out of the blue, it’s usually because one analyst has gone “rogue” and is showing normal concerns about prices paid. Traders get stunned and some sell. Over time, most of these stocks climb right back, while some do stay in “dead money” territory. I don’t see any change to the rosy forecast consensus for now, but if we do see more than the usual caution, it could be that Wall Street is sending out the memo for cautious times ahead.
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