Commenting on overblown fears about the underperformace of tech stocks and today’s trading Gorilla Trades strategist Ken Berman said:
Q4 2020 hedge fund letters, conferences and more
The Fears Of Tech Stocks Underperformace Under President Biden Were Overblown
Today’s two-faced session hasn’t solved all of bulls’ problems, but the rally tech rally is great news from a long-term perspective. Today’s session might have proved that the fears that tech stocks could underperform under President Biden were overblown, and while cyclicals remained relatively weak, the Nasdaq’s strength could further solidify the bull market’s foundation.
While most of the main sectors closed the day in the green, cyclical issues and the Dow lagged the broader market throughout the session, despite a batch of bullish earnings. Looking at today’s lofty gains in the sector, yesterday’s rally among the most valuable tech giants was just the appetizer for bulls, and Netflix and Google parent Alphabet (GOOG, +5.4%) both hit record highs together with the Nasdaq. On the other hand, the defensive utilities, healthcare, and consumer staples all showed weakness, proving that investors remain hungry for risk.
President Biden quickly laid out his plans for the first period of his term, issuing no less than 17 executive orders to kick-start his Presidency. The new administration’s focus on the vaccination program and stimulus could be crucial for investors in the coming months, and the fact that a quick corporate tax hike doesn’t seem likely is another plus for bulls for the first half of the year. The peaceful transition of power could also boost stocks and global risk assets, in general, and we might finally see the VIX dropping below the crucial 20 level.
Even though politics stole the show today, we got more positive COVID-related news, especially with regards to the U.S. situation. The long-term average of new cases, fatalities, and hospitalizations all dropped further, for the first time since the start of the “third wave” and infections hit their lowest level since early-December in the past 24 hours. On another positive note, the Pfizer-Biontech vaccine is likely effective against the variant of the virus found in the U.K., according to a new report, which strain could soon be the dominant one even in the U.S.
We are in for a very busy day of economic releases, with manufacturing and the housing market at the center of attention. Housing starts, building permits, and the Philly Fed Index will all be closely watched, and the weekly jobless claims report could make waves in the main consumer-related industries. The European Central Bank’s (ECB) monetary meeting will be in the spotlight in pre-market trading, with Intel’s (INTC, +1.2%) and IBM’s (IBM, +0.8%) earnings also coming out, so traders could be in for another active morning session on Wall Street. Stay tuned!
Headlines
- The Dow, Nasdaq, the S&P 500 all closed at record highs as Joe Biden was sworn in as the 46th President of the United States
- Netflix (NFLX, +16.9%) led the record-breaking rally in the tech sector, boosted by firms surging subscriber base
- Procter & Gamble (PG, -1.1%), UnitedHealth (UNH, -0.5%), and Morgan Stanley (MS, -0.2%) all reports bullish earnings but their stocks failed to benefit from the positive surprises
- The number of new COVID cases hit an almost seven-week low in the U.S., not counting the holidays, confirming the recent positive trends
- The Volatility Index (VIX, -7.1%) hit its lowest level in 2021, dropping sharply thanks to the peaceful Inauguration Day in Washington
Market Wrap
| Index | G/L | Current level | Year-to- date | 50-day | 200-day |
| Dow | 258 | 31,188 | 1.9% | 30,115 | 27,231 |
| Nasdaq | 260 | 13,457 | 4.4% | 12,489 | 10,857 |
| S&P 500 | 53 | 3,852 | 2.6% | 3,681 | 3,313 |
| Russell 2000 | 9 | 2,160 | 9.2% | 1,912 | 1,567 |
Advancing issues outnumbered decliners by a less than 3-to-2 ratio on the NYSE today, with 138 stocks hitting new 52-week highs and only 1 stocks hitting a new 52-week low, while volume was slightly below average.
Price Action Gauge ******** (reading for 01/20:70)
Despite today’s record-setting rally at the level of the large-cap benchmarks, cyclical stocks and a lot of smaller issues closed the day lower, and the weak breadth of the move could be a warning sign for the coming days.
Oversold/Overbought Gauge ******** (reading for 01/20: 45 Color: green)
The major indices remain slightly overbought according to the most reliable momentum indicators, which could mean that stocks could still face short-term headwinds despite the bullish long-term outlook.
