Janet Yellen To Head Biden's Treasury Department - What It Means For The Market

It was another great session, although percentage gains for major equity indices were not super impressive. It was the fact that the broad market indices finished in the plus column with continued selling in the Big Five names. Those names can erase gains from large swathes of the market and even yesterday continued to skew the strength beneath the surface.

This is a very strong market. A big chunk of the action has shifted into speculative frenzy territory.   Electric vehicle stocks made moves not seen since companies slapped dot.com on their names to become billion-dollar stocks overnight. This is still such a tiny niche of the market. I do not take it as an indictment of the market or a sign of irrational exuberance.

Yesterday’s leg higher got a boost when Dan Ives of Wedbush Securities put a $1,000 target on Tesla (TSLA).

Meanwhile, big money keeps pouring into Energy, which has made a mind-boggling move that suggests $48.00 for West Texas Intermediate (WTI) is possible in the next three to six months.

Financials look intriguing, and Industrials continue their post-March 23 rally.

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Spread the Wealth

Market breadth was bullish again, especially on the New York Stock Exchange, where advancers outpaced decliners more than three to one, and the up volume outpaced the down volume more than four to one. Plus, there were 202 new 52-week highs against three new 52-week lows.

The winning columns are filling up and the average gain is looking very attractive. Still, there is a lot of carnage out there, although at this stage, some might call it opportunity.

There is no doubt money rotating out of mega-growth is seeking out opportunities based mostly on price first, then potential.

S&P 500 Winners: 

• 279 average gain: +25.61%
• Top twenty average gain: +94.16%         

S&P 500 Losers: 

• 226 average loss: -18.48%
• Bottom twenty average decline: -50.95%

NASDAQ Winners: 

• 595 average gain: +72.85%
• Top twenty average gain: +596.99%          

NASDAQ Losers: 

• 416 average loss: -21.61%
• Bottom twenty average decline: -63.30%

Run, Russell Run

Small caps continue their outperformance as the Russell 2000 rallied 1.85% on the session. The index is on fire, and its top performers are seeing positive upgrades, and articles written about them and their potential. 

Half of the top ten winners in the Russell 2000 are Consumer Discretionary names, led by casino operators Penn National Gaming (PENN) and Caesars Entertainment (CZR).

Congratulations, Janet Yellen

Although it was widely expected, there was enough skepticism to announce Janet Yellen as the first woman to head the Treasury Department. Yellen is familiar to all investors after being the first woman to chair the Federal Reserve.

Her tenure was great for the stock market, with the only hiccup when she decided to hike interest rates from zero. That 25-basis point (bps) move came on December 17, 2015. It was the first move by the Federal Open Market Committee (FOMC) since December 2008, and the first-rate hike since June 29, 2006. 

The market reacted with a violent selloff that sent the S&P 500 spiraling out of control, tumbling 8.9% by January 20^th (see red circle).

By the time Yellen’s term ended on February 3, 2018, the S&P 500 had rallied by 58.6%. Still, President Trump opted for Jerome Powell, perhaps because Janet Yellen waited until after the 2016 election to dare to hike rates again.

To see the chart, click here.

There is no doubt Janet Yellen will be great for the stock market and pumping money into the coffers of Corporate America. She will also be instrumental in the social justice role that has begun at the Federal Reserve already (which she helped to usher in) as Treasury Secretary.

I still think the best thing that could happen for those that have been disenfranchised is stringent education for children and greater access to business capital for their parents. But this has to be done in a serious manner, not to check the box stuff that helps no one, but might assuage some guilt.

Strong Economic Data

In addition to the Purchasing Manager’s Index (PMI) purchasing numbers, which put a jolt in the stock market; later, in the session, the October Chicago Fed National Activity Index (CFNAI) increased to +0.83.

• Production: +0.36%
• Employment: +0.39%
• Sales, Orders, & Inventories +0.08%

To see the chart, click here.

Portfolio Approach

We were at zero on cash, and sitting on significant gains.  We took profit on two positions this morning and are adding a stock in Utilities. If you are not a current Hotline subscriber, contact your account representative or email Info@wstreet.com to get started today. 

Transition

Last night, the head of the General Services Administration (GSA) sent a letter to Joe Biden confirming that her office is ready to begin the formal presidential transition.

“…I take this role seriously and, because of recent developments involving legal challenges and certifications of election results, am transmitting this letter today to make those resources and services available to you…,” GSA Administrator, Emily W. Murphy

The letter was followed by a Tweet from President Trump:

Donald J. Trump

@realDnaldTrump

I want to thank Emily Murphy at GSA for her steadfast dedication and loyalty to our Country. She has been harassed, threatened, and abused – and I do not want to see this happen to her, her family, or employees of GSA. Our case STRONGLY continues, we will keep up the good...

While President Trump will continue to pursue his rightful legal avenues, the move will now stop the media from suggesting Armageddon. That kind of hyperbolic reporting didn’t hit the market; but at some point, it could have triggered unnecessary selling.

Today’s Session

Equity futures are pointing much higher as more professional investors climb aboard, including those masters of the universe type that missed so much of the move already.

Success begets success for sure, and there could be a race for big milestones – those juicy round numbers that roll off the tongue but don’t mean much from technical point of view.

Waiting for update in Consumer Confidence.