Market Condition:
The market is in a confirmed uptrend. All major indexes: the Nasdaq Composite, S&P 500, Dow Jones Industrials, Dow Jones Transports, and Russell 2000 Small Cap indexes all are at record highs after emerging from a 4 month consolidation. Distribution days (signs of institutional selling) are at a minimum. Naturally with all the indexes hitting new highs market breadth has expanded, a welcome sign. Over the last four months the indexes had ample opportunity to implode, however each correction decreased in magnitude and firmed up, finding welcome buyers amid decreasing volatility.
On one hand you have a slightly euphoric rise in investor optimism (not really a good thing), but on the other hand you have a healthy wall of worry to climb. There appears to be an increase in positive Covid-19 tests across the country but deaths are below the April peaks and case fatality rate continue to decline. There is optimism for distributing the new vaccine, but supply chains and logistics indicate the distribution might not be as quick as anticipated. But also it is important to realize that the survival rate for this disease in all ages is extremely high, especially when compared to all causes of death. Thus indexes hitting new highs indicates that wall street is looking to a much improved future past all the recent dire news.
The health of the market can be viewed by looking at different groups of stocks. The widely held institutional darlings like Apple (AAPL), Facebook (FB), Adobe (ADBE), Microsoft(MSFT), Nvidia (NVDA), Amazon (AMZN), Netflix (NFLX),and Visa (V) continue to consolidate holding up at key levels, while others like Alphabet (GOOGL), Paypal (PYPL), Advance Micro Devices (AMD), Square (SQ), and Tesla (TSLA) are trading at new highs. Indicating there still is an appetite and demand for shares of stocks by the institutions.
Leading growth stocks continue to show demand. Stocks moving to new highs include stocks like Cloudflare (NET), Snapchat (SNAP), Pinterest (PINS), Crowdstrike (CRWD), Zscaler (ZS), Okta (OKTA), The Trade Desk (TTD) ,Elasctic (ESTC), Domo Inc (DOMO), while others like Datadog (DDOG), Fastly (FSLY), and Zoom Video (ZM) are still consolidating. Again indicating a healthy appetite for shares.
We continue to see broad participation in this market whether it be a Freeport McMoran (FCX) a United States Steel (X) or a new batch of stocks emerging from deep consolidations, stocks like: Uber technologies (UBER), Lyft Inc. (LYFT), Draftkings (DKNG), some regional banks like Fifth Third (FITB), Regions Financial (RF), and SVB Financial (SIVB), and biotechs like Crisper (CRSP), Novacure (NVCR), Invitae (NVTA), and Repligen (RGEN)
There has been a torrid appetite for recent new IPOs, stock like Snowflake (SNOW), Unity (U), Palantir (PLTR) and Yalla Group(YALA). And perhaps a bit of a euphoric demand for shares of stocks in the Electric Vehicle space (XPEV)(LI) etc.
Speaking of Electric Vehicles…Tesla’s Entry to the S&P 500: Too Late?
In news that many investors had been clamoring for all year, the committee that determines which stocks are in and which stocks are out of the S&P 500 index finally gave Tesla the thumbs-up.
Until recently, the electric-car company’s lack of consistent profits blocked it from consideration. But with Tesla reporting its fourth consecutive quarter of profitability in July, the venerable index’s overseers finally gave in. Tesla’s first trading day as part of the S&P 500 is set for December 21.
While the committee hemmed and hawed and waited for Tesla’s earnings to cross a certain threshold, shareholders in index funds and ETFs tied to the S&P 500 missed out on the stock’s more-than-600% gain this year.
Other funds and ETFs tracking indexes that already included Tesla outperformed the S&P in 2020. For instance, Vanguard’s LargeCap Index fund and Russell 1000 ETF both held Tesla all year and are up 18.1% and 17.9%, respectively, compared to the company’s 500 Index, which is up 15.5%.
To be clear, the inclusion of Tesla isn’t the only difference between the S&P and the indexes underlying the other two Vanguard funds. For example, both funds also hold teleconference provider Zoom, which is absent from the S&P and is having a blockbuster year as well.
We know there will always be some differences in performance among various large-stock indexes and the funds that track them. But it seems clear that the committee’s decisions to exclude Tesla and Zoom resulted in some underperformance for the S&P 500 this year. Also, there were active funds and ETFs that had both of these stocks in their portfolios and performed better than passive indexes.
Summary:
The above is just a quick technical look at market indicating there is an imbalance of demand. As the indexes are hitting new highs we are not in any way in a parabolic bubble or blow-off top.
In the meantime, all of us at CrossPoint Wealth wish you a safe, sound and prosperous investment future and a very Happy Holiday to all.
If you would like us to review your current portfolio or 401(k) plan please email us at info@crosspointwealth.com
