I’m sure it happens to you too, a couple of days of just feeling blah. Not really ill but not bright-eyed and bushy-tailed either. Nothing to see the doctor about (not yet anyway) but you might check your temperature and, just for good measure, your blood pressure. Once you see that these are OK, you might actually start to feel better. Why do I bring this up? Because, there is an analogy in the markets. (See what I did there? Snuck it right in.)

When we attempt to get a reading on how the markets, in general, feel about current and future financial conditions we take a look at corporate earnings: as the quarterly reports come in, we start to tally the scores. If earnings are good and forecasts are positive, we see those as strong indicators of rising confidence. Good news usually produces more good news. A couple more things are also great indicators: Capital inflows and the paying of dividends. In a recovering economy these last two indicators tend to tell more of a story than do earnings, per se.

According to a report from Bob Pisani at CNBC: “In April 2020, two dozen companies in the S&P 500 reduced or suspended their dividends — more suspensions and dividends came later in the year.”

Indeed, a year ago we were still in the early days of the Covid Pandemic and nobody had an inkling of the scope and magnitude of its eventual impact. Now, the general feeling is that 1) most of the trouble is behind us and 2) we have visibility of where we might be going. Here’s the evidence: In April of 2021 rather than seeing companies reduce or suspend dividends, a lot of them are re-instating and / or increasing them. Howard Silverblatt, senior index analyst from S&P Global Indices tells Pisani “…remember, when a company pays a dividend, it is expected that it will keep that dividend going. That is a commitment from the company, and they don’t make that decision lightly.”

And, about those capital inflows, Exchange Traded Funds (ETFs) continue to garner attention from various quarters. Inflows to ETFs have increased every month thus far (into 2021). Also getting attention is the ‘socially conscious’ subset referred to as ESG (Environmental, Social and Governance). It seems that it is becoming quite popular to make ‘changing the world’ part of one’s portfolio. Trendy? Yes. But we’ll have to see how this goes. We are just cynical enough to suspect that the whole movement could be hijacked by various marketing departments. Meanwhile, putting considerations of motive aside, ESG is welcome – as is anything that attracts liquidity to the trading floor.

Ron’s Market Minute — Is Something Amiss?

It seems that frequently of late, headlines tout the S&P* or DOW* indexes making new highs.  For many of us who look beneath the broad indexes, however, we see many stocks and sectors that actually are in a correction. Some are even in a significant bear market. I note that Amazon — which just reported a fantastic first quarter — is lagging; it’s shares are down about 10% from its recent peak value at the end of April. Is that any way for a strong stock to act?

In addition, I note that a number of recently high-flying sectors (biotech is down more than 20%, Solar stocks are down by about 40%, and the ARKKs (super growth) are looking quite distressed (down by more than 30%). And values on some of the recent darlings such as Zoom (ticker ZM), Roku (ROKU), and Twilio (TWLO) appeared to be plunging. Now while these are ‘smaller’ companies, even some of the larger companies are looking pretty anemic. A look at Amazon (AMZN), Advanced Micro Devices (AMD), and Intel (INTC) gives me pause. These companies had stellar earnings and yet the stock values dropped like a rock. Where’s the rally that usually (at least often) follows great numbers?

This suggests to me that while the headlines seem strong, and things are good on the surface, given the size of the declines perhaps something strange is going on. Now it could be that the markets are telling us that the road is getting tougher and the easy gains are in. Whether the larger market (S&P*) is looking at a potential correction also, is open to debate. But whatever is going on, there is a lot of damage going on. Many stocks and broader sectors are getting hammered while the S&P and DOW are surging higher. Is it an indicator of potential pain to come? Or is it just a ‘minor’ bear taking place while we’re waiting for sector rotations to change everyone’s focus? 

BREAKING NEWS!  As my team members proofed my thoughts, they were watching the markets this morning. Two and a half hours into the trading day, EVERY ONE of the weak stocks and sectors I’ve mentioned today is having an ‘up’ day.  From AMZN (up 0.3% to ROKU (up 11%) they are all in a positive mood. Perhaps the answer to my posed questions above is this- Could this just be the reactions of a hyper-sensitive market as we transition from a Covid marketplace to a ‘normal’ market?

Time will tell. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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