PRO Trading Rooms

If today was any indication of coming inflation, this heatmap of stocks should be a good playbook for the year.

This market isn't going anywhere. Literally it didn't go anywhere today but for the foreseeable future, it looks like it will stay on the track that it's been on for months...up. As you can see, the S&P 500 ETF #SPY is hovering around all-time highs and it's hugging that top channel like a magnet. BUT, it looks like Tesla is breaking down and if it falls through its 50-day moving average...watch out below for #TSLA and #SPX. Time will tell! Market Update via Barchart.com U.S stock indexes on Friday gave up early gains and settled mostly lower. A rise in Treasury yields on Friday derailed an early rally in stocks as most indexes gave up their gains and settled lower. Stocks initially opened higher Friday on strong corporate quarterly earnings results. Deere & Co. rose nearly +10% Friday after it reported Q1 EPS of $3.87, well above consensus of $1.63, and raised guidance on full-year net income to $4.6-$5.0 billion from a prior view of $3.6-$4.0 billion. Also, Applied Materials rose more than +5% Friday after it reported Q1 EPS of $1.39, stronger than consensus of $1.28, and forecasted Q2 net sales at $5.19-$5.59 billion, well above the consensus of $4.92 billion. Strength in global manufacturing activity is supportive of global growth prospects and stock prices. The Eurozone Feb Markit manufacturing PMI unexpectedly rose +2.9 to a 3-year high of 57.7, stronger than expectations of -0.5 to 54.3. Also, the UK Feb Markit manufacturing PMI unexpectedly rose +0.8 to 54.9, stronger than expectations of -1.0 to 53.1. In addition, the Japan Feb Jibun Bank manufacturing PMI rose +0.8 to 50.6, the strongest pace of expansion in 2 years. Friday's U.S. economic data was mixed for stocks. On the positive side, U.S. Jan existing home sales unexpectedly rose +0.6% to 6.69 million, stronger than expectations of a decline to 6.60 million. On the negative side, the U.S. Feb Markit manufacturing PMI fell -0.7 to 58.5, weaker than expectations of -0.4 to 58.8. Higher global government bond yields on Friday undercut stock prices. The 10-year T-note yield on Friday jumped to an 11-3/4 month high of 1.360%. The 10-year UK gilt yield rose to an 11-month high of 0.707%, and the 10-year German bund yield rose to an 8-1/4 month high of -0.305%. Also, Japan's 10-year JGB bond yield on Friday climbed to an 11-month high of 0.114%. A positive factor for stocks was Friday's release of next week's testimony from Fed Chair Powell to Congress that included the statement that "monetary policy will continue to deliver powerful support to the economy until the recovery is complete." The pandemic in the U.S. continues to ease, which is positive for the economy and stock prices after the 7-day average of new U.S. Covid infections fell to 72,188 on Thursday, a 3-1/2 month low. Globally, Covid infections have risen above 110.951 million, and deaths have exceeded 2.454 million. The VIX S&P 500 Volatility Index ($VIX) on Friday fell -0.44 to 22.05, falling back from Thursday's 2-week high of 24.23. The VIX is consolidating above last Wednesday's 2-1/2 month low of 19.69. The VIX is down sharply from last March's 12-1/4 year high of 85.47 and is just above the late-November 11-3/4 month low of 19.51. Big Picture U.S. Stock Market Factors: Bullish factors include (1) the beginning of Covid vaccinations in the U.S. and worldwide, (2) the Fed's extraordinarily easy monetary policy with the Fed's target interest rate near zero and its $120 per month QE program, (3) the aggressive fiscal and monetary stimulus measures being taken worldwide to battle the impact from the pandemic, (4) expectations for the Democratic-controlled Congress to pass new stimulus measures, (5) expectations for a recovery in S&P 500 earnings growth by +24% in 2021 after an expected -15% decline in 2020, and (6) extremely low bond yields in the U.S., UK, Japan, and Eurozone. Bearish factors for the U.S. stock market include (1) the uneven U.S. economic recovery as the pandemic continues, (2) ongoing fears about any systemic stress in the global financial system, (3) the possibility of ongoing U.S./Chinese trade and tech tensions despite the new Biden administration, and (5) geopolitical risks from Iran, North Korea, and Venezuela.

We're seeing another sell off day in the market, which was expected. As conditions change, so must our investment roadmap so here's an update on the latest and why we're seeing a pullback in stocks. The yield on the 10yr treasury note is going higher, which always sparks a short-term sell off. At the beginning of 2021, the yield was .93% and today it's 1.29%. The idea behind the rise is that as the economy heats up, stimulus funds will work their way through the economy and spark inflation. As inflation rises, so do interest rates. Higher rates mean pumping the breaks on growth so it's indeed a domino effect. Our investment thesis in a rising rate environment >> CASH RICH companies with little debt like healthcare and technology; Banks because they make more money on higher rates and QUALITY market leaders. Losers in a rising rate environment will be dividend stocks, REITs, Consumer Staples and any high yield and long-term bonds. There is a silver lining: rate hikes should be viewed as positive because it means economic activity is accelerating. The demand for money goes up, hence, rates can rise to meet such increased demand. Stocks overall do fine with rising rates but pay off your credit cards now because that rate is the first to go up! Ladies and gents, the tradeoff to the recoverED economy is here. It's probably a year off but the market is pricing it in now. All of the PRO Portfolios adjust for these changes so we'll be taking advantage of the dip in stocks. Time to go shopping!