Barron's - USA (2020-10-26)

M2 BARRON’S October 26, 2020

Snap(SNAP) surged 55% after reporting a

surprise profit and noting that advertising

had started to normalize.

Even a miss was rewarded if manage-

ment could offer believably upbeat com-

mentary about the future:Las Vegas

Sands(LVS) gained 12% after its CEO said

he remains “optimistic about the eventual

complete recovery of travel and tourism

spending across our markets.”

That these stocks shot higher even as

Covid cases in the U.S. continue to rise at

alarming rates suggests that investors be-

lieve the economy can continue to grow in

the months ahead despite the virus. And

other parts of the market are starting to send

a similar message. The ratio of copper to

gold prices has risen to 0.1633 and is trend-

ing higher, a sign that economically sensitive

stocks could be set to outperform.

And just as important, the 10-year Trea-

sury yield rose 0.097 percentage point to

0.840% this past week, signifying a possible

pickup in economic growth. That’s typically

a signal that the economy is getting better

and that inflation is starting to rouse.

“The market is starting to price in a reac-

celeration next year,” says Andrew Slim-

mon, managing director at Morgan Stanley

Investment Management. “To me, it’s a

much bigger theme than just fiscal stimulus

and what happens with the election.”

Still, don’t count out the impact of the

election. Not because it matters for the mar-

ket which candidate wins and which candi-

date loses—it doesn’t, and I’ll stick to that—

but because the uncertainty over who will

win is an overhang until it passes. Waiting

for the vote has helped keep stocks volatile

but rangebound since an early October rally.

And it’s probably what has kept the 10-year

Treasury yield from rising even more.

“The passage of the event risk is more

important than the actual changes that come

with the election,” says Ian Lyngen, head of

U.S. rates strategy at BMO Capital Markets.

“We’ll have a much truer read on fundamen-

tals once the election has passed.”

Fundamentals suggest that bond yields

should be much higher. Ed Yardeni, chief

investment strategist at Yardeni Research,

argues that the current copper-to-gold ratio

implies a 10-year Treasury yield near 1.61%.

The Citigroup Economic Surprise Index, a

measure of whether economic data releases

are coming in worse or better than expected,

also points to higher yields.

That’s certainly goodfor bank stocks—

theSPDR S&P Bankexchange-traded fund

(KBE) rose 6.4% this past week—and other

economically sensitive sectors will likely get

a boost too. “The stock market is saying

we’re going to get out of this relatively soon,”

Morgan Stanley’s Slimmon says. “And that’s

why you want to be optimistic now.”

There will be reasons for pessimism

later.

Betting the Farm

Sprouts Farmers Market(SFM) was a

Covid-19 winner, and then it was a Covid-19

loser. Its earnings report on Oct. 28 could

make it a winner again.

Almost all food retailers got a boost this

spring from mass pantry stocking, and

Phoenix-based Sprouts, which has about

350 stores in 23 states, was no exception.

Its shares doubled from their March low

through their July peak as investors bet

that all grocers would benefit from demand

for food.

Reality fell far short of those hopes, how-

ever. After peaking in the March quarter,

Sprouts’ same-store sales declined as con-

sumers favored one-stop-shops likeTarget

(TGT) andWalmart(WMT) to reduce the

risk of virus exposure. Its stock has

dropped 22% in the past three months.

Sprouts’ earnings could help the stock

reverse course. The company will report

third-quarter results on Wednesday, Oct. 28,

with consensus calling for earnings per

share to nearly double year over year to 36

cents on sales of $1.6 billion. Robust num-

Vital Signs

Friday's Week's Week's

Close Change % Chg.

DJ Industrials 28335.57 -270.74 -0.95

DJ Transportation 11880.13 +43.70 +0.37

DJ Utilities 893.68 +9.16 +1.04

DJ 65 Stocks 9576.20 -26.82 -0.28

DJ US Market 864.98 -4.63 -0.53

NYSE Comp. 13199.86 +30.54 +0.23

NYSE Amer Comp. 2036.51 +24.38 +1.21

S&P 500 3465.39 -18.42 -0.53

S&P MidCap 2015.65 +18.31 +0.92

S&P SmallCap 933.72 +10.01 +1.08

Nasdaq 11548.28 -123.27 -1.06

Value Line (arith.) 6727.62 +68.69 +1.03

Russell 2000 1640.50 +6.69 +0.41

DJ US TSM Float 35587.90 -171.68 -0.48

Last Week Week Earlier

NYSEAdvances 1,681 1,141

Declines 1,434 1,987

Unchanged 78 58

New Highs 200 308

New Lows 76 60

Av Daily Vol (mil) 4,013.4 3,903.7

Dollar(Finex spot index) 92.75 93.68

T-Bond(CBT nearby futures) 172-190 174-290

Crude Oil(NYM light sweet crude) 39.85 40.88

Inflation KR-CRB(Futures Price Index) 150.68 151.48

Gold(CMX nearby futures) 1902.00 1900.80

Build a balanced portfolio

with Fractional Shares

› Invest in stocks you want regardless of the share price

› IBKR offers Fractional Shares on more US Stocks, ETFs

and ADRs than any other broker

2

› Zero Commissions on US listed stocks and ETFs

3

› Available for Individuals and Advisors

4

10-IB20-1381CH1341

Member - NYSE, FINRA, SIPC – Any trading symbols displayed are for illustrative purposes only and are not

intended to portray recommendations. [1] Share prices as of September 2, 2020. [2] Source - Investopedia.

com. Fractional Trading Availability by Broker, as of June 9, 2020. Competitor offers subject to change

without notice. Services vary by firm. For complete information, see ibkr.com/info. [3] IBKR Lite provides

commission-free trades in US exchange-listed stocks and ETFs routed to select market makers. IBKR may

charge non-commission related fees. For more information, see ibkr.com/liteinfo [4] Restrictions apply.

Nothing contained herein should be construed as investment advice, either on behalf of a particular

security or an overall investment strategy.

ibkr.com/fshares

SHARE PRICE SHARE %

1

NFLX

$

25

$

549.

50

4.55

%

TSLA

$

25

$

443.

56

5.64

%

GOOG

$

25

$

1,701.

25

1.47

%

AMZN

$

25

$

3,526.

85

0.71

%

$

100

PICK YOUR

STOCK

PICK YOUR

$ AMOUNT

Stock Portfolio