Barron’s - USA (2020-09-28)

M2 BARRON’S September 28, 2020

vidual investors, hedge funds, and mutual-

fund managers to start bailing out on

stocks. In other words, as Galy puts it,

“that depends on someone panicking.”

No one panicked. On Monday, the S&P

500 came ever so close to finishing the day

in correction territory—down 10% from its

all-time high—but foughtits way back, and

attempts to close below 3222.76 later in the

week also failed. The Nasdaq-100 also

began the week near important support

levels, but held. “The market as a whole

has shown it can hold when and where it

has needed,” says Frank Cappelleri, execu-

tive director at Instinet.

Now the narrative needs to change. The

current downdraft began simply as a shift

away from tech, which had gotten over-

valued, but the more the market has

dropped, the more the risk narrative has

shifted, says Barry Knapp, director of re-

search at Ironsides Macroeconomics. Fears

of renewed waves of Covid-19 infections, a

less-than-smooth election, and a weakening

economy all become more real as the mar-

ket slips. “Like many equity market correc-

tions, what began as a positioning rational-

ization evolved into a fundamental

deterioration narrative,” Knapp writes.

There has been some deterioration in

economic indicators, but mainly there’s fear

that the economy will weaken too much

without another round of fiscal stimulus

that so far hasn’t been forthcoming from

Congress. It’s possible, though, that the

market really doesn’t need another relief

package. The level of stimulus has already

dwarfed what was done during the finan-

cial crisis, and it’s unlikely the market

would have waited this long to start worry-

ing about the lack of one, when it was obvi-

ous months ago that Republicans and Dem-

ocrats wouldn’t be able to agree on a deal.

“It makes no sense to argue that for-

ward-looking markets would ‘wait for a

month’ before pricing in the impasse in

Washington, D.C.,” writes MKM Invest-

ment Partners’ Michael Darda. “We believe

it is best to usepullbacks andcorrections to

add to risk asset/recovery exposure even if

it feels like the wrong thing to do.”

And maybe what feels like the wrong

thing will turn out right. Perhaps the elec-

tion won’t be as big a hiccup as the market

fears. Goldman Sachs’ currency team sug-

gested that “the market appears to be pric-

ing too high of a probability that it will take

a long time to sort out the winner”—and

the economy will continue to heal, even if

the pace of the recovery will certainly de-

celerate.

“It’s not that it won’t slow,” says

Leuthold Group strategist Jim Paulsen,

“but it will slow to a healthy rate overall.”

And perhaps that will be enough.

Rival Bike Peddlers a Plus for Peloton

The threat of a well-heeled competitor

gave Peloton Interactive investors a fright

this past week. Competition, however, is

the least of Peloton’s worries.

Here’s what happened. After the close on

Monday, Echelon, a lower-priced Peloton

competitor, announced that it had joined

with Amazon.com (AMZN) to sell a

“Prime Bike” that would cost $499. Peloton

stock fell as much as 7% on the news on

Tuesday, though it finished the day down

just 0.4%. And then it got weird. An Ama-

zon spokesperson said late Tuesday that

the company had no formal partnership

with Echelon, while Echelon CEO Lou Len-

tine told Fox Business that Amazon’s re-

sponse was a “complete surprise,” citing

conversations with Amazon in developing

the bike.

Despite the fiasco, Peloton shareholders

got a wake-up call—the Echelon announce-

ment and the immediate selloff suggested

the risks to Peloton stock should a true

rival come along and undercut the com-

pany on price.

But, for now, the Echelon-Amazon epi-

sode highlights what Peloton has going for

Vital Signs

Friday's Week's Week's

Close Change % Chg.

DJ Industrials 27173.96 -483.46 -1.75

DJ Transportation 11270.00 -161.92 -1.42

DJ Utilities 808.13 +10.18 +1.28

DJ 65 Stocks 9069.85 -109.08 -1.19

DJ US Market 819.75 -5.22 -0.63

NYSE Comp. 12485.38 -348.19 -2.71

NYSE Amer Comp. 1931.01 -112.69 -5.51

S&P 500 3298.46 -21.01 -0.63

S&P MidCap 1817.27 -48.59 -2.60

S&P SmallCap 834.93 -35.64 -4.09

Nasdaq 10913.56 +120.28 +1.11

Value Line (arith.) 6123.50 -223.39 -3.52

Russell 2000 1474.91 -61.87 -4.03

DJ US TSM Float 33631.59 -284.84 -0.84

Last Week Week Earlier

NYSEAdvances 617 1,841

Declines 2,497 1,265

Unchanged 43 43

New Highs 89 206

New Lows 108 51

Av Daily Vol (mil) 4,330.2 4,840.8

Dollar(Finex spot index) 94.58 92.93

T-Bond(CBT nearby futures) 177-010 176-000

Crude Oil(NYM light sweet crude) 40.25 41.11

Inflation KR-CRB(Futures Price Index) 148.36 151.54

Gold(CMX nearby futures) 1857.70 1952.10

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