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
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