June 9 Closing Remarks

[Anonymous]

Tuesday, June 09, 2020
1. Indexes higher but so is the VIX
2. Are jobs coming back?
3. Space tourism no, clean power yes

Market Moves
The Nasdaq 100 (NDX) closed at historic highs, while the S&P 500 index (SPX) and the Dow Jones Industrial Average (DJI) retreated slightly today. However the CBOE Volatility Index (VIX) was higher for the second straight session. This curious indication implies that investors are perhaps secretly more nervous than they want to let on. Both retail and professional fund managers are likely concerned that, going forward, stocks won’t have the rapid gains they have shown of late. The chart below compares several volatility indexes including the Dow Jones Industrial Average Volatility (VXD), the Nasdaq Volatility (VXN), the Russell 2000 Volatility (RVX) and the Volatility on the VIX index itself (VVIX). Each of these indexes is on the rise over the past two days, with RVX making a notable move to the top rank spot on this chart (implying that risky investors feel the most nervous right now). Considering that the S&P 500 index (lower panel) is approaching its starting point for the year, it is not a great surprise. This price level often serves as a resistance zone.

Are Jobs Coming Back?
If stocks are going to rise higher, the economy will have to continue to reopen. More specifically, jobs will have to return–especially jobs that provide 401(k) benefits. Retirement savings represent a steady stream of investment into the market, and indexes won’t rise much higher without that participation.

The chart below displays two equal-weighted portfolios and compares them to prominent index ETFs. The first of these is six companies that help people get into jobs, including Robert Half International (RHI), ManpowerGroup (MAN), 51job (JOBS), Trinet Group (TNET), Korn Ferry (KFY), and Upwork (UPWK). The second is a two-company portfolio that provides services for people already in jobs. It is made up of Automated Data Processing (ADP) and Paychex (PAYX). The ETFs include State Street’s Mid Cap index ETF (MDY), the S&P 500 index (SPY) and iShares Russell 2000 index ETF (IWM).

What the chart shows is that since the days the markets rebounded, the first portfolio is actually outperforming the market, demonstrating that these companies are finding success in placing people into jobs. Since such jobs are usually the first to be filled, it is a good confirmation that the economic recovery is underway. For this move to continue on, the payroll portfolio will have to catch up. A quick look at the chart indicates that it may be in the process of doing so.

Space Tourism No, Clean Power Yes

Now you guys and gals know why I am not a fan of SPCE? Garbage in garbage out.

For a few interesting weeks around the end of 2019, it appeared that the market had placed two companies, Tesla (TSLA) and Virgin Galactic (SPCE) in a head-to-head competition for investors’ money into the space tourism business. But now in a post-pandemic world, this race looks like a nonevent.

The chart below shows that Tesla has fully rebounded and is poised to climb to new highs, while SPCE shares still appear grounded. Two other stocks, Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) appear to have similar performance to Tesla. Since these are alternative energy companies it appears that professional investors have classified Tesla that way instead of just a space tourism company that makes electric cars.

This is an important distinction and indicator, because it means that investors can likely boost TSLA shares higher. This further indicates that the market may not find a top at its old highs.



The Bottom Line
Stocks had mixed performance today as the Volatility indexes rose, belying the nervousness of investors right now. However, shares of job-oriented companies appear to be doing well and investors keep spending money on TSLA. These indications are bullish for the near future.

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There has been a lot of buzz lately about the swarm of new retail investors who have taken to day trading like bees to honey and potentially propped up the stock market in the process. That may be part of the reason behind the recovery, but it takes a bigger wallet to move markets in the 21st century. The Fed has one of those, and it has been using it as an instrument of liquidity, backstopping the bond and stock market in the process. Will it continue now that there are signs of improvement?

Those new traders have been buying some blue chips and some risky stocks lately. They may also be behind the spikes in recent IPOs that have come to market this Spring. Are these traders actually committed investors? Or will they rotate out when the heat rises this summer?

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