The news is grim, COVID everywhere, but the virus appears to be retreating in hotspots like Florida, Texas, California… although, it could be picking up steam in places like Kentucky, Nebraska, Missouri and others. However, those states are considerably less populated and dense and should be easier, if that’s possible, to manage than their larger peers.
But what you didn’t see/hear in commercial to commercial corona coverage is that the Institute for Supply Management Manufacturing index recorded a score of 54.2, that’s up from June’s 52.6. Of course, numbers are meaningless without context, here is the context.
Generally speaking, a score above 50 means the economy is growing. An increasing score means the economy is picking up steam. Put it together and now you see that the US economy is likely out of the COVID, lockdown recession, on the upswing and accelerating.
Wall Street reacted to the news by bidding stocks higher to start the week. Last week, we talked about the indexes needing to breakout of boxes and our market measuring sticks moving out of the green. Our concern was if weakness was a small move down within the bigger post-COVID rebound or the start of a summer swoon.
The NASDAQ and S&P are sitting on top of their boxes after Monday’s gains. They haven’t completely escaped. Buyers will need to pull them up and out in the next couple of days to make it official. Meanwhile, the DOW reversed its way through a mini-downtrend and its 50-day moving average is likely to move north of the 200-day mark. That’s a classic technical buy signal, known as the Golden Cross.
Index investors might think about adding SPDR Dow Jones Industrial Average ETF Trust (DIA). The index has underperformed the S&P and NASDAQ since the COVID low and has a lot of ground to cover to get even.
Guess who is back in the driver’s seat? Technology stocks. Tech owned our leaderboard with 10 of last week’s top 11 performers. The Real Estate Select Sector SPDR Fund (XLRE) was the only non-tech exchange traded fund (ETF) to squeeze in, ranking number five. Is that an outlier or inlier?
Of the 10 techies, Technology Select Sector SPDR Fund (XLK) would be our top choice based on its recent price-action. All of the others have gone way, way, way north of their pre-COVID highs. XLK has a lot of headroom to catch up.
It’s a crowded field of household technology names in the XLK portfolio. After running through some of our favorite metrics: price-to-sales (P/S), projected sales and earnings growth for the next two-years, return-on-equity (ROE), cashflow per share (Cf/S), price-to-cashflow (P/Cf)… we won’t bore you with anymore alphabet soup.
Adobe Inc. (ADBE) checked off the most boxes in our fundamental review, forecasted earnings and revenue growth, and valuation metrics. It’s stock price recently took a small hit and looks poised to make up some, if not all of that lost ground to $470. Tap through its 52-week high, and more highs are likely to follow.
May all your longs go up and your short go down!