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May 4, 2021
STOCKS – AMZN, BTC, ACAD, SQ
MACRO – SPY,
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- RTM MIDDAY- IS IT FINALLY TIME TO TALK ABOUT TAPERING?
- Roku Earnings Preview- Need To Know Guide
- RTM MORNING – MARKETS ARE BREAKING DOWN
- RTM MIDDAY- GROWTH CONTINUES TO GET HAMMERED
- RTM MORNING – BIG DAY FOR RATES
- RTM TWA- Yields Are Ready To Wreck Havoc
- 1Q’21 Thematic Growth Portfolio Update
- RTM Midday- Maybe The Worst Of Both Worlds?
MICHAEL KRAMER AND THE CLIENT OF MOTT CAPITAL OWN ACAD
Stocks finished the day lower despite an end-of-day surge, leaving the S&P 500 down roughly 70 bps, while the NASDAQ QQQ fell by 1.8%. The reason for the decline was not clear at the start. Eventually, it seemed attributable to Secretary Yellen’s headlines talking about higher rates, followed by comments from the Dallas Fed governor last week talking about tapering.
If the “Fed” decides to drip out clues from different panelists every few days, it could be a long summer, ahead of an August Jackson Hole speech where Powell signals the tapering is ready to begin.
Simply put, the markets are not priced for tapering, nor are they priced for higher rates. Although tapering will come first, the bond market will begin to price in higher rates well ahead of time, potentially even doing the Fed’s job. That means that strong economic growth will now become bad news for the stock market. With every better-than-expected headline, the cry for tapering and higher rates will grow only louder.
I say the market isn’t ready for this because the S&P 500 is trading at just about 21 times 18 months forward earnings. That multiple will need to contract a lot in the months ahead.
When we look back to 1998, we find that the path of that market rally seems to follow pretty well with today’s. Not just in terms of the path of the S&P 500, but in terms of the S&P 500’s 18-month forward PE ratio. The late 1990s was the last period that saw valuations that match the present. It would suggest that we are at the peak of multiple expansion and that from here forward, we are likely to see multiple’s contract.
Even on an earnings yield basis versus those inflation rates everyone worries about, the market has only been more expensive one other time in the modern era.
That said, the index fell to and tested support around 4,125, and it held. I wouldn’t be surprised to see the S&P 500 try and refill the gap from this morning at 4,180. I would think the index fails once it hits that level, just like it did yesterday at 4,210.
If the index gaps lower tomorrow, below 4,120, will tell us much lower prices will follow.
Amazon (AMZN)
Amazon fell again today and is now down 10% from its after-hour highs last week. Pretty big move; I’m not sure where it goes from here. I thought it would stop at $3,360 and at least find a dead cat bounce; maybe it finds that bounce at $3,200.
Square (SQ)
Square was crushed today, probably because Bitcoin was crushed. Anyway, Square broke some key support at $244. It probably has further to fall to the gap fill at $210.
Acadia (ACAD)
Acadia reports results tomorrow, and I have no clue what shall happen; apparently, no one else does either, based on what has transpired over the past month. If they requested a “Type A” meeting with the FDA as soon as they got the CRL, or on April 5, then 30 days would put the meeting no later than today, May 4. Did that meeting take place? Will we hear news? The company did note today they will be participating in a upcoming conferences. I’m trying to read the tea leaves and hoping for the best. I think just about everyone is. I don’t see why Acadia would want to participate in anything at the moment, given every question would center around the CRL.
Bitcoin (BTC)
I still think bitcoin is heading to 43,000. Since it trades with no fundamentals, nor any reason, it sounds like a good level to me.
-Mike
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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