Euphoria Keeps Going Especially In Small Caps
Small caps and cyclicals were riding high heading into the jobs report. Many were looking for a pullback once the weak jobs report came out. Instead small caps and value stocks rose even further. The short sellers must be at a loss if there are any left. They can’t make money on good or bad news. They can’t even make money shorting value stocks. Plus, the rotation into value hasn’t hurt growth.
There have practically been no ways for short sellers to make money. Famed short seller Jim Chanos says there is no shortage of short ideas, but none of them do well. He said he’s usually right on 2/3rds of his shorts, but this year he has been right on 1/3rd. The S&P 500 is up 14.5% which is only modestly above normal for a year.
This is a terrible year for short sellers because frauds and failed business models are getting a bid. The most shorted stocks are outperforming. The much shorted Carvana was up 6.7% on Friday, putting it up 110% in the past 6 months.
Extreme Greed Can’t End
It seems like the greed can’t end. The S&P 500, Nasdaq, and Russell 2000 all hit a record on the same day for the first time since January 2018. The CNN fear and greed index was up 4 points to 89 which is extreme greed. The chart below shows the amazing vertical spike in call option volume causing some to call this this biggest bubble of all time. Nasdaq 100 appears overvalued and due for a 30% decline without recovering quickly like it did following the March crash.
Wild Action In The Hottest Stocks
This is a hot market. The Nasdaq 100 is up 9 days in a row and it’s up 51% year to date. Let’s look at how the hottest stocks did on Friday. Snowflake was up 14% despite being years away from profits. The concept of a business making money has become irrelevant to speculators. This stock is up 64.5% since November 10th even though it has a higher price to sale ratio than any stock in the tech bubble.
Snowflake closed the day at a $107 billion market cap and a price to sales ratio of 219. At its peak in March 2000, Cisco has a price to sales ratio of 39. Microsoft, Qualcomm, and Oracle had their price to sales ratios peak at 31, 30, and 27.
Tesla stock rose 95 basis points to $599.04 which is a new record high of course. It now has a $568 billion market cap despite losing market share in Europe and having the 2nd worst rating by Consumer Reports among car brands. Nio was down 5.1%, putting it down 22.3% since November 23rd. Arcimoto was down 5.1%, putting it down 30.3% since its peak on November 20th.
It seems like EV stocks have peaked, but Tesla is staying high because it will be added to the S&P 500 on December 21st. There are just 2 weeks left for indexes to buy their shares. Frankly, it's hard to believe that any active traders are still trying to get in ahead of this event. The trading action in Tesla is going to be crazy.
Value Stocks Win Big
It’s a party for almost all stocks as value and growth have both rallied in the past 5 weeks. On Friday, the S&P 500 was up 88 basis points. The Nasdaq and the Russell 2000 were up 0.7% and 2.37%. This is one of the fastest rallies in the small cap index we have ever seen. Small value has won big. The small cap value index was up 2.8% on Friday, putting it up 18.4% in the past month.
The oil services index was up 7.7% to a new high post vaccine announcement. It’s up 78.3% since October 23rd and only down 6.8% from its June peak. Cactus was up 10.2% and U.S. Silica was up 10.7%. U.S. Silica is up exactly 1000% in the past month. The regional bank index was up 1.9% because the 10 year yield rose 6 basis points to 0.97% which is a new 6 month high. It is so close to reaching 1% like some have been predicting would happen in December. The next step is 1.5% in 2021.
The market is getting its dessert without eating its vegetables as we have barely seen any declines in growth stocks while value has rallied. The small cap growth index is up 10.2% in the past month. The CLOU cloud index was up 58 basis points on Friday which put it down just 1.71% from its record high. Zoom is only down 27.9% from its peak.
This needs to crash well over 50%. ServiceNow is up 34.6% in the past 6 months which gives it its highest valuation ever of course. Are there any growth stocks not at record valuations? Even Salesforce.com was up 2.2% on Friday despite giving disappointing guidance and making a terrible acquisition.
COVID-19 Update
The economy is starting to feel the effects of the 3rd wave as restaurant reservations are starting to fall. The chart below shows the decline in seated diners started in late October. It will only get worse in December. Initial jobless claims rose 2 weeks before the Thanksgiving decline which should be ignored. The BLS labor report missed estimates. Consumer confidence is falling.
You must follow how the economy is doing now because once the vaccines come out, the economy is expected to be strong. It’s worth following it leading up to that moment. That means it’s worth following COVID-19 even though the reopening stocks are exploding.
Specifically, there are now 101,276 people in the hospital due to the virus. The 7 day average of deaths is 1,949 which is close to the peak in April. The 7 day average of cases is 177,518 which is a new record. This isn’t a result of Thanksgiving. We are getting data dumps. We need to wait another 1-2 weeks to see how the holiday impacted the virus’ spread.