Hedges that can pay off on the downside and the upside are the most useful and most valuable. They also tend to be relatively rare. There aren’t a lot of these bets floating around in most markets just waiting for you to snap them up. However, I have found two hedges of just this sort in today’s market that I’m going to recommend to you today. (In this post I’m going to give you some of the nitty gritty numbers that support my recommendation for these two hedges. If you want to see some charts for copper and gold, banks and bonds check out the video I posted today.) I’m going to add these new recommendations to my standing Special Reports post tomorrow.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. The thirteenth YouTube video “2 Hedges for All Your Market Worries” went up today.
Private employers added 117,000 jobs in February, according to today’s National Employment Report from ADP. The ADP report leads into Friday’s Labor Department report on the job market. The Labor Department report will include jobs gains or losses in the public sector that has been hit hard by the pandemic. Economists had projected that the ADP survey would show private payrolls adding 165,000 jobs in February.
At 3:30 p.m. New York time today, March 3, the yield on the 10-year Treasury was 1.47%. That’s up from yesterday’s 1.42%. So much for any thoughts that yesterday’s rally in bonds and drop in yields might be the beginning of a larger move.
Shares of biotech stock Incyte (INCY) have been down significantly in 2021. For the year to date, as of the close on March 2, the shares were down 8.45%. In the last month they’ve tumbled 12.42%. So what’s wrong? Pretty much nothing. With the individual stock anyway. What we’re watching is a lot of selling in the biotech sector as part of the recent sell-off on risk. And on substantial profit taking.
Stocks are neither moving ahead to follow up on yesterday’s big gains. Nor selling off under the wave of profit taking. Given the news calendar on Thursday and Friday that’s about what I’d expect. We’re due for a bushel of potentially market-moving news on those two days. And I’d be surprised if anyone wants to get too far ahead of those announcements.
Treasury yields ended the day slightly lower (which means prices were slightly higher) than earlier in the day. The 5-year Treasury note, for example, ended with a yield of 0.69% after trading with a yield of 0.72% earlier in the day. (The low yield for the day was 0.68%.) The yield on the 2-year Treasury finished at 0.12% and the yield on the 10-year closed at 1.42%, up 2 basis points. At 2 p.m. New York time the yield had been 1.45%. With bonds saying “No worries,” many stock indexes edged up by the end of the day.
After the close on Monday February 22 Palo Alto Networks (PANW) reported a loss of $1.42 million (or $1.48 a share) on revenue of $1.02 billion million for the company’s fiscal second quarter. Adjusted earnings–which exclude share-based compensation and other items, were $1.53 a share. Revenue grew by 25% year over year. Wall Street had been looking for adjusted earnings of $1.43 a share on revenue of $986 million. Billings for future orders ross to $1.21 billion from $999 in the year ago wearer. Analysts had forecast billings of $1.18 billion. But the shares fell in after hours trading when in its conference call the company forecast adjusted earnings of $1.27 to $1.29 a share on revenue of $1.05 to $1.06 billion for the fiscal third quarter. Analysts were looking for adjusted earnings of $1.29 a share on revenue of $1.05 billion for the fiscal third quarter. For the full fiscal year Palo Alto Networks forecast adjusted earnings of $5.80 to $5.90 a share on revenue of $4.15 billion to $4.2 billion. Wall Street had been looking for $5.79 a share in adjusted earnings on revenue of $4.12 for the year. On the plus side of the ledger there are two reasons that I’m keeping this company in my Jubak Picks Portfolio and my long-term 50 Stocks Portfolio
As of 2 p.m. New York Time today, March 1, the Standard & Poor’s 500 was up 2.57% and the Dow Jones Industrial Average was higher by 2.30%. The NASDAQ Composite had climbed 2.80% and the NASDAQ 100 had gained 2.83%. The small cap Russell 2000 had added 3.30% and the iShares 2000 MSCI Emerging Markets ETF (EEM) was up 2.90%. Yep, it didn’t take much of an improvement in the Treasury market to send investors and traders screaming back into stocks.
Last week’s bond market plunge and yield increase priced in an earlier move on interest rates by the Federal Reserve. According to Bloomberg, markets now see a Federal Reserve interest rate hike by March 2023. At the beginning of February the bond market had priced in an initial interest rate increase in mid-2023.
The odds are that the bond market will snap back this week as traders decide that the drop in the price of the 10-year Treasury (and the climb in yield) has been too far and too fast. (A drop in Treasury yields would be likely to send stocks higher, reversing the trend of the last week.)I don’t think that reverses the trend beyond a week’s bounce, however. The $1.9 trillion coronavirus stimulus/relief bill still scares the bond market with the possibility of an uptick in inflation (finally) and the possibility that the package migh work and actually put the economy on the path to a sustained recovery. (And why might that be a bad thing, you ask: Because a clearly sustained recovery would incline the Federal Reserve to end, or at least scale back, its monthly purchase of $120 billion in Treasuries and mortgage-backed securities.)On Friday the yield on the 10-year Treasury fell to 1.40% as bond prices rose. That was an 11 basis point drop on the day and it could well be a harbinger of a bounce for Treasuries this coming week.
On to Stage #2 in my Special Report: “Profit and Protect–What you need to know about stock market stages for 2021. And to my rules for the sells and hedges in Stage #2 for 2021: When you win, you lose. (I just posted sells for ILMN, CTVA, WST and VMW)