After the close yesterday, April 29, Skyworks Solutions (SWKS), a key Apple supplier and a maker of radio frequency chips for smartphones and WiFi networking equipment, reported earnings of $2.37 a share on sales of $1.17 billion for quarter that closed on April 2 2021. That beat–slightly–Wall Street projections for earnings of $2.35 a share and sales of $1.15 billion. Year over year Skyworks earnings climbed 77% and sales rose by 53%. And what happened to the stock in after-hours trading? It got punished. Shares dropped to $183.37, a loss of $14.49 a share from the day’s close at $197.86. That’s a loss of 7.32%. In a market driven by expectations for constantly higher growth, I think you can see the problem.
Based on existing analyst forecasts for earnings in all of 2021, the S&P 500 trades at almost 24 times estimates, among its highest valuations ever. To bring the multiple down to its long-term average of 16 times annual profits, companies in the gauge will have to make about 15% more than the equity researchers currently expect them to earn — in 2023.
The week ahead could well bring even less volatility and even more complacency as we move into what everyone expects to be a stellar earnings season–at least in comparison to the first quarter of 2020
The big question is how much of the huge year over year earnings growth in the first quarter is already priced into stocks. And how much more of a rally can we expect on expectations for even higher year over year earnings growth in the second quarter.
This buy on the dip moment is over–this week’s revision of my Dip-O-Meter argues to me. The discounts to the February highs are, in general, getting smaller. And in many cases the size of the bounce that I’m seeing on up days is decreasing too.
I’ve scrubbed through the 20 stocks in the Dip-O-Meter, with updated numbers as of the close on Friday, March 26, looking for the best three buy on the dip trades. (Why only three? Because I think the same volatility that has created these profit opportunities makes it hard to be certain of a trend and I don’t want to bet the farm with the current degree of uncertainty. My choices for trades that I’ll put on tomorrow in my Volatility Portfolio are SunRun (RUN), Teladoc (TDOC), and PayPal (PYPL). These are all going into my Volatility Portfolio
It worries me when any asset moves too quickly–either up or down. Long-term rallies pauses for a breather from time to time. So do big moves to the down. Like that we’re seeing at the long end of the Treasury bond market right now. The yield on the 10-year Treasury closed at 1.71% today, up another 7 basis points on the day. And now up 42 basis points in one month.
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)
2021 is shaping up as an especially challenging year for investors. Much, much more challenging than 2020. I don’t think we can count on this rally running uninterrupted through the year. That would be simple, wouldn’t it? We’d all know how to profit from that scenario. And I don’t think the market is about to drop off a cliff from its current record highs. That would be traumatic. But, still, we do know how to protect a portfolio in that scenario. And even how to profit from a prolonged plunge–if we can bring ourselves to place those short and Put Options bets. Instead 2021 is likely to be one of those years with a Rally Stage and then a correction (or “something”) to be followed by a last quarter of 2021 that is, at this moment, close to completely unpredictable. That would make 2021 one of those years that gives investors a chance to be wrong several times over, to botch timing on the upside and the downside, and to let emotions power some really bad investment moves. I don’t pretend that I’ve got this year’s market stages down perfectly–although I think the outlines for the first two stages for 2021 are pretty clear. I don’t imagine that I’ve got the timing for navigating these stages clocked perfectly–although I do think I understand “generally” when the market is likely to switch gears. And that lets me lay out for you a likely pattern for 2021 and to suggest stocks and ETFs to use to navigate this year. Part of the point in getting as specific as I can at this point isn’t that I expect that I’ve got everything right, but to lay out concrete markers that will let you and me adjust portfolios as the year progresses. I’m dividing this Special Report into three parts.
Disney shares drop 1.7% today as traders take profits after yesterday’s beat on fourth quarter earnings and revenue
Before the House and Senate can move the Biden administration’s $1.9 trillion coronavirus package ahead using a process called reconciliation, individual committees need to approve their pieces of the budget. Today, February 12, the House Ways and Means Committee voted to approve $593.5 billion in $1400 stimulus checks and a $3,600 annual child tax credit as part of that Biden budget. The full House is on a schedule to vote on the complete package during the week of February 22.
Stocks climbed for a sixth straight day–the longest string of gains for the Standard & Poor’s 500 since August and with the Dow Jones Industrial Average turning in its best start for a February since 1931. The S&P 500 finished the day ahead 0.34% and the Dow gained 0.76% on the session. The NASDAQ Composite was up 0.95% and the NASDAQ 100 added 0.67%. The biggest winner for the day was the small cap Russell 2000, which gained 2.53% on strength in bank stocks and hope for more growth in the general economy. Oh, and the hope for $1,400 checks to individual Americans, hundreds of billions of dollars in state and local aid and enhanced federal unemployment benefits. And continued progress on the Covid-19 vaccination program. All this means, in my opinion, that the currently stretched valuations in this stock market are likely to get even more stretched in the coming days and weeks.