Date: March 8, 2021

Markets Full of Emotion and Tepper Speaks Out

So much going on today after such an emotional reversal on Friday. Let’s start with last week. After a rout on Thursday and an ugly morning on Friday, the bulls came roaring back across the board to close stocks near their highs for the day. Interesting to note that the major indices rallied 3-5% from their intra-day lows to the close. That is certainly emotional.

One day reversal patterns look awesome on a chart, but they do not have the power they once did and usually require more constructive behavior. Emotional, intra-day moves with such magnitude usually have some follow through. Look no further than long-term bond yields to see what sparked the reversal. As the 10-year yield backed off from more than 1.60%, stocks “suddenly” became attractive. Even the left for dead tech sector bounced sharply.

Speaking of technology, the sector I fell out of love with last August, I thought there was certainly enough evidence to suggest at least a bounce. My thinking now is that tech is okay to rent not to own. In other words, buy into weakness and sell into strength. Pretty much since 2017, I have been positive on semiconductors and bought more into most bouts of weakness, something I did on Friday as well. However, my plan right now is to be very nimble. The time will again come where I want to own them in size, but that is not now.

This morning I heard this mystical interview third hand with hedge fund titan David Tepper. It seems like Tepper suddenly became very bullish on stocks because he thought the 10-year had gone about as far as it could for now and that Japanese buyers would be flooding the market since the Bank of Japan was not going to expand their yield curve management range. And when factoring in currency swaps, the U.S. 10-year was a bargain.

I don’t know.

The S&P 500 soared 22% since I pounded the table right before the election to buy. Did Tepper miss that boat? The same index has pulled back 6% over the past month or so, hardly reason to jump up and down with enthusiasm after a great rally. Sorry, but I am always skeptical when a hedge fund guy comes out in the spotlight with a new theme. It’s like when Bill Ackman was literally crying on TV about the markets and COVID last March. Then we learned about his positioning.

Lots of crosscurrents. The decline could be over or we could see a bounce and one more bout of weakness. I do not have strong conviction although I do not want to miss what I think will be a good rally. Tech should ultimately bounce the most, but I do not see it regaining leadership this early in the year.

For Monday, pre-market action is swinging wildly with technology lagging. That’s not what bulls want to see for a bottom to be hammered in. Long day. We will see what happens by day’s end.

Need to spend time playing dialing for vaccines this afternoon…


Paul Schatz, President, Heritage Capital