Bulls Encouraged by Yellen

Stocks banged out another set of record highs Monday after Treasury Secretary Janet Yellen reinforced the need for an ongoing fiscal stimulus to support workers amid the slow vaccine rollout, notes Jon Markman of Pivotal Point.

The Dow rose by 0.8%, to gain +238 points, while the S&P 500 climbed by 0.7%. The Nasdaq 100 was up by 0.7% as well, closing at another record high. Energy and financials were the top gainers, while utilities were the only decliner.

Breadth favored advancers over decliners, 4-1, and there were a remarkable 1565 new highs and 53 new lows. Topping the new highs list were Square (SQ), Lennar Corporation (LEN), Novavax (NVAX), The Boston Beer Co. (SAM), eXp World Holdings (EXPI), and FuelCell Energy (FCEL). Quite the zany mix of sectors topping new highs for the day. Note the lack of big tech or big pharma; this is a mid-cap and small-cap-leaning market stretch.

Citing Yellen's weekend interviews, a note from Daiwa Capital said Monday the Treasury Secretary reiterated aggressive fiscal stimulus is warranted in light of the "stalling" job growth in Friday's employment report. According to Yellen, if Congress approves President Joe Biden's $1.9 trillion aid package, the US could return to full employment in 2022.

A Reuters report said that in the United States vaccine deployment has managed to administer at least 32,780,860 doses so far and that cases of new infections have gone down on average.

Companies such as Cisco (CSCO), Coca-Cola (KO), PepsiCo (PEP), Uber (UBER), and Disney (DIS) are set to report their earnings this week. So far companies are beating earnings estimates largely because the bar was set so low.

In other news, Bitcoin surged by 16% to about $44,000 after Tesla (TSLA) disclosed it purchased $1.5 billion of the cryptocurrency and also said it expects to begin accepting the digital currency as a form of payment for "our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt." Tesla cars are essentially computers on wheels so it makes sense you could drop a digital currency in a vending machine to buy one.

In company news, Arya Sciences Acquisition III (ARYA) shares climbed by 100% after the blank-check company said it planned to combine with Nautilus Biotechnology, a company pioneering a single-molecule protein-analysis platform for quantifying the human proteome, in a deal with an implied equity value of $900 million.

West Texas Intermediate futures climbed by 2% to $58.05, sending our energy tech Schlumberger (SLB) up 3.9%. 

Bottom Line: Seasonality calls for a pause in the market’s extraordinary stretch of recent gains and then a resumption of the uptrend. Of course, valuations are stretched, the economy is under pressure from the pandemic, political turmoil is off the charts and sentiment is euphoric, but market participants are trying to price in a full recovery well before it arrives. They will overshoot as always but not as much or for as long as skeptics expect. And there are many sectors and industries, like energy, banks, and industrial metals, that are still so beaten up and undervalued that they have plenty of runway.

Learn more about Jon Markman at Pivotal Point.