by Bryan Perry

July 20, 2021

We’re all familiar with the phrase, “Money has to go somewhere.” Well, this past week, safer havens in bonds and defensive equity sectors were on the receiving end of fast-changing fund flows. Treasuries, corporate bonds, preferred stocks, REITs, utilities, and consumer staples shined while the most leveraged sectors of the “reflation” trade were a source of funds.

Weekly Sector Performance Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Heightened uncertainty surrounding the spread of the “Delta variant” of Covid, and a broader acceptance that the economy will cool down more than forecast, has changed the market’s composition of leaders and laggards. Travel, entertainment, and energy stocks are getting sold off aggressively, as well as all things related to “infrastructure.” The 22 Senators (11 from each side) that make up the bi-partisan committee to produce a passable infrastructure package continue to wrangle over how to pay for the $579 billion plan – which is wholly separate from the latest $3.5 trillion budget plan (supposedly to be paid for by higher corporate taxes and higher taxes on wealthy Americans).

Uncertainty dominates this latest defensive action. Not knowing how the taxes on corporations will play out is being used as a reason to sit tight in non-cyclical assets. Also, the price action of the tape is calling into question the harmony of the Fed’s dovish policy, stimulus spending, falling commodity prices and vibrant economic data surrounding the housing markets, retail sales, and upbeat labor figures for June.

There has been a rolling correction of sorts that has swept through the financials, materials, industrials, transportation, and high-beta growth that is now hitting the prized semiconductor, as of Friday’s close.

The FAANG stocks, plus Microsoft (MSFT) and Tesla (TSLA), make up roughly 27% of the S&P 500’s total capitalization. These giants have maintained most of their gains, and that is keeping the benchmark index above its 20-day moving average. where the first line of technical support is right at 4,300.

Standard and Poor's 500 SPDR Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Navellier & Associates owns Apple Computer (AAPL), (AMZN), Microsoft (MSFT) and, Facebook (FB), for a few accounts in managed accounts and Tesla (TSLA) in one account per client request. We do not own Netflix (NFLX) or Alphabet Inc. (GOOGL) in managed accounts.   Bryan Perry does not own Apple Computer (AAPL), and (AMZN), Microsoft (MSFT), Alphabet Inc. (GOOGL), Netflix (NFLX), Facebook (FB), or Tesla (TSLA) personally.

In all actuality – and here is the good news – if the rolling correction runs its course by the end of this week, the market will be well set up to trade higher into what is the heart of earnings season. That’s because the best-of-breed stocks usually run up hard right into the release of their quarterly sales and earnings results. This time around, the current selling pressure could result in buying on the news, depending on the extent of the separate pullbacks in those stocks leading the primary bull trend.

All that said, there is a big fly in the market’s ointment that is inflicting newfound fear that can undercut all the economic progress already made. Investors need to get an understanding of this new Delta variant threat – even more so than how any spending or taxation “virus” on Capitol Hill plays out.

At least that’s how I’m seeing it. The market got really narrow, real fast, heading into this past weekend. Some of this sharply negative price action can be accounted for by seasonality, where lighter volume can push down stocks more intensely. But there was a clear flight to safety last week, based on fear of “God forbid we have to go through this whole pandemic thing all over again.”

This new fear started with the canceling of all spectators at the upcoming Tokyo Olympics, sending bond yields plunging. After steadily falling for six months, the coronavirus caseload related to the Delta variant is rising sharply. The Centers for Disease Control and Prevention (CDC) reported Friday that new cases are up nearly 70% in just a week. Hospitalizations are also up by nearly 36%. A chilling reality began to set in that the many months of progress achieved against the coronavirus are starting to reverse.

As NPR has reported (“Is the Variant from India the Most Contagious Coronavirus Mutant on the Planet?” May 14, 2021), the Delta variant appears to be about 225% more transmissible than the original SARS-CoV-2 strains. A study from the UK (see “Vaccines highly effective against hospitalizations from Delta variant,” June 14, 2021, from Public Health England) found that the Pfizer vaccine is 96% effective against hospitalization from the Delta variant after two doses. So, though it’s still possible to get infected, the vaccines dramatically reduce the risk of serious illness that leads to hospitalization or death.

Getting this message to the public is crucial. Once market participants get a handle on the breadth and scope of this latest viral outbreak, the current phase of consolidation should give way to fresh buying momentum in many of the now beaten down sectors that were so popular heading into July.

We are witnessing fast-changing market conditions, where stock picking is at a major premium and negative headlines that were brushed off recently now trigger widespread selling pressure.

Fear of the unknown usually outweighs other market forces, and right now, investors are dealing with several unknowns, from Covid and tax bills to dueling narratives about inflation. from the transitory Fed views to inflation hawks like BlackRock’s Larry Fink, Bridgewater Capital’s Ray Dalio, and our own Louis Navellier, who believe the services component to the recent inflation data is structural. To this end, the Fed has some work to do to convince the market that it is seeing reality, not what they desire to see.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Inflation is Rising at the Fastest Pace in 30 Years

Income Mail by Bryan Perry
When Money Runs for Safety

Growth Mail by Gary Alexander
Seven Life Lessons for Building Wealth (Part 1 of 2)

Global Mail by Ivan Martchev
Nasdaq Looks Ready to Consolidate Its Gains

Sector Spotlight by Jason Bodner
The Big Money is Selling as the “Dog Days” Begin

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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