| Tuesday's Headlines 1. US markets split as tech stocks lead 2. Nasdaq crosses 10,000 3. Fed liquidity and tech stocks get along 4. Boeing has stabilized 5. Nikola takes aim at Ford and Chevy Markets Closed
 Image courtesy conceptualmotion/Getty
Markets Today It was a tale of two markets today, reminiscent of the activity we saw back in May, as tech stocks propelled the Nasdaq past the 10,000 level to another record high. Industrials, financials, and other cyclical stocks faltered as the DJIA snapped a six-day win streak. We've been watching sector rotation play out through the recent rally, but it reverted today.
There has been a lot of buzz lately about the swarm of new retail investors who have taken to day trading like bees to honey and potentially propped up the stock market in the process. That may be part of the reason behind the recovery, but it takes a bigger wallet to move markets in the 21st century. The Fed has one of those, and it has been using it as an instrument of liquidity, backstopping the bond and stock market in the process. Will it continue now that there are signs of improvement?
Those new traders have been buying some blue chips and some risky stocks lately. They may also be behind the spikes in recent IPOs that have come to market this Spring. Are these traders actually committed investors? Or will they rotate out when the heat rises this summer?
chart courtesy Goldman Sachs  [NEW READER SURVEY: As promised, we are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery. We'll share the results, as always, and we thank you for your time and participation.]
Headlines:
 Fed Liquidity Has Propelled Tech Stocks There is little doubt that the Fed's efforts have helped propel the stock market back from a steep and sudden bear market. By injecting liquidity into the financial sector through asset purchases like government and corporate bonds, the Fed has effectively backstopped the stock market by ensuring that corporations won't default on their debt. On Wall Street, they call it the "Fed Put."
The Fed hasn't actually bought corporate bonds yet—at least not as far as we know—but just by threatening to do so, it has laid the liquidity safety net under the fragile stock market. According to Bank of America, many investors, seeking yield as the market plunged, ran to growth stocks like Amazon, Facebook, Microsoft, Netflix, and Google and drove several of them to record highs. Since they are all S&P 500 and Nasdaq constituents, which are both market-cap weighted indexes, those indexes rebounded faster than the DJIA and other indexes.
We have seen sector rotation in the past two weeks as financials and industrials have led the rally (not today, of course). That implies a belief that the economy will recover relatively quickly.
The risks to all of this is that the economy doesn't recover quickly, and the Fed takes away the punch bowl, or the proverbial liquidity, and both growth stocks and cyclical stocks lose their luster at the same time.  Boeing Is Pulling its Weight It's been a long-haul journey for Boeing, which had a terrible 2019 in the wake of two fatal crashes of its 737 Max jets, safety concerns, whistle-blowers, and a shake up in the corner office. 2020 has been no kinder, as the pandemic grounded the airline industry and Boeing's biggest customers cancelled orders, beyond the 737 Max. It delivered just four planes in the month of May.
But the past six weeks has seen shares of Boeing skyrocket as investors bet on a recovery, and they bet that the aerospace company will play a big part in it. Shares are up more than three times that of the Dow Jones Industrials, and it has been dragging that index higher as it rises.
According to Bespoke Investments. Boeing has added roughly 575 points to the price-weighted Dow. That has by far been the largest contributor to the Dow since May 13, accounting for roughly 14.9% of the overall move and nearly double the next biggest contributor, Goldman Sachs (GS), which added 316.32 points to the Dow, or roughly 8.19% of the overall move.
chart courtesy Bespoke Investments  Nikola: Riding in Tesla's Wake It's been a very strong spring for IPOs, believe it or not. One of the most successful so far has been Nikola, the electric truck startup named after no other than than Nikola Tesla. Tesla, the company, and Elon Musk are not involved in Nikola, as far as we can tell from company filings.
Nikola's market cap of around $30 billion exceeds that of Ford Motor Co. and other major automakers, and it just went public last week. The company hasn't yet sold any vehicles, but it has targeted the commercial trucking sector, where delivery giants like Amazon and UPS have pledged to reduce their carbon footprint with electric and battery powered trucking fleets.  Nikola has said it has over $10 billion in preorders from commercial clients including brewer Anheuser-Busch InBev SA and expects to begin generating revenue next year with deliveries of a battery-powered semi truck for shorter-haul deliveries.
It also has its sights set on the commercial market, where companies like Rivian are aiming to challenge Ford's F-150 and Chevy's Silverado for market share. Nikola's answer to those bastions of the American automotive industry is The Badger.
It's kind of handsome.
photo courtesy Nikola 
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(chart courtesy YCHARTS)  Shares of Advanced Micro Devices are up by 6% following an announcement that the semiconductor's second-gen AMD EPYC processors have been chosen to power a new NVIDIA system. SBA Communication's stock price rose by over 4.5% following an upgrade from Neutral to Overweight by JPMorgan.  Shares of oil companies, such as Concho Resources (over 10%) and Diamondback Energy (over 9%), are down today. Despite the recent price resurgence, the oil industry is still facing grim margins from refineries selling diesel, a lessened demand in the U.S. and the U.K. due to the recession, and an overabundance of supply. Norwegian Cruise Line's stock price fell over 10% after BK Asset Management's director of FX strategy called yesterday's rebound in the cruise line sector, "ridiculously overvalued." Word of the Day Sector RotationSector rotation is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. The economy moves in reasonably predictable cycles. Various industries and the companies that dominate them thrive or languish depending on the cycle. That simple fact has spawned an investment strategy that is based on sector rotation. Even those investors who don't base their entire strategy on sector rotation would be wise to anticipate the cycle.  Photo courtesy webfoundation.org
Today in History June 9, 1943: Paychecks go on a sudden diet nationwide, as Federal income tax withholding is implemented for the first time. Originally proposed by Beardsley Ruml, an executive at Macy's department store who has encouraged shoppers to buy on the installment plan, withholding is cleverly called "pay as you go" and is coupled with an amnesty for the previous year's taxes. The public backs it eagerly, forever after giving the Federal government interest-free financing.
Peter Wyckoff, Wall Street and the Stock Markets (Chilton Book Co., Philadelphia, 1972).
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Tuesday, June 9, 2020
Rotation
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