There's a reason Christian Louboutin heels are 4 inches There's a reason Christian Louboutin heels are 4 inches\images\insights\article\woman-suitcase-high-heels-small.jpg August 20 2021 August 20 2021

There's a reason Christian Louboutin heels are 4 inches

Like a quality stock, I can count on these fabulous shoes.

Published August 20 2021
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Headline risks took center stage this week. The delta variant is being blamed for breakthroughs among the vaccinated and spiking Covid-19 cases across the country. Macro data has softened (see below). The Afghanistan debacle has clouded Dems’ budget—and midterm—hopes. And yet the VIX can’t catch a break. True defensive sectors (Utilities and Consumer Staples) are getting no respect. While governors, school boards, teachers and parents bicker about whether we’ll go back to school or not, seems we’re shopping as if we are (more below). The 10-year Treasury yield has kept its head above its 1.12% early-August low despite variant and growth scares (Goldman Sachs is the latest Street house to lower GDP projections). As we anticipate the next six to eight weeks of soft seasonality, the S&P 500 has held firmly above its ascending 50-day moving average (4,350). As for Covid, if it follows variant cases elsewhere (notably the U.K. and India), it should peak soon and then fall precipitously. Just as we are offered a booster shot!

You can worry about peak earnings growth, but record S&P forward earnings estimates continue to climb. They’ve increased nearly 4% over the past four weeks and almost 8% over the past 13 weeks. Yardeni views Target, which increased its second-half sales forecast despite variant uncertainty, as emblematic of the difference between scary headlines and the actual experience of many businesses. “We’re seeing tremendous resilience in the consumer today and in our traffic patterns,” CEO Brian Cornell told analysts in his earnings call, adding that back-to-school sales have been “really strong” and “broad based.” A strong consumer, along with increasing capex, should be good for a cyclical value trade that gave up its leadership in Q2. Since interest rates peaked at the end of March, beneficiaries of falling rates—led by Tech—have outperformed by about 7.5 percentage points. Declining yields in the face of rising inflation and the strongest growth in four decades show rates clearly have separated from fundamentals. They’re being determined by expectations around how long and severely policymakers will keep suppressing long-term yields. This week’s Fed minutes indicated relief may be on its way, with tapering possibly starting this fall. But real rates seem likely to remain deeply negative for some time, with the new regime Fed focused on broadening the labor market’s recovery and willing to live with higher inflation to get it. Stocks should love this for quite some time, as well.

You can’t put me in a bad mood. Consumer Discretionary, airlines and other epicenter stocks that suffered early in the pandemic and rebounded in a massive way, are now being hit again. Airline traffic is slipping, and air fares are falling. So, take a vacation! Energy is showing some signs of fatigue but remains in an uptrend and is as cheap as Renaissance Macro has ever seen based on its free-cash flow work dating back to the 1970s. It’s “Saratoga Season,’’ as Ren Macro puts it, and in that parlance, we’re not looking for the fastest horses, rather the best horses with the best odds given their abilities. For the market, that means quality Growth and quality Value.  Horses wear shoes to strengthen and protect their hooves. Excellent advice for mid-cycle stock picking. My “quality Growth” shoes are Christian Louboutin—4-inch heels that are painful, but I wear them because they rock. My “quality Value” shoes are muddy work boots—perfect for creating my backyard forest paradise. Once finished, my gate’s sign can’t read Shangri La—neighbor’s got that name. The Mister suggests “Shangri-Nah.”


  • Factories look past variant July industrial production blew by estimates, and details were even stronger as swings in weather held back utilities’ output and manufacturing doubled consensus as supply chain issues continued to fade. Production is now back to pre-Covid levels. Empire and Philly Fed readings on August activity softened but remained robust.
  • Job growth looks past variant Weekly jobless claims fell more than expected to a new pandemic low and were down a collective 12% over the past two weeks in the 26 states ending bonus benefits early versus 1% for the September-expiry states. Texas posted the biggest drop, a sign the variant is having little impact. Also, the Bureau of Labor Statistics’ gauge of industries with expanding payrolls versus those that are contracting hit a 7-year high.
  • Peak variant? Seven states are now showing 2-week declining trends in test positivity, and new daily vaccinations exceeded 1 million for the first time in several months.


  • Retail sales disappoint but … July fell more than expected. However, sales are still running about 14% above their pre-pandemic trend. Online retail was the key source of weakness, likely due to the timing of Amazon Prime Day in June. Evercore ISI’s proprietary survey of sales captured some moderation two of the past three weeks. But big box retailers Walmart, Target, Home Depot, Lowe’s and TJ Maxx/Marshalls/HomeGoods’ parent TJX reported Q2 sales gains and saw no signs of slowing in August.
  • Housing disappoints but … Starts fell more than expected and builder sentiment declined. However, permits rose, ending a 3-month string of declines, and the 6-month builder outlook held steady at elevated levels. Long-term, the outlook is being bolstered by favorable demographic forces (rising demand from aging millennial and Gen Z generations) and supply constraints from aging boomers that remain reluctant to move.
  • China has issues Retail sales, industrial production and investment all slowed more than forecast in July. Among factors cited by analysts: a government-ordered credit slowdown, new virus restrictions, severe flooding in central China, de-carbonization efforts and global supply chain disruptions. 

What else

No shot, no service New Yorkers had to start showing proof of vaccination cards to get into restaurants, bars, fitness venues, museums, movie theaters and other indoor venues. After a 3-week grace period, violators face fines of $1,000 for a first offense and $2,000 for a second. Offices are exempt.

Fake vax cards were predictable Customs and Border Patrol agents reportedly have seized thousands of counterfeit vaccination cards, and it’s almost certain thousands more have slipped through undetected. Fundstrat sees Blockchain as an ideal solution but that’s not practical because it’s not ready for Prime Time.

August is the cruelest month … for presidents. That’s when their approval ratings tend to take a beating, particularly for first-term presidents. Despite a strong start to his presidency, Biden has not been immune to this effect, with polls showing his already waning popularity plunging after the Afghanistan pullout debacle.

Tags Equity . Markets/Economy . Coronavirus .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Free cash flow is a measure of a company's financial performance calculated by subtracting capital expenditures from operating cash flow.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

Growth stocks are typically more volatile than value stocks.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Stocks are subject to risks and fluctuate in value.

The Empire State Manufacturing Index gauges the level of activity and expectations for the future among manufacturers in New York.

The National Association of Home Builders/Wells Fargo Housing Market Index is a gauge of how well or poorly builders believe their business will do in coming months.

The Federal Reserve Bank of Philadelphia gauges the level of activity and expectations for the future among manufacturers in the Greater Philadelphia region every month.

Value stocks may lag growth stocks in performance, particularly in late stages of a market advance.

VIX: The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility.

Federated Equity Management Company of Pennsylvania