Intel, Levi's, and the Election

I got a lot on my mind right now and I’m struggling to zero in on a single topic for this Monday edition of Wealth Daily. So I’m gonna revisit the good old digest format and offer you a smorgasbord of market/economic observations in a bullet-pointed list…

• There are seven trading days before the presidential election. I do not see cause for much optimism for stock prices this next week. What upside surprises would investors be positioning for? Biden has had a pretty strong lead in the polls for weeks, but the worst outcomes for a Biden presidency don’t seem to be getting much attention in terms of price action. For instance, one of the so-called “progressive” initiatives is the whole “break up big tech” thing. Big tech looks pretty healthy right now, prices do not seem to be reflecting much fear that an assault on Microsoft and Amazon is imminent. And just last week, the Justice Department announced an anti-monopoly suit against Google for its search tactics. Google maintains an incredible stranglehold on search, better than 95% market share. And I can tell you, if you don’t structure your online presence to Google’s liking, you will not show up in search results. For the most part, this is a good thing because it weeds out spammers. Still, if you even mention buying skis in Gmail (which I recently did), you will be treated to a flood of ads for winter sports vendors. Annoying and potentially mafia-like — that’s a nice website you got there… sure would be a shame if something happened to it. Bottom line is that the market is telling us that the assault on tech is nothing to fear from Biden or Trump.

• Likewise, the potential for tax hikes seems to be mostly sound and fury. That goes for both individual and corporate. Biden has made no secret that he wants that corporate rate higher. So on this front, the market is either projecting a Trump win or telling us that taxes will not be the #1 item on a Biden administrations docket. And really, given the economic situation, going after tax rates on day one seems like a bad plan.

• I noted the strength in China-related stocks last week, but it bears repeating: The market is telling us that no matter who takes the presidency for the next four years, we can expect a softer tone toward China. 

• We are seeing weakness in semiconductors, software, housing, and alternative energy — basically all the momentum sectors. What does this tell us? I say it suggests that the current weakness falls into the “general” category rather than a “catalyst-driven” one. In other words, the algos are all in agreement that there is a window of opportunity to take prices lower, so that’s what they are doing. The S&P 500 is slightly below its 50-day moving average (MA) today. The last time we had a selloff (the low was on September 24), the S&P 500 ran about 140 points below that 50-day MA before it reversed. A similar move would target ~3,260, or roughly another 120 points lower for the S&P 500. There is also a big gap between 3,298 and 3,333 that is beckoning. So a drop to 3,298 with a possible 30-point overshoot to 3,260? Seems reasonable.

• Intel (NASDAQ: INTC) is testing March lows today. Not good. And that’s exactly how I would characterize its executive decisions for the last two years at least. It abandoned mobile and is currently experiencing product delays, both of which have opened the door to Qualcomm, AMD, and NVIDIA to take market share. All three of these companies are nimble and aren’t in danger of missing the next tech cycle. In fact, they’re driving it. Intel hasn’t been in the driver’s seat in a while. And now it’s sitting at the back of the bus. You could look at the P/E of 9 and think, “Oooh, value.” But the forward number is 10, meaning that earnings are falling, and the dividend yield is 2.74%. Cisco’s is 3.74%. For me, Intel would have to fall another 30% before I get interested.

• Restaurants have gotten creamed and the recreation stocks have been very strong. It was only a couple of years ago that spending in restaurants and bars eclipsed grocery stores. Now, let’s assume Americans are redirecting their restaurant spending to the likes of Peloton and Nautilus. Obesity rates come down, people need new clothes for their slimmer selves, and statin drug sales fall. Hmmm… buy LEVI short MRK? I’m gonna have to do some digging on that one… or we could just see a flood of amazing deals for personal fitness equipment on Craigslist in about a year.

Until next time,

Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.