Chart Advisor: Large Leads the Charge

Thursday, 14th October, 2021

1/ Markets rebounded led by large-cap stocks 

2/ Brokers on the rise 

3/ Is JB Hunt a bellwether for transportation stocks? 

4/ The bottom line

1/ Markets Rebounded Led By Large-Cap Stocks

Major averages rose after a slew of large companies reported better-than-expected earnings reports. Invesco’s Nasdaq 100 (QQQ) led averages higher, gaining 1.8% as falling bond yields boosted large-cap technology stocks. With eight members reporting earnings, State Street’s S&P 500 Index ETF (SPY) added 1.6%. The benchmark Dow Jones Industrial Average (DIA) climbed 1.5%, and the small-cap focused iShares Russell 2000 ETF (IWM) rose 1.3%.  

This is the first time unemployment claims fell to the lowest level since the pandemic began, as the 293,000 claims report was lower than the 315,000 expected. September’s producer price index numbers came in lighter than forecast, with demand increasing 0.5%, just below the 0.6% expected. Lower inflation rates could have helped ease bond yields, as investors leave safe havens and return to high growth technology stocks. 

The chart below compares the recent performance of DIA and IWM. The Dow, being composed of large-cap blue chip stocks, can be viewed as a loose gauge of overall economic health for the country. IWM, with its focus on small-cap stocks, remains a focus for investors when growth confidence is high.  

A divergence between the two could mean that investors are seeking safer ground, as high growth stocks tend to hold higher debt than most, which makes them less appealing during times of inflation. The two averages have recently been moving closer in line with one another, which could mean that despite inflationary fears, investors still see growth ahead and are willing to move money into more speculative equities.  

2/ Brokers on the Rise 

Perhaps emboldened by the positive earnings reactions today, investors have bid up the share prices of Charles Schwab (SCHW) ahead of the company’s fiscal third-quarter earnings announcement. Analysts expect the company to report $0.81 in earnings per share (EPS) and $4.5 billion in revenue. Bank earnings have largely beat expectations, but results have been mixed. SCHW shares had added 48% year-to-date. 

The chart below compares the recent performance of SCHW and State Street’s Financial Sector ETF (XLF). The sector as a whole rose today, but SCHW has outperformed XLF recently after rebounding in late September. While XLF has gained 3.6% in the last month, SCHW has risen 12% in the same span. Options are priced for a move higher for SCHW. However, the open interest is 57% put options compared to 43% calls.  

3/ Is JB Hunt a bellwether for transportation stocks?

Shares of JB Hunt (JBHT) have risen above its 20-day moving average in anticipation of the company’s earnings, due to be released Friday before the market opens. Wall Street forecasts the transportation giant to post $1.79 in EPS to go along with $3 billion in revenue. Supply chain and materials constraints have been heavily cited as disrupting multiple industries, and it will be interesting to see how labor issues and inflation could influence JBTH’s bottom line.  

While JBHT shares added 2% today, the sector as a whole has had a rough 2021. Over the last six months, JBHT has gained 3.5%, while iShares US Transportation ETF (IYT) has fallen 1.8%. JBHT has also outperformed IYT recently, as illustrated on the chart below. JBHT’s earnings could give a glimpse into the larger impact of supply chain constraints and perhaps provide investors with a timeline of when they can expect bottlenecks to start to ease.  

4/ The Bottom Line 

Indexes bounced back strongly after showing support yesterday. Investors are showing a preference for large-cap stocks over small-caps. That kind of sentiment among investors doesn’t usually precede strongly bullish markets.  

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Originally posted on 14th October, 2021