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Chart Advisor: Shake It Off


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Thursday, 23rd September, 2021

1/ Investors get past Evergrande fears

2/ Blackberry shows meme stocks here to stay

3KB Homes rides hot housing market higher

4/ The bottom line

1/ Investors Get Past Evergrande Fears

Indexes continued to rally, seemingly shaking off any fear surrounding China’s real estate market. Buyers continued to control the markets a day after the Federal Reserve reiterated dovish policy—at least for the near term. Leading the way higher was the iShares Russell 2000 ETF (IWM), which gained nearly 2%. State Street’s S&P 500 ETF (SPY), State Street’s Dow Jones Industrial Average ETF (DIA) and Invesco’s Nasdaq 100 ETF (QQQ) each rose more than 1%. After the largest single-day pullback for most indexes to start the week, buyers have sent markets within shouting distance of new highs. 

Eyes remain firmly fixated on the developing Evergrande situation in China, as the next hurdle for the beleaguered developer is an $83 million interest payment on a U.S. dollar-denominated bond due Thursday. Investors appear unperturbed, even as weekly jobless claims rose more than expected.  

Leading the rally the past two days has been IWM, which has gained 1.5% this week. Below is a comparison of the small-cap index’s performance compared with the large-cap focused DIA. Over the course of the economic recovery, there have been instances where IWM is ahead of DIA, suggesting continued confidence in economic growth. IWM has recently lagged DIA, however, if IWM’s recent performance continues, it could illustrate investor confidence in growth going forward.  

2/ Blackberry Shows Meme Stocks Here to Stay 

Heading into earnings, investors had bid down the share price of BlackBerry (BB) to a below-average range. That tune has changed after BB reported a net loss per share of $0.06 and $175 million in revenue, exceeding analyst expectations of a net loss of $0.07 and revenues of $164.3 million. BB shares surged on the day, gaining over 12%. 

It’s tough to gauge BB’s year-over-year performance, as one of the original meme stocks. In the last year BB has risen 124%, bolstered by the meme stock explosion of January. The chart below illustrates BB’s recent performance compared with the perhaps more notable meme stock progenitors, movie theater chain AMC Entertainment (AMC) and video game retailer GameStop (GME). 

While BB’s increase over the last year may pale in comparison to AMC and GME’s respective 1,900% and 1,000% increases, BB has relatively outperformed GME of late. AMC’s largest share price increase came much later in the year than BB and GME, as it has reigned as meme stock king since a gamma squeeze in June. Instead of a slow fade back to the depths from which they rose, so-called meme stocks seem to have displayed stronger staying power than expected.  

3/ KB Homes Rides Hot Housing Market Higher 

The housing market remains hot amid labor and supply shortages, further increasing the gap between supply and demand. Perhaps that sentiment can explain why investors bought shares of KB Homes (KBH) after the company missed analyst forecasts on its fiscal third-quarter earnings announcement. Analysts expected earnings per share (EPS) of $1.63 with $1.56 billion in revenues – KBH reported $1.60 in EPS and $1.47 billion in revenues. Investors may have been encouraged that, despite missing forecasts, KBH increased gross margins on a year-over-year basis.  

KBH’s share price has increased 24% year-to-date, which belies the choppy year the homebuilding company has had. The company has recently lagged its sector, as illustrated in the chart below, which compares KBH with State Street’s Homebuilders ETF (XHB). XHB has added 33% year-to-date, bolstered by fantastic performance from its top holdings. KBH had been in line with XHB until falling 6.7% after their previous earnings report. Perhaps an increase in positive investor sentiment following the current report can place KBH’s performance more in line with XHB.  

4/ The Bottom Line 

Stocks continued a strong rebound with investors showing relief over Fed policy statements and Chinese real estate market concerns. Investor optimism can also be found in meme stocks which continue to be priced at relatively higher average prices than last year.  

Originally posted on 23rd September, 2021

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