Leaping to the wrong conclusion is a daily event the stock market.

Friday’s Jobs report provided a quintessential example. A retreat to the Covid-19 playbook provides a comedy of errors ending in new all-time highs for both the Dow Jones Industrials and S&P 500, with the Nasdaq composite up on the day but down 1.5% on the week.

When the curtain’s pulled back, the Wizard (A.K.A. Cathie Wood) should be owning Old Navy instead of Armani (by charter she cannot).

Friday’s jobs report miss was a doozy  … estimated 1,000,000 new jobs, actual 266,000. Yes, the prediction business is tough. Yes, the economy is doing great. How could the number miss by so much from the venerable economic community’s (these guys are generally not a helpful resource in the investment process) learned guess? The initial headline from CNBC was, “Dow futures (which were up 200 points) turn negative, Nasdaq futures jump as yields dive on jobs report.” The link I’ve attached is to a corrected post talking about how well the market ended up Friday.

Could it be these minions were failing to account for a policy error in the American Rescue Plan Act of 2021 signed into law in March and the provisions having to do with extended unemployment benefits? 

However the market’s quickly jumped-to conclusion (by the computers and some real live market participants) was that this was a sign of unforeseen economic weakness. Sell first, ask questions later … all signs of a very skittish market.

Mini-flight to safety … Returning to the Covid19 Playbook

Market reaction to this news was bifurcated: Buy safety assets – bonds, gold, Bitcoin (?) and new economy/innovation – and sell risk (all other common stocks). The yield on the 10-year US Treasury fell 9 basis points to 1.47% (closing 5/7 at 1.58%). Gold spiked.. Bitcoin jumped $2400 (not sure why this might be considered a safe haven by some). And true to the ‘Covid playbook’ the Nasdaq composite index jumped 300 points. Ta Da … the new economy and innovation … a sector where the sun always shines and valuations are irrelevant.

Cathie Wood For the Defense

Cathie Wood is a genius investor who took a simple concept of investing in growth, especially innovation, to create a vast actively managed ETF group, ARK Funds. By charter she must invest in companies possessing  these qualities of growth and innovation. She hit a seam in the market where her concept jibed with a trend in place that favored big cap high quality growth and built upon it with her innovation theme. Covid 19 came along drawing even more money away from old-economy stocks into that which was new and sleek. She hit the ball out of the park. Last year her big fund, the Ark Innovation ETF (ARKK) turned in a whopping 159% return.

In the stock market as in nature ‘no tree grows to the sky’. It appears to be time for ‘big tech'(Armani, style and fashion) to rest and the ‘old economy’ (Old Navy) to shine. Unfortunately, Ms. Wood is trapped in Armani. She is constantly forced to defend her style in a market that appears to be moving in a different direction as this clip from Friday shows: “Ark Invest’s Cathie Wood: I love this set up, rotation is good news.” Ark Innovation Fund lost more than 9% last week. She is now promoting the notion that her Innovation fund might return 25% to 30% from its current level in 2021.

Interestingly, she has been selling Apple (AAPL), one of the key beneficiaries of the Covid market. Apple has benefitted greatly from a new iPhone launch this year and product refreshes, oh yes, and tons of free money dropped on many people who continued to work. Huge demand has been drawn forward by the stimulus payments. This is now in the rear-view mirror. There are probably more companies in the Ark portfolio that are likely to face similar challenges. This is not to say that the long -term investor should sell Apple or its ilk. It is to say that “big tech” (a leap in the wrong direction) may not be where the action is in the market as we go forward.

Bottom Line: Past market dogmas are not relevant … new money must think anew and act anew. (my apologies, Mr. Lincoln)