The Stevie Wonder, “Faith” Stock Market (And Sentiment Results)…

If you don’t have 6 and 8-year-old daughters like I do, you may not be aware that Stevie Wonder recorded a song called “Faith” (with Ariana Grande) in 2016, for the musical animated film “Sing.”The lyrics from his song that embody the sentiment of this week’s stock market (and its participants) are:

I got faith in you baby, I got faith in you now
And you’ve been such a, such a good friend of me
Know that I love you somehow
I met you, hallelujah, I got faith…

Stevie Wonder "Faith"

Last week we talked about a Dickensian “Tale of Two Markets”in which the consensus view was that we were getting “toppy.”However, when you looked carefully under the hood, you could see that the potential extremes were not widespread.There were a group of stocks “Dancing on the Ceiling” and a group of stocks “Dancing on the Floor.”You can find the article here: The Lionel Richie “Dancing on the Ceiling” Stock Market (and Sentiment Results)…

The question is, WHEN will the leadership rotate and Cyclicals see the light of day?

On Tuesday, I was on Yahoo! Finance with Akiko Fujita.Thanks to Sarah Smith for inviting me on. In the segment, I aim to answer the very question posed above.

I also joined Liz Claman on Fox Business this week to discuss impending changes in the Dow components. Thanks to Ellie Terrett for having me on. You can find it here.

Most Loved versus Most Hated

To build upon what we discussed last week, it’s important to take a longer-term perspective. In the chart below, I have charted the “Most Loved” stock in the S&P 500 (AAPL – Apple) versus the “Most Hated” stock in the S&P 500 (WFC – Wells Fargo):

(Click on image to enlarge)

By taking a longer-term view, we can see that this unusual divergence between WFC (red and black line) and AAPL (solid black line) has only happened 4 times in the past 20 years (2020, 2011, 2010, and 2000).In all 4 instances, we had a CRASH in Wells Fargo WHILE AT THE SAME TIME Apple was RALLYING. Following the divergence, Wells Fargo recovered in record time (per the table below):

(Click on image to enlarge)

To give you some color on the divergence we are seeing today:

Over the past 2 months, the 2021 EPS Estimates for AAPL have risen 4.44% while the price of the stock has appreciated 49.70% (+76.63% ytd).

Conversely, over the past 2 months, the 2021 EPS Estimates for WFC have fallen 21.7% while the price of the stock has declined 4.4% (-52.77% ytd).

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Alexandra Gray 1 month ago Member's comment

Excellent read!