Confidence and Manufacturing Fuel Super Rally
Yesterday, the market meandered in a very tight trading range ahead of 72 hours of big economic data that will be watched closely on Wall Street, K Street, and Main Street, beginning with tomorrow’s ADP Employment report.
All the major indices were fractionally higher while the big mover of the session was crude oil, which continues to rebound and has reestablished $50.00 support.
It’s all about hype becoming reality.
In the surveys, there is no arguing that the surge in confidence in households and in all areas of large and small businesses has turned the wheels of commerce. On Main Street, the potential home-buyer foot traffic has expanded positively for the first time in more than a decade after Trump's victory.
Of course, there is a difference between what Wall Street calls soft and hard data. Surveys are one thing, but we are seeing it materialize into reality. Meanwhile, the stock market is a harbinger of things to come as it is looking for huge moves in financials, industrials, and materials.
One area is manufacturing, which has come back to life big time. In yesterday's national report on manufacturing, 17 of the 18 manufacturing industries reported growth and no one experienced contractions.
The market is making note of this as the top performing sectors owe gains to President Trump's Agenda, and to a lesser but important degree, an end to the war on business.
Financials have surged the most in the past six months, in part to the notion that the Dodd-Frank Act will be repealed or, at the very least, prepared to stop punishing consumers. Yesterday, Jamie Dimon wrote to shareholders that banks are sitting on $200 billion to meet risk and regulatory barriers placed by President Obama- they would rather lend that money.
In fact, until the beginning of the Great Recession, bank loans were greater than bank deposits.
Industrials are the second best performing sector, led by United Rentals (URI). In my mind, it’s the best proxy for re-building America, and Caterpillar (CAT) is the best global proxy for industrial growth. Speaking of which, Caterpillar caught an upgrade to the “Conviction Buy” list at Goldman Sachs (GS) Monday morning, followed by a very positive piece in Barron’s after the close.
Materials are the third best performing sector, led by Freeport- McMoRan (FCX), number 2 percentage gainer, +24% as copper prices surge. Note: this week has seen a spike in metallurgical coal names such as Arch Coal (ARCH).
While I want to emphasize that the market will go down from time to time with occasional crashes, I think we are on the cusp of a super rally that will lift the market significantly higher in the next three to four years. Please don’t miss it.
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