“Modest increases” was the buzz phrase for employment, wages, and construction in the Federal Reserve’s Beige Book report. Prices climbed in eight of the 12 Fed districts underscoring a spike that sent the Consumer Price Index (CPI) report to a two-year high.

Boston At the same time, most employers said they were not raising wages substantially. Business contacts remained optimistic about 2017.	New York Labor markets remained tight and wages continued to grow moderately. Housing markets have continued to weaken at the high end, while commercial real estate markets have slackened.	Philadelphia Hiring also rose to a modest pace and tightening labor markets sustained modest pressure on wages and prices.
Cleveland Labor markets showed signs of tightening. Upward pressure on selling prices increased. Residential and commercial construction activity remains elevated.	Richmond Stronger multi-family construction was reported in Washington, D.C., Charlotte, North Carolina, and Charleston, South Carolina.	Atlanta Retailers cited an increase in sales. Home prices increased modestly. Manufacturers noted an increase in new orders and production. The labor market remained tight, and wages were stable.
Chicago Manufacturing production grew at a robust rate, business spending grew at a moderate rate, consumer spending increased modestly, and construction and real estate activity edged up.	St. Louis On a positive note, District contacts anticipate an uptick in consumer spending activity in early 2017. Conversely, low commodity prices continue to put many agricultural parts of the District under financial stress.	Minneapolis Manufacturing activity picked up, and the outlook for the sector appeared more optimistic. Homes sales were strong in most regions.
Kansas City Consumer spending increased, and contacts expected moderately higher sales in the months ahead. Manufacturing production, shipments, and new orders grew at their fastest pace in over two years.	Dallas The energy sector noted improved demand and an uptick in employment, following depressed activity for nearly two years. Manufacturing activity expanded, although job growth remained weak.	San Francisco Holiday retail sales picked up, and activity in the services sector remained strong. Contacts reported strong activity in the housing market and moderate growth in overall lending activity.

 

Smartest Guys Seem Confused- Again

Another survey of note came from the Bank of America, which questioned its institutional investors on how they’re investing funds and where they see a risk.

Topic	December	November
Expects Global Growth	57%	35%
See Global Inflation	84%	85%
Global Profits higher (next 12 months)	56%
Cash Position	4.8%	5.0%
Overweight Banks	31%	25%
Overweight US Equities	15%	4%

Worries:

• European Union (EU) Disintegrating
• Bonds Crashing

This report reinforces my thoughts that there will be more buying of U.S. equities as money pours in from abroad and via bond rotation. I don’t see the European Union (EU) disintegrating in 2017 but threads are frayed. France going the way of a full-populous would be a massive blow, and that’s yet another reason to focus on the safety of U.S. equities.

The Market

The session saw the Dow struggle for traction, even as financials regained leadership without Goldman Sachs (GS), which beat in earnings and revenue while consolidating recent gains. 

The most intriguing action came from the market’s reaction on Wednesday to the various confirmation hearings of Donald Trump’s cabinet.

Wilbur Ross, who is potentially the head of Commerce, moved two sets of stocks.

U.S. Steel (X) and Nucor (NUE) names surged when Ross said the United States needed to increase its current tariffs on China’s steel and aluminum.  Moreover, he said that all aspects of the North American Free Trade Agreement (NAFTA) are open for renegotiation.

Material names, including Vulcan (VMC) and Martin Marietta Materials (MLM), popped when Ross discussed the urgency of getting infrastructure projects started immediately - not dally around on payment.  

The U.S. Environmental Protection Agency (EPA) Nominee Pruitt said that he would stay with the current timetable to increase the amount of ethanol and renewable energy used in biofuels blends.  That news sent shares of Pacific Ethanol (PEIX) and Rex (REX) America Resources higher.

After the bell on Wednesday, Netflix (NFLX) wowed shareholders again, beating the Street on revenue and earnings, powered by more than 5 million new international users and close to 2 million domestic subscribers. 

We could see another big short squeeze, proving once again those guys always go out on their shields. 

Well, just one day before the inauguration and all the fun happens. Please be careful not to let the same Wall Street hedge funds that have perennially underperformed the market spook you out on the ‘buy the rumor, sell the news’ nonsense.

Not only are those ivory-tower folks looking to buy a dip, but their friends also have management pension funds that are in the worst shape after missing this rally for years by holding bonds for too long. 

Today’s Session

The broad market is looking largely flat, but there are several standout areas including the rails lead by CSX which is being targeted by the ex-CEO of Canada Pacific turned activist investor.  That news is lifting all the names in the industry. 

Shorts Getting Crushed

Those that bet on stocks to go lower are often deep-pocketed and sophisticated, and typically, they have big soapboxes to help their position(s).  These folks have a long history of being right, but in recent years, it hasn’t been enough to crunch the numbers and assume a stock was overvalued.  There are public relations campaigns including planted media stories designed to destroy the underlying share price of their targets.

Three such targets are turning the table big time this morning.

• TSLA, which has more than 38% of its float short, fetched a $305 target from Morgan Stanley this morning (I featured the stock and Elon Musk in the market commentary on January 5).
• NFLX, mentioned above, has 5.8% of its float shorted.
• CHKP, which will open at an all-time high, is putting pressure on shorts that amount to 7.5% of its floated shares.

Momentum continues to work, and I continue to say, this creates problems for folks just returning to the market and looking for “cheap” stocks that haven’t moved yet.  They buy one or two such names and fret when they don’t surge like those expensive stocks. 

I think soon there will be less fretting overall, because the market should move out of this consolidation phase.  For today, it looks like stocks will meander out the gate. 

Comments

Charles, you are a good man that I respect. I watch "Making Money with Charles Payne" as often as possible. I like the way you call it like it is, without the political correctness that has hurt this great country that I love. I find you to be extremely knowledgable, and professional. Thank you for your great work. JJ JJ Imperial on 1/19/2017 2:18:36 PM

Charles: Your smart, to the point and understandable. Enjoy you the most of all Fox people. Glad you started this column with your thoughts of the day. Tom Moore on 1/19/2017 3:10:15 PM

Charles, i have enjoyed your comments since you started showing up on Wall Street Week when Louis Rukeyser was the host. i looked up your site after i saw you on the new Wall Street Week. i look forward to reading what you have to say. LG on 1/22/2017 3:33:47 PM

Now that the DOW has exceeded 2,000, what should small investors expect the next few months?? Jeffrey Sherman on 1/25/2017 10:06:18 AM

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