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Morning Commentary

Biotech Breakout and Goldman Joins the Party

By Charles Payne, CEO & Principal Analyst
2/15/2017 9:30 AM
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It was another day of market records with a couple of surprising names finally joining the all-time high party on Tuesday.

After a cautious start, pausing for Yellen, the rally went back to autopilot.  For many, that’s a frightening thought; for others, the fact that the S&P 500 hasn’t corrected more than 1% during any of the past 46 sessions is also a red flag. The fact is that only curmudgeons and bears are throwing that kind of shade.

This rallying is based on positive assumptions built around a pro-business president and the GOP’s control of the House and the Senate.  There is no doubt that established Republicans have squandered opportunities, but there are now concerns about debt and tax policies; they aren’t crazy enough to get in the way of prosperity. 

Joining The Party

Yesterday’s session saw Goldman Sachs (GS) finally climb to a fresh all-time close for the first time since September 2007.  Financials were the best performing S&P sector; biotechnology was even hotter as the IBB Index rallied almost 3%, and broke through a long-term downtrend, signaling a potentially bigger move higher. 

Retailers:  Blue-Light Dilemma

Today, it’s all about those brick-and-mortar retailers that have been battling for their very existence. They now face the prospects of a dagger via a border-adjustment tax. A group of retail CEOs will meet with President Trump at the White House to discuss taxes, business conditions, and survival.  Their pitch will be simple:

Year

Store

Effective Tax Rate

1901

Walgreens

17.3%

1902

JC Penny

4.7%

1902

Target*

33.8%

1938

Tractor Supply

36.0%

1943

Joe Ann Fabrics

NA

1966

Best Buy**

36.0%

1969

Gap Stores

45.1%

1979

AutoZone

34.7%

There will be a lot of individual stories and pitches, including Walgreens, reminding the White House they could have moved their headquarters to Switzerland after the merger with Alliance Boots, but it instead stayed in Deerfield, Illinois.

Meanwhile, it takes a lot of chutzpah for big exporters, such as General Electric (GE) and Boeing (BA) to push for a border-adjustment tax, considering all the breaks they receive such as corporate welfare via the Import – Export Bank. 

In addition, most of these retailers pay an effective tax rate north of 30% which means limited returns for investors.  On the other hand, in the most recent quarter, Boeing paid an effect tax rate of 12.0%; and  GE had earnings before income tax of $2.89 billion, then a ‘benefit’ rather than tax of $766 million that brought its net income to $3.66 billion.

At this point, the scenario has become akin to David and Goliath, and I think there is a chance for everyone to succeed. 

Today’s Session

Retail sales surged in January underscoring my assessment that rocketing sentiment is materializing into reality. Excluding autos, January retail sales surged 0.8% with nice month and yearly improvements for restaurants, clothing and gas stations.

These beaten down niches, along with sporting goods and electronics, are going to have me looking closer at potentially buying gun and ammo stocks as well as apparel retailers.

January Retail Sales

M/M

Y/Y

Retail Headline

0.4%

5.6%

Retail ex- Auto

0.8%

5.3%

Auto

-1.4%

6.8%

Furniture

0.0%

7.5%

Electronics

1.6%

-1.3%

Home & Garden Materials

0.3%

3.8%

Grocery

0.2%

2.0%

Health & Personal Care

0.7%

8.5%

Gas Stations

2.3%

14.2%

Clothes

1.0%

2.5%

Sporting Goods

1.8%

-0.8%

Department Stores

1.2%

-3.2%

Restaurants

1.4%

5.6%

Internet

0.0%

12.0%

 

Today is day two for Yellen on Capitol Hill, and while PPI and now retail sales have come in stronger than anticipated, it probably doesn’t move the needle at the Fed; although, her comments will give everyone something and everyone nothing.

 


Comments
Charles, I love you man but I think your wrong on this one. Border adjusted Tax would be great, brings in revenue on day one, it won't add that much to products sold, it will get nontax payers to pay tax, it will save older people money as they buy less as they get older (I'm old)and workers get lower tax more to money to spend.

Walter Schmidt on 2/15/2017 4:12:08 PM
I thought a border adjustment tax was for manufactured goods of companies that LEAVE the USA, build tax sheltered factories in Mexico, and THEN ship tax sheltered products BACK to the USA.


NOT for all products.

Just for companies that leave the USA.

In the case of textiles, they already left the USA decades ago. So they would be exempt.

I think Trump is doing some negotiating here by deliberately not discussing the existing VAT structures and existing currency manipulations.

Al M. on 2/16/2017 8:18:50 AM
 

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