Stalled Not Dead
Many are asking what happened to the Trump Rally that set all-time records for the first couple of months after the election. Now, the first 100 days see the Trump Rally struggling to stay in the top ten.
I don’t think the Trump Rally is over. However, the White House and Republicans are being sent a message about scoring more legislative victories. The business needle has already begun to move, and 2017 has a chance to be a huge year for the economy and for investors.
After the close on Wednesday, earnings release winners include Dow components; American Express (AXP), Qualcomm (QCOM), Select Comfort Corp (SCSS), and CSX Corp (CSX) might be the biggest news of them all. United Rentals (URI) missed and that might reflect the stalled Trump Agenda, although this has always been a buy on dips (doing the work now).
There was curious action in the market as the Dow Jones Industrial Average could never offset the weight of free-falling shares of IBM; investors flocked into new technology, including computer chip makers. The oddity of the session, however, was money seeking shelter in brick-and-mortar names while dumping the widows and orphans into the safe haven of utilities.
I understand bottom-fishing and that’s probably all the action was, but we should mention it’s a mistake to conflate the idea of the consumer being dead with the death of malls. On that note, the S&P Consumer Discretionary eked out a gain, led by AutoNation (AN), and CarMax (KMX), and followed by a Lithia Motors (LAD) posted strong earnings beat.
Perhaps the demise of the auto rally is overhyped.
Still, why did Best Buy (BBY) and Bed Bath & Beyond (BBBY) do so well? As a student of the market and of economics, I’m a fan of the good that comes out of creative destruction, a hallmark of capitalism that has often has been used as a critique. I even believe something will evolve from malls that lives side by side with the Internet age.
Yes, hundreds of retail stores are shutting down but the overall demise is also overhyped.
This brings me to the biggest news of yesterday’s session; the $3.3 billion acquisition of Chewy.com by Pet Smart (PTEM) is the largest brick-and-mortar takeover of an online business, surpassing the Walmart acquisition of Jet.com. This is a brilliant move, and I think this will be the template for other brick-and- mortar names.
The financial results from CSX serve as a great proxy for the US economy, and the good news is key areas saw impressive volume growth, but even better revenue improvement. Autos held up nicely, while metals popped, and minerals bode well for housing. The eye-catching move is coal, where pricing increases resulted in 28% increase in revenue per unit.
Other compelling action this morning is Foot Locker (FL) reversing higher after a first quarter earnings warning sent shares lower. Management blames a delay in tax refunds that came after the NBA All-Star game, but sees rest of the year relatively stronger.
There are compelling things happening in retail, which must go through a cleaning process, but those left standing will be huge winners.
I’m working on a special report on brick-and-mortar survivors and how to invest in your pets that should be ready over the weekend. Go to www.wstreet.com or ask your representative.
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