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Morning Commentary

Rally of Doves, Unicorns, and Pachyderms

By Charles Payne, CEO & Principal Analyst
7/13/2017 9:48 AM
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The day after is often the best way to gauge the market’s non-knee-jerk reaction to major Fed news and its decisions. Yesterday’s session could serve as the real verdict on Janet Yellen. That said, it seems she said enough about a “new normal” and low rates. Let it be known there is a red box on the wall in her office marked ‘In Case of Emergency Break Glass’ which contains quantitative easing part four (QE4).

It seems like a moot point, but there is some concern about “jump starting” the economy. The second quarter Gross Domestic Product (GDP) forecast includes the Atlanta Fed’s GDPNow report seeing the growth a lot lower now than at the beginning of May: 2.6% from 4.3%.  I do think the number should have risen after the jobs report instead of edging lower.

Bottom Line

I think Janet Yellen did it. I think the Fed chair threaded the needle of being a dove but acted as if she could be a hawk at some point.  She handled the strong commentary from representatives that had their own agendas, which had nothing to do with interest rates but everything to do with slamming the other side. I get the fight for ownership of this economy, but this is nothing if lawmakers had their act together; we could have something magnificent to fight about.

So, how does this plodding growth impact the stock market?

One fact is that a lot of investors seem to overlook that America by far has the largest economy in the world.  It’s a lot harder to grow it the way it once grew because of the sheer size and math. The layers of regulations and high tax rates had a deleterious impact. Moreover, the world clamors for American-made products despite the large trade gaps.

It’s all up to the great companies that have taken the lead in this rally. There is amazing room to grow domestically and internationally, and carry the broad market along for the ride.

Unicorns

Unicorns are mythical creatures that have piqued the interest of man for centuries; more recently, they have been affixed to private growth companies that reach $1.0 billion in valuation.

Many of these businesses have become household names; usually, that adds to the notion of buying them when the equity becomes available to individual investors.

However, I’m the guy who is always talking about owning great American companies, but there is a caveat. These companies must not be overvalued, and the American public shouldn’t be some collective patsy for the elites of Silicon Valley and Wall Street.

There are some 200 unicorns, and many are becoming public.  My beef has been and continues to be that all the value and growth opportunities are already sucked out of theses IPOs. In the past, companies would go public a lot sooner, giving investors a chance to ride along toward market valuations and returns. Now, the public serves as the cashing out point.

I suspect the public is getting hip to all of this, considering a couple of unicorns that have gone public and have gone south since. Blue Apron (APRN) and Snap Inc (SNAP) are now changing hands below their IPO price.  Keep in mind that a lot of small investors got the IPO, and bought the stock upon trading.   Sure, these stocks can come back; Facebook (FB) slumped beneath its IPO price for 14 months, but these companies are not Facebook, which really squeezed every nickel from the public when it began trading.

More and more of these unicorns are busted public companies; be careful of fairy tale stocks, even those with good products because, for the most part, all the magic of investment returns might already be gone.

Yesterday’s Session

Call it the thundering herd as all eleven S&P 500 sectors rallied, and the Dow Jones Industrial Average hit a new all-time high.  There might be more anxiety ahead of earnings in financials today, but momentum has returned to the upside.

New highs beget new highs, which will put a lot of pressure on all that sideline money, especially the perpetually underperforming money managers that must get ahead of the crowd

S&P 500 Index

 

+0.73%

Consumer Discretionary (XLY)

 

+0.76%

Consumer Staples (XLP)

 

+0.56%

Energy (XLE)

 

+0.28%

Financials (XLF)

 

+0.32%

Health Care (XLV)

 

+0.68%

Industrials (XLI)

 

+0.57%

Materials (XLB)

 

+1.16%

Real Estate (XLRE)

 

+1.31%

Technology (XLK)

 

+1.30%

Utilities (XLU)

 

+0.86

 

Today’s Session

Over the last three weeks,  we’ve seen and ran sectors and industries to catch some attention as money was rotating out of technology.  Tech has regained its footing, but the threat of major indices moving to new highs is forcing sideline money back into play and a lot would rather bottom fish than chase performance (talk about being real late).

This morning its brick-and-mortar led by surprising guidance from Target of growth in the current quarter after five straight quarterly declines.  I'm also spying steel for continued bounce, as key names are breaking through pivotal-resistance points. 

Meanwhile, the Producer Price Index came in around consensus hinting at disinflation (not sure how long transitory is at the Fed but this looks sticky to me).

The market will open cautiously but could take off as panic buying kicks in.


Comments
Okay, so I am fed up with the fact that Republicans do NOT get Capitalism. Sure we need to cut spending, but the ONLY way out of this mess is growth.

So let's have a brief class in Capitalism 101 boys and girls.

There are one of two political ideas on what creates growth. One says, the government (represented by the Democrats) and one says business (represented by the Republicans, though not very well at all I might add!) So if you believe the first, raise taxes, if you believe the second idea CUT TAXES (and regulations.) It is THAT simple.

We are not in some "new era" where we are no longer able to grow at more than 2% or less and I am so sick of hearing that. More than 80% of the jobs created in this country are from small businesses consisting of 5 or fewer employees. We do NOT have capital to expand. That is what capital IS!!!!! The government is NOT going to create anything but more expenses. W need plants, equipment, technology, engineers and the like to get this thing going. That takes CAPITAL (from equipment, technology and the brain kind of capital in terms of skills. THAT IS WHAT CREATES JOBS!

Sorry for yelling, but the opportunity for change is fading away and the moronic politicians are clueless about who we are and what got us here. Please I pray that our government leaders in Congress have an epiphany and wake up from their Rip Van Winkle sleep. Please dear God.

Ray Weldon on 7/13/2017 10:23:40 AM
I want you to prevail through your present troubles. Your insight here is much needed.

Jerry McDonough on 7/13/2017 11:26:55 AM
I enjoy Trish as much as anyone when she does the political news. But the show is titled, "Making Money With ?????". Last night's had nothing to do with Wall Street or making money. Charles, we need you back now or my viewing habits will have to change.

Barry Carr on 7/13/2017 1:57:46 PM
I don't know why they have taken you off your show Charles, but it must be corrected and you must go back on the air for the benefit of your viewers and for the benefit of our country. You tell the truth with integrity and that is a rarity!

William L. Baumner III on 7/13/2017 4:22:26 PM
Won't be watching Making Money anymore. However I will try to follow your insights here. Good luck Charles Payne.

Leon on 7/13/2017 6:15:25 PM
Fox News has been cutting out all conservative views since the network changed hands. I have enjoyed watching Charle's Payne on FBN for many years and I find his financial analysis to be wise and technically superior to other financial coverage in the news. i do not know whether you will stay at FBN, but if not i hope OAN will consider hiring you. Thanks for your valuable insights to investing in sound American companies. Your helping me to stay retired. God bless.

Jim Rhein on 7/13/2017 11:39:48 PM
I agree with all of the above with one small correction for Ray. Republicans aren't clueless. Before the election I thought they were almost as corrupt of the Democrats and twice and stupid. Now I think they are the cagey ones. They scream and yell, let the Democrats do all the dirty work and line their pockets at the taxpayers expense with money from lobbyists - just like the Democrats. We need Term Limits and the abolition of lobbyists and soon or we don't stand a chance to really come back.

Francine Paino on 7/14/2017 5:31:31 AM
I miss you Charles.

Victoria Sindoni on 7/14/2017 9:59:55 AM
 

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