The stock market was already wobbly on Thursday even before the latest savage attack on humanity in Barcelona, which has taken 13 lives and injured nearly 100. The last terror attack in Spain  in 2004 at a train station is a reminder that while ISIS is on the run in the Middle East, their desperation and altered tactics make them just as dangerous in the west. 

Bless the Barcelona victims and their families and the nation of Spain today.

The attack should stiffen our resolve and serve as a unifying goal as the nation otherwise descends into further disarray and polarization.

Interestingly, more recent terror incidents have seen our market rally as a sign of defiance, perhaps. I can only hope the civilized world continues to flaunt and enjoy their freedoms this weekend - I’m taking the family to a concert. I think the difference yesterday was the fact stocks were sliding and anxiety was rising. Will the latest battle between President Trump and Mainstream media make the agenda harder to push through?

Will the agenda be even harder to push through with more and more members of the Republican Party criticizing the President each day?  

Adding to yesterday’s woes:

• Concern that Gary Cohn is leaving the administration (White House turmoil in general)
• Continued negative reactions to earnings (a trend I wrote about on Monday)
• Light summer volume
• Domestic unrest and potential flare ups
• General sense pullback was due

The list above is compelling. It doesn’t alter the fundamental underpinnings of the market and economic trends that are robust enough; we could be looking at a 4.0% third-quarter Gross Domestic Product (GDP) report.  To be sure, Cohn is the main conduit between the White House and the business world. He is perhaps the most articulate voice in the administration when it comes to the pro-growth agenda.

The notion the market was due for yesterday’s session is actually valid in the sense that the tape was sloppy, and the market breadth had been bearish in the past couple of weeks.  We closed out more positions than usual, in part to protect gains or mitigate losses while raising cash.  

Already, our list of potential names to buy on weakness is long. There are some great names pulling back with the broad market. There isn’t a sense of urgency just yet; however, there was no place to hide yesterday.

Sector Performance	Change
S&P 500 Index	-1.27%
Consumer Discretionary (XLY)	-1.36%
Consumer Staples (XLP)	-0.70%
Energy (XLE)	-1.19%
Financials (XLF)	-1.36%
Health Care (XLV)	-1.03%
Industrials (XLI)	-1.44%
Materials (XLB)	-1.28%
Real Estate (XLRE)	-0.49%
Technology (XLK)	-1.68%
Utilities (XLU)	-0.54%

Strong Fundamental Underpinnings

Industrial production increased at a slower pace, increasing 0.2% against consensus of +0.3%, reflecting a sharp decline in auto sales production. The -3.6% monthly drop in auto sales was more than expected; without that component, production would have increased +0.4% in July. The standout was mining, which also slowed, but it increased +0.5% and is now up 7.4% from January to July.

Non-Durable production overall increased +0.4%, and utilities surged +1.6% during the month.

Capacity Utilization

Factory utilization continues to turn higher, led by utilities and mining. It’s still off from being highly established in 2014, but well above the all-time low of 66.0 in June 2009. By the same token, the level is well below the historical average of 80.3 from 1967 to 2017.

Philly Fed Manufacturing Trends

Manufacturing in the Philadelphia Fed region edged a little lower to a read of 18.9 versus consensus of 17.0.  

The current conditions and future (six months) expectations were impressive and augur for sustained strength in manufacturing.  Expectations six months from now are very impressive, which may suggest a belief that there will be some progress on key issues in Washington, D.C.

Today’s Session

The Dow losing close to 300 points yesterday is the headline. In fact, the blue-chip index held above its 50-day moving average, while the NASDAQ and S&P 500 did not. The key support points today:

• DJIA: 21,627
• NASDAQ: 6,100
• S&P 500: 2,409

The market is tentatively looking higher this morning after the second worst drubbing of 2017.  Speaking of which, Footlocker (FL) will be crushed at the open after missing on earnings.  On the other end of the retail spectrum, Ross Stores (ROST) and Gap Stores (GPS) will open higher on earnings that beat the street. 

I continue to like certain names in old brick and mortar retailers, the computer chip space, and spying momentum names that have turned lower.  For buy and hold investors, there is too much risk ahead of the weekend to force the issue this morning; although, there are a number of names I would love to pounce on right now. If you aren't already on our Hotline service, call your account representative or email us at  info@wstreet.com to get started today. 

 

 

 

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Comments

This market at this point in time is not about "fundamentals" it's all about human psychology. Garro on 8/18/2017 9:59:30 AM

Charles, If Pres. Trump can get a handle on Message Discipline (which includes everything, agenda & news) The markets would have less to "algo" over. Getting agenda done wouldn't hurt either. As always, thanks for your insight Bob Waddell on 8/18/2017 10:15:59 AM

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