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Morning Commentary

Trump’s Tax Day

By Charles Payne, CEO & Principal Analyst
9/27/2017 9:50 AM
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Big earnings after yesterday's close:

Nike (NKE) posted mixed results that missed on revenue and beat on earnings. The operating margins slipped as the company continues to struggle in North America, the only region in the world where revenue declined.  

The bottom line is that Adidas (ADDYY) has surpassed Nike in the cool factor category by using celebrities more than athletes to gain market share.

Micron (MU) crushed consensus on revenue and earnings. The operating margin climbed to 40.8% from 35.3% from its prior quarter.  In addition, the company enjoyed a higher average selling price for Dram (+8%) and NAND (+5%) chips.

The Semiconductor ETF (SMH) has gone down 3% in the past week; up 25% year-to-date, and holding above trend line support.

SMH

Market

During the session, momentum darlings put the brakes on recent declines; Facebook (FB), Amazon (AMZN) and Google/Alphabet (GOOGL) are still a bit shaky.  On the other hand, Apple (AAPL) enjoyed a late spurt after a piece @SeekingAlpha pointed to component costs for the iPhone 8 and iPhone 8 Plus that should help margins expand. 

That helped NASDAQ closed higher while the Dow and S&P 500 were essentially unchanged. Major indices continue to meander, but there were great narratives that directly correlate to the U.S. economy.

The Dow Transportation

I’ve talked about the need for transportation names to outperform.  They are paced by truckers; J.B. Hunt Transport (JBHT) and C.H. Robinson Worldwide (CHRW). The index closed at a new all-time high. These names are great proxies for the domestic economy. 

DJT

Russell 2000

The Russell 2000 remains hot, and this is good news for Trump voters as these companies have the best correlation to the domestic economy. Like transportation names, the small caps have spent the better part of the year watching major indices surge. This rotation was a long time coming and should continue. 

Industrials

The S&P Industrials (XLI) also maintained its momentum, closing at a new all-time high, in part to domestic demand and hopes for a deal for repatriation of overseas products.

Tax Plan

Drumroll, please…the GOP tax plan rolls out today and everyone is waiting with baited breath. No doubt there will be disappointment.  The GOP tax wish list adds up to more than $5.0 trillion, and there just isn’t that kind of wiggle room:

I’ve joined the chorus of folks that want to see something done.  And yet, for all the confidence, tax reform is a slam-dunk (color me skeptical).  The biggest mistake would be to make the rollout a starting point for negotiation.  The key features should be known; enough have already given the nod.

Today’s Session

All morning long, equity futures have edged higher, although there is an undeniable sense of caution in the air.  Lots of scuttlebutt over the tax roll out later this evening, but there is more good news on the economy.   Durable Goods headline came in at +1.7%, well above consensus of 1.0%, but the big news is business orders, which were up 0.9 in August and revised higher to +1.1% in July.  Its proof businesses are putting money where their mouths are and acting on post-election optimism. 

I mentioned the word of the week is “resolve” and we are seeing it at the open this morning.  The problem is the market is still grappling for a catalyst to get over the current hump that includes typical questions about the tax policy.


Comments
Hi Charles,


Saw your program about Puerto Rico. Glad you were able to get the USCG Admiral Brown to talk about the progress in getting the Puerto Rico ports reopened and open for night time operations.

Stuart Varney had the PR congressional representative and she ... reluctantly ... reticently ... admitted that THOUSANDS of Federal and U.S. military personnel are ... in fact ... and have been working in Puerto Rico to help with recovery and rescue.


It bothers me tremendously that there are USAF Red Horse and Prime Beef teams and many many others who are not getting any "notice"; they are not looking for credit, but it should be at least acknowledged that these folks are working on site and on scene. I am shocked that there is so little notice being given to all the people who are working in Puerto Rico to help.


Apparently there are USAF aircraft deployed there to bring in help.

And I am sure that the main airport at San Juan is open for aircraft going in with assistance and bringing people back out to the mainland.

It only takes two days for containerships to bring in tens of thousands of tons of supplies. But apart from an offhand remark by Admiral Brown, that fuel is being landed, you would never know.


On your program you had two mayors from Orlando and things are looking up. But, there is only "omygod, omygod" from Puerto Rico with zero acknowledgement of the assistance that is being rendered.


Sorry to sound like a broken record, but the news blackout from P.R. is just not right.


Sincerely,

Al M.

Al M. on 9/27/2017 10:51:22 AM
Charles,


This is part of an AP story in today's NY Post: [weird story ... yes, there is help, but not everywhere at once. Something wrong with this story.]

Sorry for being a pest.

Best regards,


- Al M.

There are several thousand U.S. federal employees in Puerto Rico helping with the recovery effort. They are most visible in San Juan, where officials with FEMA, Homeland Security, Customs and Border Protection have a presence at hotels that before the storm served tourists in the Condado neighborhood or at the convention center that has become a staging ground for relief efforts.

Federal workers supplied diesel to generators at hospitals and delivered desperately needed food and water to hard-hit communities across the island. They have repaired the air traffic control systems and power at the airport, which is far from normal operations with only about a dozen commercial flights per day. U.S. agents have also provided security across the island and the Coast Guard has worked with local authorities to restore the sea ports, a vital link because Puerto Rico is almost completely dependent on imports.

SEE ALSO
Stranded family paints 'HELP' on their roof after Hurricane Maria
Stranded family paints 'HELP' on their roof after Hurricane Maria
In addition, teams from the Army Corps of Engineers are helping to repair the electricity grid and to inspect and look for ways to avert the collapse of a dam near the western town of Quebradillas that has developed a crack and that officials have said could potentially fail. And personnel from Health and Human Services, the Department of Defense and Veterans Affairs have provided care and helped evacuate people from Puerto Rico with chronic medical conditions.

Teams also were scheduled to visit the central mountain town of Aibonito, which was cut off from the rest of the island for five days. Many people began rationing their food and water supplies as they dwindled, unclear of when they would have contact with the outside world.

“We thought somebody was going to stop by,” said Ana Lidia Mendoza, a 48-year-old cook at a barbecue restaurant who lost part of her roof. “They told us that we had to stay calm.”

Gov. Ricardo Rossello and Resident Commissioner Jennifer Gonzalez, the island’s representative in Congress, have said they intend to seek more than a billion dollars in federal assistance and they have praised the response to the disaster by President Donald Trump, who plans to visit Puerto Rico next week, as well as FEMA Administrator Brock Long.

“I am confident that they understand the seriousness of the situation,” the governor said Tuesday.

Still, it is hard to avoid the fact that the response looks different than previous ones. After hurricanes in Louisiana, Texas and Florida, waves of power company trucks from other states descended in long convoys, something that is obviously not possible on an island 1,000 miles to the southeast of the mainland. After the devastating earthquake in Haiti in January 2010, the U.S. military sent ships and the skies seemed to be filled with heavy-lift helicopters and planes carrying emergency relief, though the scale of that disaster was far worse.

Hurricane Maria was the strongest hurricane to hit Puerto Rico in nearly 100 years and officials say the cost of recovery will dwarf that of the punishing Hurricane Georges in 1998. Whatever the final bill, Valentin just hopes it will factor in people like her. “If FEMA helps us, we are going to build again,” she said.



Al M. on 9/27/2017 11:12:56 AM
I don't believe the (R) will pass any legislation this year. They have no leadership and they continue to look for ways to hurt the President. Sorry Businesses your stuck with this lousy tax law

David on 9/27/2017 1:58:59 PM
 

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