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Morning Commentary

Presidentís Understatement

By Charles Payne, CEO & Principal Analyst
11/22/2017 9:46 AM
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Last Friday, President Trump posted this message on Twitter:

“Great numbers on stocks and the economy. If we get tax cuts and reform, we’ll really see some great results!”

That tweet was actually something of an understatement. I’ve been pointing out the rapid growth in the economy all year long, but it’s picking up the kind of momentum that generates a positive feedback loop.

Success begets success.

The wheels of commerce are firing on all cylinders underscored by a report on ‘Leading Economic Indicators’ that I spoke about yesterday that saw nine out of ten components higher.  Moreover, last week, the NY Fed adjusted its fourth-quarter Gross Domestic Product (GDP) estimate higher to 3.82%.

Wouldn’t that be remarkable?

With the market surging and economic data clicking, Wall Street is beginning to sound confident. In a note, to clients, Goldman Sachs (GS) says it is “rational exuberance” to expect the good times to keep rolling into next year, lifting the S&P 500 up 11% to 2,850. 

The smartest guys in the room joined other firms, including BMO Capital Markets, UBS Financial Services, Credit Suisse, and Deutsche Bank, all calling for a double-digit gain in 2018. 

Goldman does add the caveat that ‘if tax reform doesn’t pass,’ then the S&P 500 could dip to 2,590.   The bottom line is that the market is looking higher, and everyone is jumping on the bandwagon, including those same Wall Street firms that were negative earlier in the year.

While we are accustomed to Wall Street speaking out of both sides of their mouth, it’s unlikely they will take the other side of this debate. This does put more pressure on Wall Street and professional investors to improve their performance, which means more money pouring into the rally.

Success begets success.

Now I’m a Believer

There was a headline in last week’s LA Times that reluctantly gave President Trump credit on the economy: 

“Strong economy boosts Trump among otherwise skeptical voters”

This details a poll by Democratic pollster Peter Hart in which respondents called the administration chaotic and disappointing on everything except the economy where even non-Trump voters voiced appreciation and excitement.

Even as the mainstream media refuses to give President Trump credit for the economy, Main Street and Wall Street are bubbling with enthusiasm.  As long as regular folks begin to see and believe the economy, we will enjoy a wind in its sails. 

Markets

There are records across the board for all the major indices: Dow Jones Industrial Average, S&P 500, and NASDAQ, along with the Russell 2000, which continues to lag the other indices.  As mentioned above, Goldman Sachs “rational exuberance” report suggests that the S&P 500 could move higher over the next three years:

The report maps the current rally to 1987. It was at this point back on December 5, 1996, that the then- Federal Reserve chairman offered his infamous “irrational exuberance” speech that sent stocks lower for about a week before stocks turned higher and went parabolic.

I think there is a chance stocks could actually go parabolic from this point as well.

The S&P 500 forward (PE) ratio is holding steady between 17 and 18 for several quarters because earnings have been gaining strength.

With 95% of names reporting third-quarter financials, this has been another remarkable period:

The blended earnings growth of 6.2% is 100% above Wall Street consensus. This is the fourth consecutive quarter of a year-over-year earnings growth.

Today’s Session

Equity futures are pointing slightly higher in part to strong earnings from several names including Deere (DE) which posted strong results on revenue and earnings and offered robust guidance for 2018. 

The company’s construction business is rocking, but its core farm business is doing very well.  I’m working on a special Farm Investment Report for continued strength into 2018.

On Tax bill saga, there is a positive turn of events with Senator Lisa Murkowski announcing her support for repealing the individual mandate. 

Crude oil begins today at its highest level since July 2015 and has a real chance of reaching $60.00 a barrel.  I called for this level during the summer, but there were so many fits and starts and such a loud chorus of doubters, I’m surprised West Texas Intermediate has hit $57.00.

The most important thing for investors to know is crude-related equities have not mirrored the move in crude suggesting major upside potential. 

 

 

 

 

 

 

 


Comments
This all sounds good until the next bust which is around the corner. This artificially stimulated economy growing at unrealistic rates cannot be sustained. It only supports the pendulum effect, feast or famine, boom or bust, The housing markets already are becoming soft in many areas and will soon lead to another recession. Whats wrong with a more natural slow growth of 2 to 3% which is sustainable . And what about the biggest problem we have in the medium to long term, The massive deficit? Any real business man should know better than to ignore it !!!!!

Ashton on 11/23/2017 12:19:34 PM
 

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