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Morning Commentary

So Much Winning

By Charles Payne, CEO & Principal Analyst
11/29/2017 7:21 AM
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For a brief moment, it appeared that North Korea was going to successfully torpedo the stock market rally after more than half the session gains were wiped away on news of the powerful rocket launch to date. 

There is no doubt that the return of provocation by the Hermit Kingdom could cast a shadow over the market down the road, particularly as their capabilities continue to improve- in some areas at an exponential pace. 

U.S. Economy also in Orbit

America’s economy is undoubtedly firing on several cylinders as each day brings more amazing economic data. In fact, the kind of momentum the economy has now is contagious –new highs beget new highs, and winning begets winning.

Metric

Milestone

Stock market

All-time high

Job openings

All-time high

Unemployment Rate (U6)

Lowest in 11 years

Consumer confidence

17 year high

New Home Sales

10 year high

New Home Average Price

All-time high

Richmond Fed Manufacturing

24 year high

 

 

That Richmond Fed report covers manufacturing in Washington, D.C., Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia.

This is critical because one of my central investment theses is a renaissance in manufacturing. This is a key promise of the Trump administration, and one of the best ways to address social-economic woes in our heartland.

 

Moonshots and Hidden Gems

This is one reason why the consumer discretionary sector was among the top performers in Tuesday’s session. Of course, Amazon (AMZN) has led the way, although its bottom line growth was driven much more by its cloud business. 

Pure plays in the retail space that continue to act great include O’Reilly Automotive (ORLY) and Ulta Beauty (ULTA).

Material names are also enjoying a great session. Several laggards caught the attention of value investors, which includes smart money, looking to spread risk from high wins in high-flying names.   Forget about the share price – Sherwin-Williams (SHW) is cheap.

Speaking of value, mergers and acquisitions have lagged. The takeover of Buffalo Wild Wings (BWLD) has awakened the restaurant space. 

I’m looking for takeovers to shift into overdrive and also a general rebound in those value gems that have missed the parade.

Financial Flex

The biggest winner also provided the best signal for investors. This rally is riding on fundamentals tracks, not the notion of Fed accommodation or gimmicks. 

Jerome Powell was nominated as the next Federal Reserve chairman. He met with members of the Senate and essentially hinted at three to four interest rate hikes in 2018. There was a time such news would have sent the market tanking; instead, investors embraced it as good news.

Not only was Wall Street cool with this news, but regional banks and the rest of the financial sector also took off enjoying a 2.6% gain for the session.

 

S&P 500 Index

+0.98%

Consumer Discretionary (XLY)

+1.11%

Consumer Staples (XLP)

+0.82%

Energy (XLE)

+0.77%

Financials (XLF)

+2.60%

Health Care (XLV)

+0.73%

Industrials (XLI)

+1.52%

Materials (XLB)

+1.11%

Real Estate (XLRE)

-0.24%

Technology (XLK)

+0.33%

Utilities (XLU)

+0.46%

 

While all the major indices closed at record highs, the best performing index was the Russell 2000. It is seen as the domestic proxy for tax reform; the index that broke out last week bounced off its old resistance point yesterday in a convincing fashion.

Today’s Session

The market is looking generally higher, but the bifurcated strength is underscoring the rotation out of high flyers and into value names.  Speaking of flying high, third quarter GDP growth was much stronger than initially reported.  Driven by a 7.3% gain in nonresidential (business) private domestic investment, this is the big development and is up on a more than ten percent leap in equipment spending.

#winning


 

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