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Afternoon Note

Flynn Trips Rally But GOP Gets Act Together

By Charles Payne, CEO & Principal Analyst
12/1/2017 1:08 PM
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This is all about politics, but recent sessions suggested this could happen (see the morning commentary).

"Volatility could increase and there could be selling on the news, but the investment proposition goes well beyond the tax reform."

We don't have to force the issue right now, and I'm not sure about buying into the weekend.  That said, the news and speculation that Michael Flynn is going to testify against President Trump creates a major cloud of confusion and angst.  By the same token, White House counsel released a statement that seems to welcome the news that Flynn admitted to lying to the FBI, and says it’s why he was fired.

Then there's the tax bill, which has been on a razor's edge all morning.  I think there will be a deal on the Senate bill that gets 50 GOP votes, perhaps even more, and in the process, it might even see a true embrace of supply-side economics. There is no doubt the scoring on the final bill will suggest massive deficits that Republicans in both chambers are going to have to argue is the result of static scoring rather than dynamic action that traces the true nature of the flow of money.

For the moment, there are two big worries and a market that wanted to come down in the first place.  We are looking to buy the dip, but not forcing it and not trying to guess the bottom, but our investment thesis is stronger than ever.

Keep in mind, the main theme of the morning report and much of the work this year is the economy is back, and momentum is strong. 

Manufacturing Renaissance

Speaking of which, the PMI report on manufacturing pulled back from its 13-year high, but it is still very strong as 14 of 18 industries reported increased strength.

ISM Manufacturing Trends

Key Observations

ISM

Product

Observations

Chemical

"Continuing to see more orders for the next six to 12 months."

Computer & Electronic

“Business has leveled out but remains strong heading into the end of the year."

Machinery

"Strong sales through third and now fourth quarters. Backlog increasing, and capacity at suppliers tightening."

Fabricated Metal Products

"We are seeing steady, consistent demand for end of year. We usually see a slowdown, which we haven’t seen yet."

Transportation Equipment

"Overall industry demand remains strong. Continue to have a healthy backlog of orders. Local economy is also strong, with a fairly tight labor market."

Plastics & Rubber

"Currently, we have not experienced the typical seasonal slowdown toward the end of Q4. Could be that there is a lot of optimism in the American economy."

 

 

 


Comments
After yesterday's record gain of 331 pts isn't the market reacting prematurely to Flynn talking with the FBI? The ink isn't even dry on the news report and they're already pulling back? I'd say there's a lot we don't know yet and the market should still be soaring in light of the potential tax reform bill being passed and not caving to media hype about Flynn.

judi milton on 12/1/2017 2:40:16 PM
 

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