On Monday, there were stock market records across the board as most sectors of the market were higher with the exception of utilities. Utilities have enjoyed a remarkable year, considering the strength in the rest of the market. Investors are now rotating out of those safer investments and taking more of a risk with the stock market, which doesn’t look like it’s going to stop.

I still love material names that continue to outpace the rest of the market. I hope everyone has exposure and even overweight in this particular sector. (Make sure to check with your rep or research desk.)

Of course, there’s a lot of talk of selling on the tax news this week. It might happen; at this point, investors need to be looking down the road well beyond 2018. Understand that pullbacks aren’t sell signals as long as the underpinnings of the economy continue to surge.

S&P 500 Index	+0.54%
Consumer Discretionary (XLY)	+0.90%
Consumer Staples (XLP)	-0.05%
Energy (XLE)	+0.77%
Financials (XLF)	+0.97%
Health Care (XLV)	+0.04%
Industrials (XLI)	+0.74%
Materials (XLB)	+1.47%
Real Estate (XLRE)	+0.33%
Technology (XLK)	+0.88%
Utilities (XLU)	-1.12%

 

Corporate America and the Tax Bill

As for tax cuts and the stock market, excitement has officially been held in check. However, in the third- quarter, 93 out of 445 S&P 500 companies mentioned “tax reform” during third-quarter earnings calls according to FactSet Data. 

The pace increased for those reporting after the House version were released on November 2^nd: 

• 34 mentioned “tax form” during their call
• 14 expressed positive sentiment
• 17 are cautious and want to know more

Enthusiasm on the Front Lines

While some companies were positive and cautious at the same time, five companies said they hadn’t factored tax reform into guidance.  From what I’ve read and listened to, no company could assume the passage, so many were guarded with respect to guidance. However, the optimism is palpable.

 

Case in point, FactSet mentioned Marriott International (MAR).

I have participated in a number of events with a whole bunch of our corporate customers recently, and I think generally the view from our corporate customers, not surprisingly, is if tax reform gets done, it will be a boost to the economy, a boost to their fortunes, and a boost to GDP generally. And in that sense I think they would be a bit more optimistic about growth.

 –Marriott International (Nov. 8)

In this case, not only is Marriott a perfect proxy because of its relationship with the business world, but it also serves as its own global footprint. There are now more units and rooms internationally, but the revenue per available rooms in third-quarter 2017 grew at a rapid clip (China +10.6%).

Marriott is the typical company that we want to bring some of those profits from abroad back home.

Marriott 3Q17	Units	Rooms	Rev Par
North America	835	252,400	-0.5%
International	1,040	279,100	+6.5%

 

Businesses Putting Money to Work

Businesses are already beginning to invest money after pulling back dramatically in 2016. In the current quarter, real gross private domestic investment in fixed investments and business equipment are a big driver of a potential 3.3% Gross Domestic Product (GDP) growth.

Conclusion

The train is gathering steam. This isn’t the time to guess about tops or fret about missing the rally thus far; instead, this is the time to consider owning Great American Companies on this Great Rebound.

Today’s Session

I continue to look under the hood of the economy to see which cylinders are firing and how much faster it can go.  The trucking industry is one of those proxies we like to watch, and anecdotal signs of improvement in the middle of the year are now materializing into actual results with even more confident guidance that points to robust growth.

Navistar

Navistar just posted a blowout quarter.  The company beat the street on revenues and by 62% on earnings per share of $1.36. 

This is the second consecutive quarter of profitability, after a string of big losses, and two quarters of significantly outperforming Wall Street expectations.  2017 is the first year of profitably since 2011 and the turnaround is gaining momentum and eliciting confidence from management.

"We think 2018 is shaping up to be one of the strongest industry years this decade, and we're positioned to make it a breakout year for Navistar," Clarke said. "We'll drive even greater customer consideration with our commitment to uptime and our ongoing cadence of new product launches, which will include the introduction of our new medium-duty vehicle, as well as new IC Bus offerings. At the same time, we will build on our alliance with Volkswagen Truck & Bus by investing in and collaborating on the major technologies that are reshaping our industry, including electric, connectivity and autonomous."

Troy A. Clarke

This morning there was news of UPS, ordering 125 electric trucks from Tesla.  The perfect storm could guide the trucking industry for the next few years.

• Stronger US Economy
• Old Fleets
• Innovation

Orders have already begun to surge and will carry over into 2018.

Let’s watch how the market handles potent volatility as there could be some “selling on the news.”

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