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Morning Commentary

Tech is Back: Transportation Provides Comfort and Confidence

By Charles Payne, CEO & Principal Analyst
1/9/2018 9:51 AM
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It was truly a pedestrian session for the market on Monday, which isn’t uncommon right after a mixed jobs report.  While the Dow Jones Industrial Average edged slightly lower, other large indices were higher. Nine of the 11 S&P sectors also finished higher.

Meanwhile, tech is back!  After that December swoon, high-flying names have regained their swagger and then some. One name that’s on the cusp of becoming a household name is a stock I’ve discussed many times on my show and other Fox Business shows – Nvidia Corporation (NVDA).

Nvidia shares surged on news of deals with the company’s technology for self-driving cars. Talk about finally living up to the hype.  Ten years ago, Forbes magazine, called Nvidia the ‘company of the year’ and the stock promptly crashed 65% in ten months. 

Buy & Hold Grand Slam

The last five years have been much friendlier to shareholders.  To those that have held on through the ups and downs, including occasional wild gyrations and last year’s attack by well-known shorts, the stock is up more than 1,600%.

Food for thought: for those that believe it’s too late to chase other tech names, including those tethered to things such as self-driving cars, artificial intelligence, robots, and the Internet of Things.

Economic Proxies

 Speaking of chasing stocks, additional big winners on Monday include Caterpillar (CAT), which fetched an ‘overweight’ rating from JPMorgan Chase & Co.  Transportation names continue to surge -it adds credence to not only the rally but also the sustainable growth in the underlying economy. Considering the market’s role as a harbinger of things to come, the Dow Jones Transportation Index (DJT) has rocketed since breaking out on November 29, 2017.

Retail & Consumer

Meanwhile, retail continues to be a positive surprise, reflecting more confidence among consumers.  Kohl’s (KSS) was written off last summer but has rallied 60%, in part to outperforming its rivals with same-store sales increasing 6.9% last month.  Crocs (CROX) also surprised the Street with strong guidance.

There will be a lot of retail bankruptcies again this year, but shares of survivors could be huge winners.

Finally, last Friday, I said the jobs number was perhaps “Goldilocks” because it was solid without a hint of inflation, allowing the Fed to play ball.  Yesterday, Atlanta Fed President Raphael Bostic suggested there might not be three interest rate hikes this year.

Crude Oil

Crude oil is the ultimate global commodity. There are a number of factors that dictate the price of oil, but demand is most important. That demand is a proxy on the world’s economies, which happen to be moving in unison- mostly higher. The supply-side has been an issue, but it looks as though the Organization of the Petroleum Exporting Countries (OPEC), Russia, and American producers are walking that high-wire of not pumping too much even with prices near a three-year high.

I am not sure how much longer key players can remain disciplined, but I think once West Texas Intermediate (WTI) closes above $62.00, everyone will want to hold on for the ride -an old-fashioned gusher.

Today’s Session

The brick and mortar revival continues with Target issuing better-than-expect comp store sales and raising fourth quarter guidance.  The most intriguing part of the announcement is how company stores fulfilled 70% of digital volume allowing for an 80% of improvement in comparable store sales.   This underscores the fact large retail chains have distribution centers via their brick and mortar outlets.

New tax rates having an immediate impact as well.

Initial Full-Year 2018 Guidance

While the Company has not updated its expectations for 2018 capital expenditures, the benefit of recently-enacted federal tax reform legislation will create additional cash flow that Target will deploy in support of its longstanding capital deployment priorities, including capital investments, dividends and additional share repurchase.

Yesterday, the stock broke a key resistance point and has a clear shot to $78.50. 

Another economic proxy, crude oil staging a major breakout attempt today. 

 


 

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