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Morning Commentary

Marketís Rally as Trump Pitches Tariffs

By Charles Payne, CEO & Principal Analyst
2/14/2018 9:40 AM
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President Trump took on lawmakers from both parties, fighting for the rebirth of American Industry crushed by bad trade deals.  Trump met resistance from both sides of the aisle, including Republican senators Roy Blount and Pat Toomey who worry about a reciprocal tax sparking a trade war. 

The White House is mulling the use of a provision in the Tariff Act of 1930 when the trade becomes a national security issue, which prompted President Trump to state: "If we ever have a conflict, we don't want to be buying steel from a country that we’re fighting."  Of course, the bigger argument for better trade deals and better protection is American jobs.

By the time President Trump was inaugurated, manufacturing lost 7.1 million jobs since 1979 and has gained 204,000 since.

President Trump ran on this very issue, so it was dicey to watch lawmakers try to mitigate the idea that we should be fighting fire with fire.  Representative Kevin Brady explained the complications of supply- chain manufacturing that watches a product cross borders several times before the finished product.  Of course, it should be noted Brady represents the state of Texas, which enjoys a trade surplus with Mexico.

I really appreciate these meetings being held for all to consume.  It puts lawmakers on the spot, but it also allows for public pushback.  On that score, I didn’t see a lot of people fighting for the average worker, save for a collective agreement on some kind of surgical approach that singles out China and no other trading partners.

The fact is while China is only 2% of the 16% of imported steel; the dumping has roiled the economy just as it has all over the world.  

The real tension in the room was the main theme of the election; what's more important is profits for the elites versus jobs for Americans.  President Trump threw this out a couple of times saying:

Ironically, progressive senators, Brown and Wyden caught the hint and agreed action should be taken and even offered to help with infrastructure.

The Market

Although the market is not up as much as Friday or Monday, the session Tuesday saw the Dow climb off the canvas, down as much as 180 points to finish the session higher.  Perhaps the pendulum of panic is swinging toward fear of not being long.

By the same token, market trading has become a concentric circle but as parameters tighten, there’s an eerie calm about the next big directional move and what triggers that move. Because inflation has been talked up so much, there is more anticipation for the Consumer Price Index (CPI) read than I can remember in years.

Key Economic Reports

Retail Sales:

Consumer Price Index

Let Wages Bloom

As the hysterics over whether this is the bottom or not start to subside and we get used to the idea that an increase in inflation isn’t the same as runaway inflation, perhaps it’s time Americans got higher wages.  If the Federal Reserve wants to snuff this out, it would be a great mistake. 

So, I’m looking for the market to shift back to rally mode and accept that more gyrations are going to be par for the course.    

As the market works out near-term hiccups, we continue to get evidence the economy is on a roll. 

As for where you want to be invested, I continue to look at the consumer discretionary to outperform.   Interestingly, however, it’s been the ‘Also-Rans’ or names that feel completely out of favor that has come with the broad market that went into a tailspin.

Yesterday, it was Under Armour (UA), which beat lowered expectations and offered upbeat guidance, sending its shares up more than 17%. The stock closed at $16.70, down only 67% from the all-time high of $52.00 back in September 2015. 

After the close, another former high-flying consumer discretionary name is popping big time:

Despite being left for dead (I couldn’t resist), Fossil Group (FOSL) shares are up more than 50% in reaction to its earnings release.  I always rail against the insatiable greed of shorts, in this case, more than 75% of the float is short - look for some serious pain.

Another company that was once the toast of the town, looking to have a great session today is Chipotle Mexican Grill (CMG); it announced a new CEO, sending its shares up more than 11%, and I should note that 25% of the float is short. Right now, it’s not looking like a great day for folks that bet on stocks to get hammered.

My key parameters for the market remain 25,200 on the upside, and 23,860 on the downside. 

Today’s Session

Well, today provides a big test for the stock market, which indicated higher all morning only to stumble upon the release of Consumer Price Index (CPI). 

This report was so hyped up that the slightest number above consensus was going to send stocks lower, and that’s indeed the case.

With headline CPI +0.5% in January from December, the market shifted into a tailspin.  I think it’s a tremendous overreaction.  It’s the third +0.5% gain in the last twelve months, including January 2017. 

That said, the market must re-test lows established last week to find true terra-firma.  So, what better test than inflation-hysteria from the hysteria crowd, which can now stop worrying about deflation.

I will go more into details on CPI and Retail Sales, which missed consensus, in the afternoon update.

 


Comments
Charles, glad you're here to make some sense out of all the different and conflicting signals!

myles on 2/14/2018 10:01:49 AM
Thank you Myles there has been some horrible coverage - akin to screaming "fire" in crowded theater - always watch to see if screamers A) aren't fleeing themselves & B) are always screaming. CP

Charles Payne on 2/14/2018 10:04:18 AM
The gov changed 5 methods of data calcs for January.
Nobody mentions at Financial news. Just scary sell everything. Absolute nuts.. Ignore there negative.

Donald J on 2/14/2018 10:24:28 AM
I watched your comments this morning on Maria B and I thought your voice of calm and let's not over blow an inflation rate of 2.1% was will stated. It's almost 11am EST and the markets are now positive and all the dome and gloom seems to have vanished.
A comment on the county's debt. I hear little talk of the $4 to $5 trillion of debt that is on the balance sheet of the Federal Reserve. What happens when the Federal starts to reduce this debt and its effect on the economy? It would seem to me that this would help to offset some of the stimulus that has been added by the tax cuts and the increase in fiscal spending. This should also lead to high interest rates. The total debt of USA is more in the neighborhood of $25 trillion plus if this is include.

John Stegner on 2/14/2018 11:05:43 AM
Charles it is nice to have your voice of reason. Even the FBN wants to sensationalize everything. Now Stuart is upset about inflation. I'm learning to watch less. Maria is a reasonable voice too.


John S Perry on 2/14/2018 3:30:08 PM
 

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