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Morning Commentary

That Was Fast!

By Charles Payne, CEO & Principal Analyst
1/5/2018 9:46 AM
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Thursday was another day of records across the board; the Dow Jones Industrial Average surged through the 25,000 level, achieving its fastest 1,000-point move (just 24 trading days) ever. While the percentage gain is obviously smaller at these levels, it’s still remarkable considering that the Dow needed more than 87 years to make its first one 1,000-point move.

February 16, 1885, to November 14, 1972

The dogs are barking as six of the so-called ‘Dogs of the Dow’ have outperformed thus far, led by General Electric (GE) up more than six percent along with the International Business Machines (IBM) that’s up more than five percent. These companies could turn it around, and it is clear Wall Street wants to chase them on good news.

The approach is something of a guessing game. Big money is seeking value in these underperformers that have big yields as a safety net. Verizon (VZ) is the only name that is lower, and that’s the stock with the biggest dividend yield. 

There are dogs without yields also coming on strong, including Chipotle (CMG), which looks very attractive albeit the higher-than-average risk, and Under Armor (UAA), which has edged higher along with Nike (NKE).

Of course, nothing beats the old-school approach.  Investment strategies involve less guessing and more number-crunching that connects the dots of a growing economy with the stocks that should benefit most.

On that note, I continue to love the action in materials, led by container and packaging companies on Thursday; WestRock (WRK) and Packaging Corp of America (PKG). 

Last year, I pounded the table on names associated with moving the economy.

I also continue to pound the table on industrial names that include trains and planes and diversified machinery companies, such as Cummins Engine (CMI).

Don’t look now, but U.S. crude inventories are at their lowest level since September 2015. West Texas Intermediate (WTI) is on the cusp of a major breakout with a close above $62.00. Another big winner will be EOG Resources (EOG), which announced a major windfall from the new tax law (including  Alternative Minimum Tax (AMT) carryover credits, depreciation write-downs), and an expectation that future earnings will not be subject to the U.S. Federal Income tax.

Main Street Tax Cut Dividends   

As we continue to get a detailed analysis from individual businesses such as EOG, critics are crying foul and suggesting the benefits are tilted too much for big business and rich folks (that don’t live in New York, New Jersey, or California). They are simply wrong about the impact on Main Street.

The Trump Tax plan has produced instant Main Street dividends. Each day, more and more companies are announcing windfalls for their employees, communities, and charities.

Dozens of companies have announced actions based on new tax rates that include a window to bring home overseas profits.

I’m sure everyone has heard about On-Us checks that generally ranged from $1,000 to $2,000. Here are additional ways America is benefiting:

There is mounting evidence that state-enforced wages have resulted in job losses, but when companies have the confidence to hike wages, there is no employment destruction. Several companies, including BB&T, now start employees from $12.00 up to $15.00.

Regions Financial is increasing its 401K match for its more than 22,000+ employees in addition to certain hospital and accident insurance products (free of charge).

When companies invest in infrastructure, it puts the community to work. Comcast announced its commitment to at least $50 billion over the next five years. Aflac is increasing its U.S. investment by $250 million.

U.S. Bancorp is giving $150 million to charity as a result of the new tax laws. There are five companies that have announced $355 million to charity, and I’m sure that number will climb significantly higher.

Yesterday, President Trump talked about Dow Jones 30,000, and I’m thinking ‘why not?’ It doesn’t mean that it comes in a straight line or without a scare or two, but it’s not so farfetched when compared to other periods in history. I see commonality between this period and 1995 and (also in 1925).  

Yes, those periods eventually led to massive crashes, but those were years later and were well- telegraphed with weakening fundamentals.  We are watching for that every minute of each day. Right now, I feel confident that such a scenario is a long way off. 

Today’s Session

This morning’s job report release came in at 148,000 for the month of December, substantially lower than expected.  This has given the market some pause, but it hasn’t erased the pre-open strength.  On one hand, there is the notion this is a Goldilocks report; not too hot or cold.  But the fact is, there are some areas I would have liked to see better numbers.

By the same token, I’m thrilled with goods producing jobs:

I’ll have a more detailed look in the afternoon note. 

Charles, can you go back covering business more than politics? You were good at teaching investing.

Pat Brown on 1/5/2018 11:30:21 AM
That's a goal this year...tired of nonsensical gossip like questionable books and soap opera drama while America in the midst of an amazing rebound. There are important connections between politics and the economy and market but too much negative stuff all based on biases that mean nothing to investors. CP

Charles Payne on 1/5/2018 11:33:18 AM
I believe that we are just beginning to see a roaring economy. The intersection of politics and economics is what is driving this stock market. Companies obviously believe that the current administration and the policies that have been enacted are better for their business than not. It's an exciting time to be an investor and to seek out which sectors will benefit first. There is an optimism and energy in my area of the country that I have not seen in 8 years. We will see pullbacks but we will also see new highs in the markets and there are a lot of opportunities out there. Looking forward to 2018!

Michelle Johnson on 1/5/2018 1:27:48 PM
Enjoy watching Charles on Fox.

Vincent Tullo on 1/6/2018 10:54:09 AM
Thank you very much Vincent. CP

Charles Payne on 1/6/2018 3:20:06 PM

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