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Morning Commentary

Consumers & Businesses Lead Charge

By Charles Payne, CEO & Principal Analyst
4/19/2018 9:30 AM
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It was a more difficult day on Wednesday for the market as IBM held the Dow Jones Industrial Average back from what would have been a positive session that was enjoyed by other large equity indices. 

The consumer continues to play a major theme in this leg of the market rally, a point underscored by New York Fed President William Dudley, who commented on a recent lull in consumer spending as a one-off, an observation echoed in yesterday’s Fed Beige Book report where most districts saw increased consumer spending from mixed results in February.

Retailers Rocking

The Retail Index (RLX) rallied more than 1.1% yesterday and is currently up 15.8% year-to-date, and 38.6% in the past 52-weeks. In fact, it’s only fractionally below its all-time high.

Retail leadership is a mix of names, including Amazon-proof Home Depot (HD), to regional retailers such as Dollar Tree (DLTR) and Dollar General (DG).

King Amazon

After the close, Amazon (AMZN) announced in a shareholder letter that its paid prime memberships now exceed 100,000,000!  In a blink of an eye, the stock has come back strong, nearing its all-time high levels. The administration probably will never hurt the company, and competition is still catching up. 

The Nile might be a river, but Amazon is the king (like it or not).

Also, after the close, American Express (AXP) posted a strong quarter, offering guidance at the high end of a prior range.

Business Spending

Businesses are spending money, too. Textron (TXT) lifted industrials yesterday, in part to a surge in business jets, which saw profit margins almost double.

Textron

Textron
Business Segment

Performance

2018

2017

Aviation

Revenue

$1.01 billion

$970 million

Profit Margin

7.1%

3.7%

Bell

Revenue

$752 million

$697 million

Profit Margin

11.6%

11.9%

Systems

Revenue

$387 million

$416 million

Profit Margin

12.9%

4.8%

Industrial

Revenue

$1.13 billion

$992 million

Profit Margin

5.7%

7.7%

 

We are in the midst of a monster financial reporting period helped, in part by tax-cut-fueled windfalls that are sparking a fierce political commentary. 

According to an article in the Financial Times, JPMorgan Chase (JPM) is looking for $1.3 trillion in buybacks and dividends in 2018. Goldman Sachs (GS) is looking for $1.2 trillion in buybacks and dividends (returns to shareholders); +21.6% from 2017, and $1.0 trillion in cap-ex, and research and development +11.0%.

The merchants of division are complaining that businesses are using their earnings for the benefit of their shareholders and not a greater societal good. Here’s the thing: most Americans are shareholders and we all have skin in the game.

Strong Stock Market = Universal Benefits

The killjoys who are working hard to promote the idea that low corporate tax rates are only yielding more stock buybacks are wrong and are doing everyone a disservice.

The stock market is a barometer of the health of the economy.  Business decisions from hiring to expanding rely on strong market trends and the golden years of virtually all working Americans.

One of the most disingenuous comments I get from those attempting to promote the market as only the playground of the rich and powerful is that most Americans don’t have 401K plans. Well, 54 million Americans do own 401K plans, but that’s only one part of the retirement universe. 

There is $27.9 trillion in retirement assets in this country, and most of it is tethered to the stock market and the health of the stock market. 

$7.7 Trillion Defined Contribution

$8.92 Trillion Individual Retirement Accounts

Bottom Line

Corporate stock buybacks help stocks because it places shares in the hands of non-sellers while making those in the float more valuable; they help American society and help the overall market withstand short raids and fecklessness in the face of day-to-day challenges.

Today’s Session

Futures are pointing to a lower open across the major indices.  Pressure on the chip stocks will continue this morning as Taiwan Semi (TSM), the world’s largest semiconductor manufacturer, is lower following its first quarter earnings results, which missed estimates.  The company also guided second quarter estimates down citing lower smart phone demand and uncertainty in the crypto space.  This news has taken Apple (AAPL) down this morning as well.

The crude oil run-up is continuing, hitting a 3 ½ year high to $69.05 a barrel.

On a positive note, American Express (AXP) and Bank of Mellon BK) had better than expected earnings results and are trading higher this morning.  Let’s see if this can help the financial sector that has been down in recent trading.

Initial claims and Philly Fed data out this morning, and we will discuss it in the Afternoon Note.


Comments
Charles , as always excellent job sir. Even as mrkt continues to chip up, many are having excellent earning reports. Do you believe, pres Trump WILL receive the NOBEL PEACE PRIZE!? If pres Trump, does put the Korean war officially to end, & gets N.korea to denuclearization, & unite the N.& S. Korea's. Honestly any of the 3 should be a Nobel peace prize winner, but what us your thoughts? Will it help the mrkt?

Ed on 4/19/2018 12:31:01 PM
 

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