Friday’s jobs report corroborated what the stock market has been saying for months – the economy is on fire.

Last Friday was an intriguing session for the market that continues to react to corporate earnings and economic data, and you should react as well.  I think the reporting on the market vis-a-vis the tariff battle has been unfortunate and misleading. 

It’s true that the first month of verbal threats and salvos had a dampening effect on the broad market. However, the Dow Jones Industrial Average is now up 1,900 points from its March 23^rd low point.   That’s a monster move that has accompanied increased U.S. threats along with the implementation of retaliatory tariffs by friends and foes.

Anyone spooked out of this stealth rally should know there is a lot more going on than fear-mongering and surrender. The economy and stock market are firing on all cylinders. It must be noted that as we wind down the earnings season, the high bar has been cleared and then some.

• Revenue +9.8%
• Earnings +24.0%

What we learned this earnings season is the American consumer picks his or her spots, and they are willing to fork out big bucks for iPhone Xs. But they are reluctant to pay extra for underwear or diapers, which wore on shares of Hanesbrands (HBI) and Procter & Gamble (PG).

The market, nonetheless, is a discounting mechanism and designed to opine more on the future than reflect on the past, which is why many of these same behemoths with no pricing power are now hot stocks.

Share prices and valuations have come down enough to make these names attractive. 

The New American Dream

The dream of the nuclear family living in the suburbs with a two-car garage has changed a bit. The family part is still on even if it’s partly delayed, but the car part is sliding into the dustbin of history.

Certainly, we are witnessing the death of the family car. Once a quintessential part of the American dream, people are nowadays calling on ride shares or opting for pickup trucks, sports utility, and crossover vehicles.

 

July Car Sales:

• Ford -27%
• Toyota -19%
• Nissan -21%
• Honda -8%
• Accord -19%
• Civic -28%

Interestingly, even with this slump, dealers moved away from high-risk ‘zero down’ lows, which dropped to only 6.9% of total loans, the lowest since 2005. In addition, the average discount dipped to $3,665 from $3,869.

The slower pace of auto sales and the lower Institute for Supply Management (ISM) service data saw the Atlanta Fed’s third-quarter Gross Domestic Product (GDP) estimate slip to 4.4 from 5.0% a couple of days ago. The fact Americans are paying up for SUVs is a more important narrative about the health of the economy.

The Message of the Market

As for the message on Friday, it was mostly a search for value and safety. As I’ve been pointing out, Consumer Staples (XLP) continues to outperform, led by Kraft Heinz (KHC) and J.M. Smucker (SJM), which I mentioned on Friday. The rally in the ten-year Treasury helped Utilities (XLU) and Real Estate (XLRE) stocks. 

Boring chemical names were led by LyondellBasell Industries (LYB) that sizzled. Folks, you are going to have to learn to like ‘boring’ in the second half of 2018. Remember:  if you’re making money, however, it’s never boring.

S&P 500 Index	+0.39%
Consumer Discretionary (XLY)	+0.30%
Consumer Staples (XLP)	+1.28%
Energy (XLE)	-0.60%
Financials (XLF)	+0.52%
Health Care (XLV)	+0.58%
Industrials (XLI)	+0.03%
Materials (XLB)	+0.91%
Real Estate (XLRE)	+1.21%
Technology (XLK)	+0.21%
Utilities (XLU)	+1.10%

 

Breakout Watch

For the S&P 500, there is some technical resistance at 2,847 beyond there, it’s hard not to imagine the index testing its all-time high point.

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