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Morning Commentary

Looking for Fresh Leadership

By Charles Payne, CEO & Principal Analyst
8/13/2018 9:40 AM
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Thus far, 2018 has seen several investment themes and obstacles, which has left investors with a degree of limbo. Year-to-date, it’s clear that Technology (XLK) and the U.S. domestic economy have been the biggest winners:

However, as I look at the last three months, the themes that stand out are the market’s obvious search for leadership outside of technology. The result has been a surge in Consumer Staples (XLP) based on valuations, not execution, which has been abysmal in an environment where people aren’t going to pay up for underwear, paper towels, and soup.

Healthcare (XLV) has been on fire from hospitals to biotechnology that has posted strong earnings results.  Meanwhile, Utilities (XLU) have outperformed Technology as fast money has bailed out from several high-flying tech names into the safe harbor of Utilities. I believe this is a temporary pit stop, but it circles back to the main issue for investors as to where to invest if it’s not in Big Tech.

If the current pattern continues with Big Tech, which is somewhat shaky with major downgrades (like the one that clipped semiconductor names last week), Health Care and Consumer Discretionary (XLY) could mathematically carry the S&P 500 as their combined weighing offset technology. It’s a sideways move in technology, but if Big Tech falters, it would take several components to make up the difference.

Percentage of S&P 500:

With respect to Consumer Discretionary names for this week, it’s big for brick-and-mortar retailers, scheduled to post quarterly financial results. 

Walmart (WMT) is the biggie because its hurdles are higher than other retailers. They are going to have to speed up omnichannel execution. Home Depot (HD) is also very important as a proxy for homeowners. Other retail names will have the dual-ended challenge of justifying their own rallies while looking to provide catalysts to break through recent resistance points.

Premature Death Rites:

S&P 500 Index


Consumer Discretionary (XLY)


Consumer Staples (XLP)


Energy (XLE)


Financials (XLF)


Health Care (XLV)


Industrials (XLI)


Materials (XLB)


Real Estate (XLRE)


Technology (XLK)


Utilities (XLU)



Technical View

The S&P 500 has a great-looking chart with the current channel of higher highs and lows and holding well-above its 50-day moving average.  It looks like the 52-week high should be tested this week.

Dow Jones Industrial Average

This chart is a little more tortured than other major equity indices. With so many multinational names under pressure from the tariff battle and all the negative assumptions for them to defeat, it’s impressive the Dow has held up as well as it has, but it might need big news on trade negotiations to really break out.

Boeing (BA) reports its Financials on Friday.


So, we are now on Turkey watch in addition to Russia and Iran, as they are bad actors with defiant rulers that would rather save face than do the right thing for their own countries and the world. These situations are different than the Chinese trade battle, but we are talking about a de facto dictator who is digging in there and using a fight with the United States for domestic support. 

Turkey has been in economic trouble for some time. The Turkey ETF (TUR) slipped under the 50-day moving average back in March, and its downward spiral has only gotten gained momentum.


Today’s Session

Equity futures were down all morning over continued fallout in Turkey where president Erdogan has pushed back on central bank action needed to stem market and currency losses.  The markets have staged a rebound of sorts and markets opened in the green.

NASDAQ is picking up steam and Tesla is up over 2% as Elon Musk has posted an update on the going private saga:

"Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private. Recently, after the Saudi fund bought almost 5% of Tesla stock through the public markets, they reached out to ask for another meeting. That meeting took place on July 31st ... I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed."

Elon Musk

Also, this morning, Sysco posting very strong financial results and is reminding investors there is more to the market than Cisco and tech stocks.

Let’s see how the market holds up this morning.



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