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Morning Commentary

U.S. Most Attractive

By Charles Payne, CEO & Principal Analyst
8/15/2018 9:55 AM
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Tuesday was a good day for the market that saw each sector of the S&P 500 trade higher, led by Consumer Discretionary (XLY) and financial names, which should get a boost after yesterday’s news that Warren Buffett hiked his holdings in Goldman Sachs (GS) by 21%. 

I think the market is set up for balanced portfolios to score big with momentum names, as breakouts are sending stocks parabolic. There are a lot of great and boring names with great risk-reward levels here. On that note, I love the action in industrial names, and at some point, material names are going to gain traction. I think everyone should own a packaging and a chemical name.

S&P 500 Index

+0.64%

Communication Services (XLC)

+0.71%

Consumer Discretionary (XLY)

+0.97%

Consumer Staples (XLP)

+0.70%

Energy (XLE)

+0.24%

Financials (XLF)

+0.94%

Health Care (XLV)

+0.47%

Industrials (XLI)

+0.70%

Materials (XLB)

+0.84%

Real Estate (XLRE)

+0.39%

Technology (XLK)

+0.62%

Utilities (XLU)

+0.21%

 
Consumers and Railroads

Brick-and-mortar retail continues this week in fine form, crushing earnings - and for the most part, taking off like rockets. In reality, this would be the second or third stage of liftoff for many of these retail stocks, which have been on fire since early spring, when they pulled away from the Dow Jones Industrial Average.

The SPDR S&P Retail ETF (XRT) is now up more than 30% in the past year, which has doubled the performance of the Blue-Chip Index.

Riding the Rails

The Dow Jones Transportation Index (DJT) has been in a great uptrend since the start of July, and it isn’t too far from its all-time high. If this happens with crude oil moving higher, it would be a huge overall buy signal.

Disgruntled Young Americans

Gallup released a poll on Monday that made headlines everywhere, but the story was misinterpreted in my opinion. There isn’t a lot of news on Democrats embracing socialism, but there is a lot of news and red flags in young Americans abandoning capitalism.

View on Economic Philosophy

Positive View Capitalism

Positive View of Socialism

Democrats

18 – 29

Democrats

18 -29

2018

47

45

57

51

2016

56

57

58

55

2012

55

56

53

49

2010

53

68

53

51

I think the Gallup Poll is a critical cautionary tale for both parties. I, like most people, thought the headline was Democrats embracing socialism. However, a deeper dive into the data shows greater support in recent years. The bombshell is that it shows a sharper decline in positive views of capitalism. 

The Democrat’s positive view of capitalism tumbled to 47%, while 57% of the Democrat’s positive view of socialism was actually 1% lower than two years ago. It’s the same with adults, 18-29-year-olds, whose positive view of capitalism has swooned to only 45% versus 51% for socialism.

This is an issue for Democrats because many think the rejection of capitalism means they should turn to socialism despite its historical trail of broken nations. Conversely, Republicans continue to cling to the same old "free market" talking points that many believed allowed the hollowing out of the nation's heartland. Folks want a chance, but most folks think the limits are caused by the hoarding of cash and opportunities by the wealthy (this was even a factor in the Brexit vote).

Meanwhile, the elites are tone-deaf, or simply have such little regard for real-life experience of others. They insist those that think differently are ill-informed or stupid. I'm only offended when these folks call me anti-free market and their arrogance in thinking they have all the answers. Adam Smith wrote books, not a Bible. 

If both parties ignore these trends, we are going to see the kind of destabilization of the country in the future, in a search for radical solutions.

By the way, the poll reflects comments from Credit Suisse about ‘The Unlucky Millennials,’ which suggested Millennials have had an unlucky start to adult life. The report talks about student loan debt and the lack of opportunity, or perhaps the lack of gumption to do things such as starting a business.

It is sometimes claimed that Millennials are starting more businesses than earlier generations but data suggest otherwise: only 2% of Millennials in the United States are self-employed, versus 8% of Generation Xers (those born between 1965 and 1980) and baby boomers.

These are disturbing trends that the elites better see and acknowledge.

Follow the Money

The Bank of America/Merrill Lynch Global Wealth Advisor Survey of more than 200 investment managers in charge of more than $700 billion in funds revealed for the first time in five years that the United States is the best place to invest. Moreover, despite some worries about how trade battles play out, these investment managers are loading up on equities.

I think they finally figured it out. 

 

Today’s Session

Stocks have been under pressure all morning long and conventional wisdom says it’s mostly worries the China stock meltdown is moving to a more sinister phase –the kind of panic that triggers greater economic woes.  Overnight, Tencent (TCEHY), the second largest publicly traded Chinese tech company after Alibaba ($418 billion and $443 billion, respectively), missed on earnings, and that stock is under a fair amount of pressure.

The stock is down 27% since peaking on January 22nd

TCEHY

I think the damage in the China tech sector could help move that nation toward resolution on trade sooner rather than later.  I’m not rooting for more damage.  In fact, there is a point when it gets too deep that the powers that be might think continued theft of intellectual property is the only way to stay in the game and move towards the realization of Made in China 2025.

It’s a lofty goal of becoming the world’s preeminent technology powerhouse.  Meanwhile, the Shenzhen Stock Exchange, home of China’s biggest tech companies, is now down 53% from its peak June 12, 2015.

Retail Sales

Retail sales report was another grand slam and there were more great results from big brick and mortar names.  Macy’s shares are lower, but that’s more about selling on the news after the monster rally over the past year, but the numbers are fantastic.

The July Retail Sales report was huge!  We’ll have greater details later, but it reflects a strong and confident consumer going out to dinner and even strolling malls and department stores.

There is a lot of additional economic data out this morning as well.  We have a lot to digest, so for the moment.


Comments
Charles, the main reason that young folks are now more negative on capitalism is because the universities have placed them with a huge debt just for getting a 4-year degree while filling their heads with anti-capitalist/pro-socialist lies.

Bob Dunham on 8/15/2018 7:13:24 PM
 

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