Other than all the hoopla over the record bull run, Wednesday was a typical summer session. The Dow Jones Industrial Average struggled all session long to gain traction and finally gave up after the Federal Reserve minutes were posted.

Market Breadth

Blue chips were mixed as buyers continue to charge back into fallen high-flyers like Nvidia (NVDA)and Netflix (NFLX). Gaming stocks act great, and I think they could be swept up for those entities that need content to remain relevant. The action in Advanced Micro Devices (AMD) hints at a possible takeover.  The stock has been in the rumor mill for a decade. 

NYSE & NASDAQ: New Highs 246 - New Lows 50

The Fed and Truth about The Trade War

There were several lines in the Federal Open Market Committee (FOMC) statement that mentioned trade, and the media took that and ran with it, ignoring the more troubling aspects of the communique:

Escalating trade tensions between China and the United States prompted notable market moves, particularly in foreign exchange markets. News on an agreement between the United States and the European Union to continue talks to resolve their trade disputes provided some support for global equity prices.

On the downside, trade policies could move in a direction that would have significant negative effects on economic growth.

First, the notion that the market has been dragged down because Trump is fighting back on unfair trade practices is misleading. Look at the biggest selloffs in 2018 and see where three of the five selloffs happened before the so-called Trade War, and in fact, were sparked over worries of excessive Fed tightening:

• -1,175 Feb 5
• -1,032 Feb 8
• -733 March 22
• -666 February 2
• -572 April 6

Interestingly, the Dow’s bottom came on March 23^rd when the steel and aluminum tariffs went into effect. Since then, the Dow is up 2,200 points, close to a 3,000-down point; it’s occurred because of worries the Fed will misfire. 

The FOMC minutes exposed concern over what tools to employ during the next crisis, discussing the return of an “effective lower bound” or the (ELB). The good news is they might not have to employ these measures for up to a decade:

The staff’s analysis indicated that under various policy rules, including those prescribing aggressive reductions in the federal funds rate in response to adverse economic shocks, there was a meaningful risk that the ELB could bind sometime during the next decade.

Chasing Fundamentals

After the close, the board of Nordstrom’s (JWN) voted to buy back $1.5 billion of their own shares while affirming their dividend of $0.37.  In the past week, Wall Street consensus for FY2019 earnings has climbed to $3.77 from $3.63, and it probably goes higher. It underscores the fact management isn’t chasing performance – it’s anticipating it.

The American Consumer

Yesterday, several retailers closed at 52-week highs, reflecting a range of income levels, and signaling that all American consumers are enjoying greater confidence to go out and buy the following:

• (BBY) Best Buy
• (AEO) American Eagle Outfitters
• (COST) Costco
• (DG) Dollar General
• (FIVE) Five Below Inc
• (TJX Cos.) T.J. Maxx

The Beat Goes On

After the close, Williams-Sonoma (WSM) posted a very powerful earnings report:

• Comp-store sales +4.6%
• E-commerce +53.9%
• Pottery Barn +2.0%
• West Elm +9.5%
• Williams-Sonoma +1.6%
• Pottery Barn Kids +5.7%

Today’s Session

Children’s Place (PLCE) posted powerful earnings results driven by the highest comp store sales results in its history.  I thought it was interesting that management used the report to take shots at critics that thought the retail chain would bite the bullet by noting it purchased $1.05 billion in its own stock and paid out $83 million in dividends since 2009.

Despite the results, and several upgrades, the stock is struggling this morning; but, we are staying long in the model portfolio.

Alibaba (BABA) actually missed on earnings, but it posted impressive top line growth with key metrics, including active buyers climbing 24,000,000 to 576 million powering Cloud revenue $4.7 billion, +93% to go with strong Digital revenue of $5.98 billion from $5.51 billion. 

This is one of the names in our special value/rotation update. If you are long, make sure to update the subscriber tracker.

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