Friday was a great session for the market. Several major indices reached new record high levels, and the Dow Jones Industrial Average was within the shadow of its all-time high.

In fact, Friday saw the renewed extension of the remarkable run of record new levels under President Trump:

• 76^th new high S&P 500
• 92nd new high NASDAQ
• 57th new high Russell 2000

Market Breadth

I remarked on Thursday night that market breadth was looking better and better, and Friday was very bullish.

Advancing issues versus decliners and the up volume against the down volume were more than impressive and encouraging.  In addition, there were 305 new 52-week highs versus only 72 new lows on the NYSE and NASDAQ

Sadly, too many investors are missing the rally, which is still in stealth mode. All types of media, including 50% of financial media, will remain focused on political intrigue and their obsession with the so-called trade war, and all the other things that could happen rather than acknowledging what is happening.  

What’s happening is that the economy is on fire, and this is not a flash in the pan.

The Message of the market

The best performing sector was communication services, powered by the continued rebound in shares of Netflix (NFLX) and great action in video game names.

In addition to a resurgent consumer, we saw a key measure of business investment, non-defense capital goods ex-aircraft, jump 1.4% in July.

That news helped the material sector to a very strong session.  There are so many great names in the sector, including Sherwin-Williams (SHW), which is extremely inexpensive.

Oil Industry Blinks

A big decline in U.S. oil rigs helped oil spurt higher. According to Baker Hughes (BHGE), U.S. rigs declined by nine in the most recent week.  I think this tells us that West Texas Intermediate (WTI) has support around $65 a barrel. Concho Resources (CXO) is a keeper in the oil patch.

 

So, Where Do We Go From Here?

There are several ways to be involved in this market. You can continue to chase fundamentals, which means buying stocks at new highs if the underlying fundamentals are improving as rapidly. There is also room in everyone’s portfolio for names that haven’t popped yet. 

Right now, 20% of the names in the S&P 500 are still in a bear market, and many will come on strong out of the blue. It takes more work to find those, but the payoff is worth it. The challenge for investors is not to buy these names haphazardly, because they are averse to chasing winners, or too embarrassed to buy stocks they could have owned much cheaper.

As for the trade war, it has slowed down the Dow Jones, but in the process has created mindboggling opportunities. 

I think it’s nuts not to have Boeing (BA) in every retirement portfolio. The stock is extremely cheap, and China needs their planes.

As for the trade battles that continue, there is more reason to expect not only a deal with Mexico but also Canada, which has become more of a battle of personalities. Of course, it doesn’t help the negotiating process when the U.S. media sounds like Chinese, Mexican, or Canadian media. Over the weekend, I read that President Trump hates Canadians- which is a destructive commentary.

I don’t think Justin Trudeau hates Americans, even those American dairy farmers that got the shaft when Canada plugged the North American Free Trade Agreement (NAFTA) loopholes to protect their own dairy farmers.

This week could be slow with low volume, but the panic pendulum (at least for the professionals) is swinging back to not having enough exposure. The economy train left the station last year, and this recent pause in the market was a chance for everyone to get on board.

The great news is it’s not too late.

On Friday, the durable goods release was reported as a miss, ignoring the most important part for investors that business investments exploded higher. This resulted in the Atlanta Fed lifting its current quarter Gross Domestic Product (GDP) to 4.6% from 4.4% (it began the week at 4.3%).

The pendulum of fear has shifted from losing money to not making money. Everyone was caught flat-footed for a number of reasons. You better stop listening to people that don’t crunch numbers from media that reports based on its feelings toward the White House rather than the facts on Main Street.

Today’s Session

In addition to a potential announcement on a new NAFTA deal, investors are taking notice at the latest move by the People’s Bank of China to stop the Yuan from depreciating.  Those folks in America rooting for China in this showdown have flipped, after saying over and over, China could simply devalue its currency to counter U.S. actions.

It’s not so simple.

Consumer spending is the highest percentage of China’s GDP than in any point in history.  It’s crazy that China would put the ego of its president over the fortunes of its people, and growing economy, which has giant fault lines near the surface.

The most important aspect of the morning, however, is the U.S. economy.  So don’t get too caught up in the back peddling of those that predicted the market was going to fall out of bed, and who are now trying to cover their tracks. 

Comments

Actually I think the economy is realigned where spending is going. Home sales are down which people have money left over from the mortgage they'd be paying otherwise. That's great news for several other sectors including retail. Brian Bigelow on 8/27/2018 10:03:08 AM

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