Morning Commentary
The market cheered President Trump’s trade triumph with a big rally in blue chips, led by Boeing (BA), which was the best performing name on the Dow Jones Industrial Average. Once again, we saw an early rally struggle midway through the session as the NASDAQ and Russell finished the day lower.
The yellow flag for the session was breadth, which has been flashing caution for a couple of months.
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+0.12% |
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0.00% |
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+1.64% |
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+0.36% |
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+0.52% |
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+1.07% |
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+1.35% |
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-0.36% |
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+0.47% |
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-0.21% |
Nasdaq 100
Interestingly, the NASDAQ 100 continues its rocket-ship ascent as each session seems to bring a higher price target for Apple (AAPL), Amazon (AMZN) and Netflix (NFLX) and NVidia (NVDA) keeps moving towards more importance for the index than two tech titans, Cisco (CSCO) and Intel (INTC). By the way, while it’s only the 38th most heavily weighted in the index, the 17% rebound in Tesla (TSLA) helped the market yesterday big time.
Looking at the S&P 500, energy continues its big rally following the coattails of higher crude.
The move higher in crude is happening as more nations abandon Iran’s supply and some say, as evidence, OPEC can’t control prices any more. At $75.40, West Texas Intermediate is at its highest level since November 2014 when crude was hit during the Saudi-engineered freefall.
While the S&P Energy Sector (XLE) is higher, its nowhere near the levels it traded back in November 2014. That suggests there’s a lot more room to the upside. I still like those Texas names like Concho (CXO) and big dividend payers like Chevron (CVX).
Two reports on manufacturing were strong.
Although showing increased signs of worry about the impact of tariffs along with persistent complaints about lack of workers.But everyone agrees the economy is strong.
Backlogs building significantly but price pass through to customers are solid.
PMI
Today’s Session
The rest of the week shifts to jobs and wages in a week that has the potential to see the market through key resistance that would surely trigger panic buying.
Key Breakout Points
King Dollar
While market breadth is worrisome, it also underscores the fact investors can’t simply throw darts. The threats to the rally are the Fed and the strong U.S. Dollar. The dollar is higher this year, but it has been much higher in recent years. There is no doubt, multinational companies without domestic pricing power are feeling the pinch from the stronger dollar.
President Trump and Larry Kudlow breached the idea there is a point when the dollar gets too strong. Apparently, presidents aren’t supposed to say that kind of stuff, and in the past, just suffered the anxiety in private solitude.
Dollar Too Strong or Business Too Weak
This morning, Pepsi offered subpar guidance and blames the strong dollar. Certainly, in the quarter’s results posted this morning, we could see where the strong dollar had a negative impact (see table).
The largest issue for Pepsi is the inability to pass on cost increases and the general lack of pricing power that has pressured most consumer staple names.
Still, we are watching the dollar, and like every investor, it does play a role in some decision-making.
Pepsi Business Segments Operating Profit Change |
As Reported |
Constant Currency |
Frito Lay North America |
3.5 |
4.0 |
Quaker |
(1.5) |
(1.0) |
North American Beverage |
(14.0) |
(11.0) |
Asia & Middle East |
17.0 |
19.0 |
Latin America |
Unchanged |
9.0 |
Europe |
3.0 |
9.0 |
Comments |
Pepsi blaming the dollar is extremely suspect. It sounds very much an excuse for products that continue not to sell well. David Howley on 10/2/2018 10:07:58 AM |
Charles, when our $s pay for an import our $s pay for a lot of "goodies" beyond the taxes embedded in the import! These "goodies" are an equal or possibly a much better yardstick than trade deficit! Harvey on 10/2/2018 1:00:59 PM |
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