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Morning Commentary

The Old Oxen Pull the Wagon

By Charles Payne, CEO & Principal Analyst
11/6/2018 9:23 AM
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On Monday, the Dow was up 190 points. It was a solid session, and market breadth continues to improve on the NYSE, as investors continue to rotate into high-quality names, with strong cash flows and lower valuations.

It’s really happening. The market is learning how to move higher even when the biggest names, once the engine of the market rally, continue to fall back to earth.

Consumer Staples, which has suffered from lack of pricing power, has a couple of stalwarts, including McCormick (MKC), up 44% year-to-date.

Energy was higher after stumbling with plunging oil, but Exxon Mobil (XOM) and Chevron Corp (CVX) reminded investors of the attraction of a massive cash flow. 

Consumer Discretionary fended off weakness from Amazon (AMZN), which represents 20% of the index.   After the close, Booking Holdings (BKNG) crushed Wall Street consensus, and guidance was well above the Street. The shares rocketed $125 points in after-hours trading.

BKNG

Symbol

Select Sector SPDR Fund

Last

Change

% Change

XLC

Communication Services

45.65

-0.19

-0.41

XLY

Consumer Discretionary

108.12

+0.15

+0.14

XLP

Consumer Staples

55.80

+0.69

+1.25

XLE

Energy

68.69

+1.13

+1.67

XLF

Financials

26.80

+0.42

+1.59

XLV

Health Care

90.05

+0.79

+0.89

XLI

Industrials

71.36

+0.37

+0.52

XLB

Materials

54.12

+0.16

+0.30

XLRE

Real Estate

32.47

+0.53

+1.66

XLK

Technology

68.67

-0.07

-0.10

XLU

Utilities

53.90

+0.75

+1.41

 

As much as I’m cheering the fact the market can move higher with new leadership, a lot of those high-flyers or former high-flyers are looking very attractive, and at some point, these names will turn higher as well.

This entire exercise has a lot of inputs from the strong dollar to Fed policy, and now potentially harmful regulations and antitrust actions from the Trump administration. It’s not going to happen, so I feel for those that might have bolted from the shares for that reason.

On the other hand, these companies are looking more vulnerable to competition than they did at the beginning of the year, so we are going through a new price-discovery phase.

Skills Gap

There were reports yesterday of Amazon splitting its plan for a second headquarters to two cities instead of one. There might be political ramifications if those cities are in Northern Virginia (near Washington, D.C.) and NYC, but the move also underscores the lack of enough skilled workers in one single city.

This is a huge and growing problem that must be addressed. This morning, we’ll get an update on job openings, which could see another record amount of job openings. The last report saw a record 7.1 million. The problem is filling those jobs.

Portfolio Balance Changes

20 equally-weighted positions

Material names Mosaic (MOS) and Nutrien (NTR) posted results after the close and traded higher.

Consumer Discretionary name Marriott International (MAR) missed on revenue and Revenue Per Available Room (RevPAR) was +1.9%; consensus was 3.1%. The stock tumbled hard.

Industrials looked great yesterday. While it’s not a component of the S&P Industrial sector, Manitowoc (MTW) beat on revenue and earnings, and management raised its dividend to $0.43 from $0.40. 

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

2

3

1

1

1

1

Industrials

Materials

Real Estate

Technology

Utilities

Cash

2

4

0

2

0

Today’s Session

Martin Marietta Materials (MLM)

The company posted mixed results in part to the impact of Hurricane Florence and record rainfall in Texas.  But, it’s the company’s guidance and preliminary outlook for 2019 that investors should focus on, especially the part about infrastructure activity.

I think no matter what the outcome of today’s election, we are going to see more spending at the federal and state level on infrastructure.   I don’t know where the money comes from, but then again, our federal government has spent $21 trillion it didn’t have, so something will happen.

The public-private partnership outlined by President Trump might have to be reconfigured, but there will be some kind of funding scheme reached.  Martin Marietta Materials mentioned the FAST Act.

FAST Act or Fixing Americas Surface Transportation Act was passed on December 3, 2015.

The act provided $305 million in funding over five years through a combination of funding changes in passports rules, Federal Reserve Bank dividends and privatized tax collection.  This was all done to avoid hiking the federal highway tax.

Preliminary View of 2019

Martin Marietta Materials

November 5, 2018

Infrastructure construction activity should benefit from the funding provided by the FAST Act as state DOTs and contractors continue to address labor constraints and the benefits of further regulatory reform emerge. Additionally, state and local initiatives that support infrastructure funding, including gas tax increases, bond programs and other ballot initiatives, continue to garner voter approval at historically attractive levels and will play an expanded role in public-sector activity.

Nonresidential construction activity should increase in both the commercial and heavy industrial sectors for the next several years across many of the Company’s key markets as supported by third-party forecasts. Continued federal regulatory approvals, supported by higher oil prices, should notably contribute to increased aggregate consumption from the next wave of energy-sector projects, particularly along the Gulf Coast. Construction activity for these projects is expected to begin in earnest in 2019 and beyond.

Residential construction should continue to grow. Management believes a shortage of single-family housing units exists, particularly for entry-level homes; a need the homebuilding industry is now beginning to address. Martin Marietta’s leading positions in southeastern and southwestern states offer superior opportunities for gains in single-family housing driven by a multitude of factors, such as affordable land, lower taxes and fewer regulatory barriers. Residential housing starts of 1.2 million units for the trailing twelve months ended September 2018 remain below the 50-year average of 1.5 million annual starts.

Martin Marietta remains confident in its near- and long-term outlooks given the disciplined execution of its strategic plan and its attractive geographic footprint. Underlying market fundamentals, including employment, population growth and state fiscal health, are robust and the Company’s markets show no signs of either a slowdown or being overbuilt.

Why I Vote

My grandmother was fiercely independent and hard-working.  She was born and raised in Alabama.  She had no formal education but learned to read and loved newspapers and listening to news on radio.  

She and my grandfather had a nice size farm in Uniontown where they raised a dozen children.  It was back-breaking working with a couple of mules, a horse and hand plows as their only tools.  They had some chickens, pigs, hogs, and cows as well as crops like okra.

My grandfather built a store that was really a shack, but it was his, and he wanted it to be a success.  The Klan burned it down.  But my grandparents never stopped.  That doesn't mean they weren't afraid.  My grandmother slept with her arms crossed, never using pillows so she could listen for night riders.

One year, she decided she wanted to exercise her right to vote.  Blacks in the town had been warned not to show up or they would be physically harmed.  Nobody thought it was an idle threat because it had happened before.  Still, my grandmother wanted to vote.

She was tough.  They had an old wood-burning stove, and I would watch her take red-hot pieces of wood embers with her bare hands and shift them around.  

On Election Day, she went to vote along with a few others and were greeted with anger.  My grandmother and others were placed inside a small room and told to wait.  As the clock ticked, they wondered if they made a mistake and began to think they were going to be taken somewhere and beaten up, or worse.

After some time, the door finally opened and in walked Martin Luther King Jr.  His first words were “everything is going to be alright.”  We all have stories of those that did brave acts for a better future for their family.  In the process, they made it a better future for all Americans.

This is why we owe it to them to exercise our right to vote and to make sure we are making it a better future for our families and our country.    

Its fine if we have different opinions on what makes the country better, today is the day to civilly and proudly act on those opinions. 

God Bless America

 

  

 


Comments
The story about your grandmother is truly inspirational. God bless.

Brian Baker on 11/6/2018 9:52:51 AM
Thank you for sharing why you vote, Charles. A lesson for all of us!

Richard Spalding on 11/6/2018 9:58:57 AM
Thank you for the wonderful and inspiring story. Today too many things are taken for granted.

Rich Sherman on 11/6/2018 10:03:38 AM
Thanks for that Charles. I'm obviously a fan. Your grandparents were inspirations. So are you. Don't stop.

W Gilmore on 11/6/2018 10:07:16 AM
What a legacy! Thanks for not only offering fine investment advice but inspiring our patriotism and support of America and capitalism.

Ray Weldon on 11/6/2018 10:15:32 AM
Thanks, Charles, good for you! Great story...for each of us to learn why voting is so important!

Michael T. Holloway on 11/6/2018 10:27:31 AM
All I can say is "WOW" what a great memory.

John Cowger on 11/6/2018 10:29:43 AM
have come to truly appreciate your economic and investment advise.....however, your GrandParents story is best of all!

Don Paschal on 11/6/2018 10:38:53 AM
My grandparents were from Sicily. Came to America in the early 1900s and started working hard because they had nothing. They died with a lot to be grateful for and a great deal of pride. These people who built America were tough, resilient, non-complainers and non-victims. They didn't ask for anything but a chance. I am sorry for a generation who knows little of their heritage and less of the sacrifices success requires and the role of character in the process. I hate to paint with such a broad brush, for there are many good young people who get it, but for the most part the left in my opinion is destroying these virtues in our education system by policy and greed. I don't believe many on the left understand the importance of education and economy on the quality of life for our country. GO VOTE. Thank you for sharing that great and inspirational story. I hope your grandmother is looking with pride at her grandson from a glorious place.

Charles Guercio on 11/6/2018 10:58:44 AM
Charlie...thanks for sharing your families story...wow SHE stepped out in faith and look what God brought to her...love story's with happy endings
Hey Charles big guy...take me to the top...Respects !!!

Rod C Bullard on 11/6/2018 11:31:08 AM
Thanks Rod I've been blessed to have so many strong women in my life from my grandmother to my mom and now my wife. CP

Charles Payne on 11/6/2018 11:55:51 AM
We must find a way in this Country to re-engage and educate our young people into the potential of America. It has endured trials and tribulations through many dark and disgraceful periods and still managed to offer freedom and opportunity to many throughout its history. The greatness of America is not our Government but, in the aspiration, character, and inherent good of the majority of the people who call America home. Voting and participating in a collaborative effort to better everyone's lot in life is truly a gift many fail to realize they have.

garro on 11/6/2018 12:04:45 PM
No surprise about Amazon and northern virginia,fact is, Amazon cant compete with federal government employee and federal conractor wages there, thats the real bottom line

Ernie on 11/6/2018 12:34:48 PM
Charles we are honored to know more of what makes you a fact, & TRUTH reporting person. As for DEMOCRATS &KLAN SINCE DEMOCRATS FOUNDED KLAN,& SUPPRESSED the REPUBLICAN votes, spread hatred, violence AGAINST all others that looked different or voted with their OWN mind. My family is part Japanese,& NATIVE AMERICAN,
KLANSMAN DEMOCRATS FORCED MY grand parents, & my father &aunt ,after beating them,& burning their store, and house down, ( yes even my 3yr old aunt and my dad 8 yrs old at the time, were beaten by DEMOCRATS &KLAN). Then forced into Democrats internment camps with nothing but their bloody clothes torn from beatings on their backs (like 115,000 other USA CITIZENS JAPANESE AMERICANS.) FOR YEARS, never to get their rights back, money, or their property, as it was all burned, and land sold off as abandoned, car scrapped yard. Yet after The war, my father & later my aunt joined the USA military, and both were injured in Korean war, but stayed in military for 20yrs each. Even at the height of FULL Democrats RACISM&
Klan attacks AGAINST THEM, & For being in military. Volunteers in the military, they received beating , for being USA CITIZENS IN THE MILITARY, and Japanese & native american, Made them both life long Republicans, and yes their Japanese parents immigrated LEGALLY,( which took a long time & money, hardships during world war 1 )but they waited like "real dreamers do" for the AMERICAN DREAM. Today DEMS JUST HIDE WITH MEDIA OUTLETS NOT REPORTING FACTS , BIASED & AGENDAS FOR DEMS. Thank you Charles PAYNE & FBN, and the very few reporting media that are NOT biased ,reporting facts, truth, and news NOT OPINION. Thank you president Trump.

Ed on 11/6/2018 12:52:58 PM
CHARLES , WHAT A GREAT REFLECTION OF THE PAST. ..THANKS FOR SHARING ! BILL

WILLIAM DEITSCH on 11/6/2018 1:10:34 PM
Thank you for sharing Charles. The best revenge on your haters, deniers, and oppressors is SUCCESS despite their road blocks and obstacles!


Carlos on 11/6/2018 2:35:16 PM
Charles-You have no idea how many people you inspire! Thank you sir.
Michael
Seattle

michael j. franz on 11/6/2018 4:38:58 PM
Great story, Charles! It's all about people, isn't it? Parents and grandparents sacrifice everything for their children and grandchildren and never charge a dime for it! And yet that's the source of all the economic growth there is. Without that grandmother of yours, there would be no Charles Payne with all he stands for. Trump understands that; the ideologues do not. Our children and grandchildren are our greatest gift to the world. Makes me proud to be a great grandpa.

Dennis Howard on 11/7/2018 9:59:11 AM
 

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