We conducted that investigation, and we kept the office of the acting attorney general apprised of the progress of our work.  And as set forth in the report, after that investigation, if we had had confidence that the president clearly did not commit a crime, we would have said so.

We did not, however, make a determination as to whether the president did commit a crime.

-Robert Mueller

Don’t look now, but Speaker of the House Nancy Pelosi saved the market from potentially the worst drubbing of the year when her comments curbed selling twice.

Wall Street traders and algorithms had no idea how to read between the lines of Robert Mueller’s statement to the press. In fact, the market edged higher.

Then, the media latched onto a line that fit the impeachment narrative. Headlines began to fly, and stocks began to tumble.

First came a statement from her office that voiced recognition of Mr. Mueller and his work during the two-year probe, and she went on to say that no one is above the law – not even the President.

“Special Counsel Mueller made clear that he did not exonerate the President when he stated, ‘If we had confidence that the President clearly did not commit a crime, we would have said so.’  He stated that the decision not to indict stemmed directly from the Department of Justice’s policy that a sitting President cannot be indicted.  Despite Department of Justice policy to the contrary, no one is above the law – not even the President.

-Nancy Pelosi

However, her statement said nothing about impeachment, nor did it suggest President Trump was orchestrating a cover-up. The market saw this initial reaction as a sign of the top Democrat in the House, who still wanted to avoid attempts to impeach the President.  

Of course, the voices for impeachment within the Democratic Party were louder than ever, clinging to Mueller’s lack of confidence and comments the President didn’t commit a crime. After coming back 150 Dow points, all the major indices turned lower again.

In the final hour of trading, Speaker Pelosi, while speaking at an event hosted by the Commonwealth Club of California, said President Trump wants to make a deal on infrastructure. She sounded off on the Russian probe, but her sharpest barbs were saved for Facebook (FB), which has allowed a doctored video of her to remain on its platform. 

Once again, Nancy Pelosi pivoted from impeachment to talk about collaboration with the White House. Those comments sparked more buying, led by material names, which saw the sector eke out a small gain for the session. 

Once again in the second consecutive session, Utilities took the hardest hit while Energy was the biggest losing sector for May, as we wrap up the month.

S&P 500 Index	-0.69%
Communication Services (XLC)	-0.98%
Consumer Discretionary (XLY)	-0.89%
Consumer Staples (XLP)	-0.72%
Energy (XLE)	-0.64%
Financials (XLF)	-0.19%
Health Care (XLV)	-0.96%
Industrials (XLI)	-0.45%
Materials (XLB)	+0.02
Real Estate (XLRE)	-1.15%
Technology (XLK)	-0.59%
Utilities (XLU)	-1.33%

Yellow Flags

The reaction to earnings misses has been brutal across all sectors and industries, but the carnage seen in retailers has been mind-boggling. I’m not talking about taking some off the top but punishing blows for slight misses or slightly lower guidance. I’m not sure what to make of it because the selling doesn’t match underlying fundamentals, even when they have become less attractive.

Unfortunately, we are stuck in a couple of these names, and I’m reluctant to close them because the selling is overdone. And yet, it’s too early to buy these names other than for short-term trades.

On the Upside

Chip stocks, along with several individual names that have excessive business exposure to China, acted great yesterday. After the close, cybersecurity stocks popped on earnings results. It could be counterintuitive, but tech could lead the market today. Of course, at some point, the underlying value and strong fundamentals will overcome negative speculation and investor bias.

Rethinking American Style Capitalism: AKA Selling Our Soul

The economic theory that guided American-style capitalism has centered on the magic of comparative advantage, which isn’t the same as being the best – it’s just being the most efficient. For that reason, we have been told everyone wins with free trade, and to celebrate when other nations are willing to provide cheaper versions of stuff we can also produce.

Generally, I agree. However, there are variables to this line of thinking we are learning again - the hard way today.

Years ago, the U.S. and other countries stopped mining rare earth materials because they were being produced so cheaply out of China. Yesterday morning, there was the talk of China weaponizing rare earth materials to hurt American companies and consumers. This again proves that there are several ways to measure opportunity costs or what we give up in any trade relationship.

The conclusion is: there are greater benefits to society than cheap stuff; namely our jobs, physical and economic security, and independence.

Portfolio Approach

There are a ton of stocks to buy for trades. I am not sure about creating core positions, but I’m also not going to try to pick the exact bottom.  

Communication Services	Consumer Discretionary	Consumer Staples
1	3	1
Energy	Financials	Healthcare
1	2	1
Industrial	Materials	Real Estate
2	3	0
Technology	Utilities	Cash
3	0	3

Today’s Session

There is lots of economic data out today, including:

• Pending Home Sales
• Initial Jobless Claims
• 1Q 2019 Gross Domestic Product (GDP) (second estimate)
• International Trade
• Retail Inventories (April)
• Wholesale Inventories (April)

While the market is still higher for the year, we are now off the highs big time, and some analysts are talking about going all the way back to retest the low December 24, 2018. I don’t see that happening, and certainly not for fundamental reasons.

Year-to-Date Performance

• S&P 500: +11.0%
• Dow Jones Industrial Average: +7.7%
• NASDAQ Composite: +13.8%
• Russell 2000: +10.5%

1Q 2019 GDP

The first revision of 1Q 2019 GDP was slightly higher than official projections, but I think Wall Street was looking for a much lower number.

U.S. Economic Report Card	1Q18	2Q18	3Q18	4Q18	1Q19
Gross Domestic Product	2.2	4.2	3.4	2.3	3.1
Personal Consumption Expenditures	0.5	3.8	3.5	2.5	1.3
Private Investment	9.6	-0.5	15.2	3.7	4.3
Exports	3.6	9.3	-4.9	1.8	4.8
Imports	3.0	-0.6	9.3	2.0	-2.5
Government	1.5	2.5	2.6	-0.4	2.5

Highlights

• GDP continues to be stronger than expected
• IP investments remain elevated
• Trade tilts in favor of US

Red Flags

• Consumer spending slowing
• Business investment lowest since 4Q 2016
• Residential investment -3.5 (down five quarters in a row)

Equities continue to grapple with finding support.

 

 

Comments

Stand strong President Trump China has been cheating for too long! Gary Gershaw on 5/30/2019 10:02:09 AM

Not only stand strong but we should never allow China to hold us hostage on things like rare earth ever again and why there should alway be a large degree of steel-making capabilities in the United States. Lately China has really been saber rattling with China making references rto military campaigns from the "long march" to "we told you so." CP Charles Payne on 5/30/2019 10:06:18 AM

China has been dealing dishonestly with us for years, and we've let them. It's time to stop it. I support President Trump's hard stance with China. He should stay strong and not back down! Thomas Bose on 5/30/2019 10:04:50 AM

I think President Trump will stand strong. He has taken on not just China but big business that only cares about their own bottom lines and political elites that did nothing for decades but are allowed to take daily pot shots at this administration's efforts. This fight long overdue we have no choice except to win. CP Charles Payne on 5/30/2019 10:09:46 AM

My opinion is China will not make a trade deal. The Chinese leadership sees it as beneficial if they were to decouple their economy from the US. After all there's 1.3+ billion customers at home. I was researching it recently and apparently they can replace just about all of the tech items they've been buying from the US. That includes an OS. BTW North Korea did create their own OS called Red Star OS. China of course has 100x the number of computer programmers North Korea does. Brian Bigelow on 5/30/2019 10:34:57 AM

Once again, you have re-enforced my buying/selling, never panic, always have an OTB (Garment Center saying...OTB...””good stores always have an OPen to BUY, OTB”, don’t be afraid to take a loss, you’re first loss is your best loss, free up your 💰💰💰,OTB, keep you’re 💰💰💰working for you! You are a very wise man Charles Payne, that’s why I listen, view you for over 10 years now..... Keep your passion, it is you! Neil Feuer on 5/30/2019 12:34:33 PM

THE BEST THING THAT COULD HAPPEN IS FOR PELOSI and the DEMOCRATS YO ATTEMPT IMPEACHMENT THAT WOULD DESTROY THE DEMOCRATIC PARTY THIS WOULD BE A GOD SEND ERNEST REMUS on 5/30/2019 12:45:54 PM

You are so right Charles. Jobs beat cheap stuff. Without jobs we pay more in taxes to support people than we save on cheap stuff. Rare earths is a lesson for us. In time of possible war you can't rely on an unfriendly power to supply items needed for military purposes. Sy Globerman on 5/30/2019 1:40:30 PM

I hope everyone is paying attention but there are those that wouldn't care if we bought from nations with slave labor or gave away all our abilities to provide for our basic safety and security. They say we can't do everything or lets not be isolationists. What a cop out - I like improving profit margins but success business success begins at the top line and that is most influenced when people have jobs and the nation has confidence. CP Charles Payne on 5/30/2019 3:18:09 PM

China is a communist oligarchy. Nothing about it is "free". If new trade deals can be struck that are more balanced that is good. If their goods are priced out of our market that should provide opportunities for other third world nations to fill the demand. Stanley Beckham on 5/30/2019 1:49:40 PM

FiatMoney comes and goes every 250-300 year cycles. China has a permanent 5000 year memory. ||| China IS the enemy. The other enemy IS the FractionalBanking – FiatMoney system owned and repeatedly used by the KhazarianMafia cabal of the Rothschild and BIS families (et al) ||| Both qualify as WhatIsNOTneeded… Today’s Federal Republic of Russia is far too smart to miss recognizing that its interests are best supported by mutually beneficial trade, and not the management problems that come with stupid conquest… and thence it is constantly targeted by the FB-FM system’s agenda of global conquest to best prevent Russia from being registered as a now hidden but potential true ally. ||| It is the KhazarianMafia cabal that directs its slave politicians/militaries/intel-agencies and GlobalistCorporations (et.al.) to repeatedly put Russia, wrongly, to ritual abuse… and indoctrinate with brainwashing media everyone who might otherwise register the truth. Robert Fay on 5/31/2019 1:59:04 PM

World domination. Chairman Mao is alive and well. Martin A Mooney on 6/1/2019 8:06:32 AM

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