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Morning Commentary

NOW WHAT?

By Charles Payne, CEO & Principal Analyst
6/11/2019 9:30 AM
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Question of the Week

Tell me your thoughts on the Chamber of Commerce's war on President Trump's use of tariffs and fight for free and fair trade. 

Post your answer below.

All major equity indices are back to double-digit gains for the year, and now investors are asking, what’s next? 

All eyes will be on the G20 summit in two weeks, bracing for increased saber-rattling up to the moment of President Trump and President Xi carving out time for some one-on-one discussions on trade. Last week, both sides were mostly talking nicely. While President Trump says he might levy more tariffs if Xi doesn’t show, it’s clear nothing will happen until after June 28th.

On Monday, the rally ran out of steam into the close, in part to news Jerry Nadler got the Department of Justice (DOJ) to share some of Mueller’s notes on obstruction, but mostly because that’s what happens after a parabolic blast in the market – profit-taking.

Market breadth was decidedly better, especially on the NYSE where there were 207 new 52-week highs versus 26 52-week lows. Technology continues to surge, buoyed by merger mania.

S&P 500 Index

+0.47%

 

Communication Services (XLC)

 

-0.08%

Consumer Discretionary (XLY)

+0.85%

 

Consumer Staples (XLP)

+0.03%

 

Energy (XLE)

+0.29%

 

Financials (XLF)

+0.85%

 

Health Care (XLV)

+0.30%

 

Industrials (XLI)

+0.13%

 

Materials (XLB)

+0.17%

 

Real Estate (XLRE)

 

-0.35%

Technology (XLK)

+1.02%

 

Utilities (XLU)

 

-0.68%

 

Will Chamber Help Socialist Movement?

Corporate profits stalled for years, but now average more than $2.0 trillion a quarter, and the most recent quarter saw a net cash flow rise to $2.62 trillion.

I’m an investor, and I focus on the ability for companies to raise prices without impacting volume and expand profit margins. So, I get it. However, I also understand there are certain fights that bring a nation together and put things like higher margins and stock buybacks on the back burner.

US Corp Profits five-year chart

United States Corporate Profits

US Corp Profits 69-year chart

United States Corporate Profits

Too Much Greed?

By now, most people know the Chamber of Commerce has been a harsh critic of President Trump and his approach to changing behavior using tariffs or threat of tariffs.  Tariffs have been frowned upon since the Great Depression after Smoot-Hawley tariffs pushed the nation deeper into the economic abyss.  And yet, there have been other times in American history when tariffs were used successfully for a variety of issues, including the main source of revenue to the federal government until the implementation of individual income taxes.  Be that as it may, there is economic harm for everyone, although it’s mitigated for America with its strong economy and strong currency.

The point is, like any war, everyone is expected to make sacrifices. The Chamber of Commerce doesn’t want big business to take any hits to their profit margins. Therein lies the problem. This behavior is seen more and more as selfish or greedy, putting Trump voters on the same page of liberal voters. Just consider that the profit growth for corporate America has been historically mind-boggling. More recently, profits have shifted into the stratosphere under new tax and regulatory policies.

I would love to see everyone put skin in the game rather than making tough fights even more difficult. 

Portfolio Approach

Our cash position is back to its lowest natural level, so I wouldn’t be averse to taking some profits sooner than normal in this extraordinarily volatile environment. For the most part, we are going to stick with fundamentals, but ringing the register and raising cash is always a great option, too.

Communication Services

Consumer Discretionary

Consumer Staples

1

3

1

Energy

Financials

Healthcare

1

2

2

Industrial

Materials

Real Estate

2

3

1

Technology

Utilities

Cash

3

0

1

 

Today’s Session

Futures are up strongly again this morning.  This is my bounce - I saw it and called it.  The major indices are at all-time highs, and buyers are continuing to enter the market. The Dow has risen about 1300 points in 6 days, after having declined for 6 weeks on worries about trade and tariffs with China and Mexico.   This month, Technology and Materials have been the leaders, verses being the losers.

Economic data continues to indicate that inflation is tame, which is music to the Fed’s ears, or at least for those cheering for a rate cut.  This morning, Producer Price Index (PPI) final demand for April came confirmed this.  PPI came in as expected, up 0.2% from March.  Year over year PPI increased 2.2%.  Core PPI, less food and energy, was up only 0.1%, while year over year its up 2.4%. 

 

U.S. Bureau of Labor Statistics

Let’s let see how the trading goes this morning.  

 


Comments
While I'm in favor of free trade, when existing tariffs on the part of trading partners make a lie out of the concept, then using additional tariffs to attain freer trade is totally legitimate. The larger issue is that of trading with nations which have a practice of using slave labor or effectively slave labor as a competitive advantage, can one sanction these practices by letting that advantage play a role? How would one go about changing that situation. Is it Joss that some people are taken advantage of by their governments?

Steve Briggs on 6/11/2019 10:12:26 AM
There are costs that go beyond money. CP

Charles Payne on 6/11/2019 11:31:14 AM
It is stunning how any organization can push back when someone takes countries to task that have been taking advantage of us since world war II! Ever since Nixon opened up relation with China they have been screwing us. That country is nothing but thieves and cheats! The fact that people think tariffs are wrong have no knowledge of the economies of scale that China has achieved on the backs of tax paying Americans. The Chamber of Commerce should be ashamed of themselves for going against policy that puts money in the average American's pocket over the long-term. It really goes to show you that they are nothing but globalists who think America should suffer for the benefit of other countries.

eric perry on 6/11/2019 10:45:41 AM
Well, China built the world's second largest economy using massive tariffs and protectionism while forcing foreigners into joint ventured with minority status and stealing billions of IP knowledge. Moreover, the leaders have ignored neighbors and the world to make man made island which are now militarized. I don't cast aspersions on all the citizens but the political structure and leadership have a singular goal of world domination and sadly western nations are too weak to push back and American businesses are too greedy to care while America's media is too angry at the President to report this more fairly. CP

Charles Payne on 6/11/2019 11:22:36 AM
President Trump continues address and resolve long-standing problems that have been politically untouchable for both party’s establishment fir years. No one else has a solution other than to talk but take no action for fear of offending someone or because they don’t really want it solved. He is doing just what he said he would do to everyone’s surprise and to the establishment ‘s dismay.

Alan on 6/11/2019 10:48:32 AM
Beautifully said Eric and Alan! Imagine that, a president actually doing what they say they will do!!!

Greg on 6/11/2019 11:20:56 AM
You know it's understandable that businesses don't want tariffs on incoming goods that they buy because it raises their costs of production and reduces profits. However, since Trump just gave them a big unearned tax cut gift last year that put a lot of money in their pockets, it seems pretty selfish on business' part to not support Trump in his trade negotiations. If we get stuck with tariffs as a result of Trump's tactics, then I'd probably be in favor of blaming Trump for mishandling these negotiations, and would support pushing these tariffs back (which we can do on our own). Until then, I think we ought to give Trump the benefit of the doubt, especially because he has been successful so far, and support his efforts to get the US more favorable trade deals with other countries.

George Elliott on 6/11/2019 11:30:50 AM
We all do things we don't always want to do that's the hallmark of child-rearing...sometimes sacrifice now means benefits later or even occasionally taking hit for the greater good wil make things even greater down the road. I worry corporate selfishness is only going to help the socialist movement. Nuts considering honest free and fair trade benefits everyone. CP

Charles Payne on 6/11/2019 11:39:49 AM
they are anti america

charles thomas on 6/11/2019 11:46:11 AM
They have to do more that post American flag emojis on their websites on Fourth of July that's for sure. CP

Charles Payne on 6/11/2019 11:48:31 AM
Chamber of Commerce, whether at local town level or National, is really only interested in its' businesses doing well. But if they think outsourcing for the longer term is good for people here, wrong! But again, if businesses are happy, that's their focus. President is representing people who also purchase goods from Chamber businesses. It's about the country. President has it right from my perspective.

Mitchell Schiff on 6/11/2019 4:23:12 PM
President Trump clearly is abusing his executive power by utilizing tariffs for political purposes.

Harold Sader on 6/11/2019 7:56:28 PM
Sorry, Mitchell, but I think you are missing the picture in USA today. The liberal armada is incapable of running businesses for profit within their socialist ethos. They have recognized that there are 2 power structures within any society: economic and political/military. Since socialism is incompatible with economic success, they have chosen to use political savey to gain military power. This is done by focusing on the political structures of a society and taking them over. Hence the takeover of the courts and the media by scoialists. And also the takeover of smaller organizations like the Chamber and politicizing them. This tactic of socialists is why every socialist government has always ended as a fascist government with military (police & court) power to enforce their viewpoint exclusively and no freedoms for the people. The Chamber is no longer interested in helping business, it has been usurped to push the political agenda of liberals who believe their ends justify any means they can use.

Bob G on 6/12/2019 8:43:18 AM
 

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