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Morning Commentary

GETTING STRONGER

By Charles Payne, CEO & Principal Analyst
6/14/2019 9:48 AM

So, the major indices couldn’t eclipse early high points. However, that last-minute rally into the close on Thursday was impressive. Moreover, market breadth was the best I’ve seen in weeks.

NYSE

NASDAQ

Message of Market

By the end of the session, every sector except Health Care was higher with Energy leading the way, but Communication Services was not far behind. While Disney (DIS) led the way after a big target increase at Morgan Stanley (MS), and the stealth rebounds in Facebook (FB) and Alphabet (GOOG) continued.

The widespread success of the rally continues to be a hallmark of the 2019 rally, which once saw 450 winners in the S&P 500.

Beyond all the exogenous issues impacting the stock market, the distribution and resolve are so under- reported (in fact, not ever discussed), but perhaps it’s the biggest reason to be bullish.

S&P 500 Index

+0.41%

Communication Services (XLC)

+1.12%

Consumer Discretionary (XLY)

+0.90%

Consumer Staples (XLP)

+0.22%

Energy (XLE)

+1.17%

Financials (XLF)

+0.33%

Health Care (XLV)

10.12%

Industrials (XLI)

+0.50%

Materials (XLB)

+0.59%

Real Estate (XLRE)

+0.13%

Technology (XLK)

+0.30%

Utilities (XLU)

+0.20%

Portfolio Approach

No position changes.

Communication Services

Consumer Discretionary

Consumer Staples

1

3

1

Energy

Financials

Healthcare

1

2

1

Industrial

Materials

Real Estate

2

3

1

Technology

Utilities

Cash

3

0

2

Today’s Session

Economic data continued today.

Retail Sales

Retail sales for May increased 0.5% vs the estimate of +0.6%.  April was revised to +0.3% from -0.2%.  Retail less auto and gas was up 0.5% month over month topping estimates of +0.4%.

Other highlights:

  • Eleven of 13 major retail categories increased, led by a 1.4% gain in non-store retailers. 
  • Electronics and appliance stores, as well as sporting goods, hobby, musical instrument and bookstores +1.1% increased. 
  • Sales at automobile and part dealers advanced 0.7% after falling 0.5% in April, revised upward from a 1.1% drop. 
  • The only sectors to show declines were food and beverage stores, -0.1%, and miscellaneous retailers -1.3%. 

While consumers are spending, they are also saving at elevated levels. The U.S. saving rate is in focus.  In 2001 to 2007, it averaged 4.7%, and since 2009, its average 7.0%.

At 10 ET, we will get a read on consumer sentiment from the University of Michigan.  The estimate is for 97.3 from the prior month of 100.0.

Industrial Production

Industrial Production

May Industrial Production increased+0.4% vs +0.2% consensus, compared to -0.4% in the prior month.

  • Manufacturing rose +0.2% driven by higher automotive product output, and mining output rose 0.1%
  • Total production +2% year of year
  • Capacity utilization for the industrial sector +0.2% to 78.1%
  • The biggest gain came from utilities, which surged 2.1%

China Trade Impact

China

China factories have seen the slowest growth since 2002. Investment has decelerated as the trade war takes its toll.  China industrial output rose 5% from the prior year, while fixed-asset investment expanded 5.6% in the first five months. Both were slower than in April and below expectations.

Retail sales was a bright spot, expanding 8.6% compared to May last year, partly because a longer May Day holiday encouraged more tourism and spending.

Broadcom

Broadcom (AVGO) is getting hit hard and it is taking semiconductor names with it.  On its earnings call, the company cited it sees the second half of the year revenue flat and down high single digits year over year, as the extremely uncertain environment is weighing on demand.  Guidance was conservative. The environment is extremely nervous and uncertain based on the potential for the next round of tariffs. 

Highlights from call:

  • US China trade conflict and Huawei ban are impacting demand. Huawei accounted for $900 million in revenue last year (4.3% mix).
  • Networking business is the only area of strength and it will grow double digits despite Huawei.
  • Started seeing softness at beginning of Q3 (May); dramatic reduction accelerated with Huawei ban.
  • Second half of the year will be more in line with the first half instead of recovering.
  • Uncertainty is weighing on demand, causing broad based inventory reductions.
  • Not seeing any year over year growth in any end-market segments.

Speaking of trade jitter, in a letter to President Trump, over 600 U.S. companies urge him to resolve trade dispute with China.

https://www.reuters.com/article/us-usa-trade-china-tariffs/over-600-u-s-companies-urge-trump-to-resolve-trade-dispute-with-china-letter-idUSKCN1TE36K

The markets are under pressure this morning. 


Comments
Great analyses espacially with the summery I have chip stocks that has been hit hard with trade war with China, although I agree with the concepts of trade war, but needs negotiations and ending it soon

Art Hajjarian on 6/14/2019 10:28:38 AM
 

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