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Morning Commentary

THE REAL BULLY STEPS UP

By Charles Payne, CEO & Principal Analyst
6/26/2019 9:59 AM

"You're blowing it, son!"

-Angelo Dundee

It was one of those fights that were years in the making, where finesse met ferocious. Everyone in my family, especially my mom, loved Sugar Ray Leonard, but she thought he would be beaten badly by Thomas “Hitman” Hearns. The first of their eventual two matches was an instant classic. The irony is that the man with all the slick moves turned into the ferocious fighter, looking to exert his will.

After the 12th round, legendary boxing trainer Angelo Dundee gave it to Leonard (in his face) straight: “You’re blowing it, son!”

Sugar Ray went out and became the slugging stalker, scoring a knockdown in round 13, and was awarded a technical knockout (TKO) in round 14.

I was reminded of that great fight, thinking about the verbal gymnastics Federal Reserve Chairman Jay Powell used yesterday to trigger a quick rush for the exits. The Powell Fed was wrong about the economy for all of 2018 and took actions akin to an overhand right and a monster uppercut, trying to knock out the non-existent foe of inflation.

Yesterday, Powell found himself offering another mea culpa about his misread of the economy just a month ago. If there were rounds during his presentation at the Council on Foreign Relations (CFR), a wise trainer would have told him: “You’re blowing it, son!”   

When the FOMC met at the start of May, tentative evidence suggested these crosscurrents were moderating, and we saw no strong case for adjusting our policy rate. Since then, the picture has changed. The cross-currents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.

Remember back in May when the market swooned on comments about low inflation being transitory?  It’s still transitory. However, I guess the current trade question is an issue, along with the weak global economy. I’m not buying these excuses for the Fed erasing mistakes from last year, but it doesn’t matter if the Fed does the right thing. 

The problem is one day, the Powell Fed is a slugger. And the next day, it’s a slick boxer. The only thing getting hit is the reputation and confidence in the monetary body to admit mistakes and correct its course.  Ironically, yesterday saw Powell move from constant jabbing from President Trump to body blows from Wall Street.

It’s one thing to fend off bothersome tweets, but no Fed chairman would last long under the bullying barrages from Wall Street when it’s not happy with policy decisions. Of course, Wall Street keeps getting ahead of itself as usual. The momentum was building for a 50-basis point (BPS) rate cut next month, but Powell and Bullard sent that notion reeling.

Coming into yesterday’s session, the market saw a 40% chance of 50 bps cut, and by the time the closing bell rang, as it was down to 27%.

Knee-jerk Selling

I think the selling was excessive with respect to the Fed only cutting 25 bps rather than 50 bps (by the way, it could still be the larger number). Nonetheless, major indices were in the shadows of all-time highs. I get where some folks would want to take profits. The thing is all-time highs can coincide with excessive valuations, and that isn’t the case. 

Bigger selling in high-Beta technology is dragging the NASDAQ down the most. Perhaps, there’s some support if Micron Technology’s (MU) after-hours gains hold.

Decline and Key Support:

Portfolio Approach

There are no changes to the model portfolio - we are considering taking profits on a couple of positions, where certain trends have stalled in part to having more cash on hand.

Communication Services

Consumer Discretionary

Consumer Staples

1

4

1

Energy

Financials

Healthcare

1

2

1

Industrial

Materials

Real Estate

2

3

1

Technology

Utilities

Cash

2

0

2

Today’s Session

May orders for U.S. durable goods disappointed again, declining 1.3% following April’s revised-2.8%  from -2.1%.  The drop in May was largely due to a canceled Boeing (BA) 737 Max deal. 

Durable goods

However, business investment beat, up 0.4%, a sign that spending plans by companies have not been put on hold.

If you take out autos and planes orders rose 0.3%, order.  Auto orders rose 0.6% in May.

Core Durable Goods

image.png

All the major indices are firmly in the green this morning, with Nasdaq leading the way and benefiting from Micron’s beat (MU), which is lifting the chip sector higher. 


Comments
Charles, you continue to be a very clear and valued thinker! Your appraisals of the macro view of the market and economy are most accurate. Too bad you are not Chairman of the Federal Reserve.

William L. Baumner III on 6/26/2019 11:12:17 AM
DO YOU REMEMBER THE LEONARD HAGLER FIGHT HAGLER WON DECISIVELY BUT WAS ROBBED BY THE JUDGES IT WAS AN OUTRIGHT FIX
HAGLER NEVER FOUGHT AGAIN

ERNEST REMUS on 6/26/2019 1:05:39 PM
Charles thank you sir. Always better when Charles PAYNE is on FBN, schooling the kids. Can you please POST wayfair should fire the walkout DEMS for child abuse denial of sales of beds? Hey why don't wayfair take a SALARY CUT OFF EACH WALKOUT PROTESTERS TO FUND THE ILLEGAL IMMIGRANTS CHILDREN TO GET FOOD, CLOTHING, MEDS. OH AND HIW ABOUT "BEDBUG FREE WAYFAIR BED FRAMES"?? Seems the employee DEMS FORGOT they sold INFESTED HEADBOARDS WITH BEDBUGS. MAYBE THATS HOW THE ILLEGAL IMMIGRANTS CHILDREN GIT SICK, LICE, AND BEDBUG CARRIED DISEASES?? GLAD WAYFAIR DONATED TO THE REDCROSS . The last non political agency to help ALL people regardless. As a stock holder we are disgusted DEMs wanted 2weeks from president Trump to pass a solution to the 3million illegal immigrants who had their court date for asylum and LOST, NOW NEED ENFORCEMENT TO RETURN TO THEIR HOMELAND COUNTRIES. FUNNY DEMS ARE LEAVING EARLY THIS WEEK AND OFF ALL NEXT FOR 4TH OF JULY. GUESS PELOSI BEGGED President Trump not to start deporting, give Dems 2 weeks, ( so they can have PRESIDENTIAL elections campaigns on stage debates, and go on paid vacations. NOT stay in DC & CONGRESS should be in session to fix the problems of illegal immigrants, children should be sent back ,just like Obama did & Clinton, &HRC & Schumer &DEMS ALL have said on record and voted for in the last 8yrs-20yrs. Charles PAYNE thank you sir &FBN. Thank you president Trump. Please breakup GOOGLE, TWITTER, FACEBOOK, BEFORE THEY HAVE CUT & DISCRIMINATED ALL REPUBLICANS AND CONSERVATIVES FOR 2020 PRESIDENTIAL ELECTION RESULTS. President TRUMP stated " millions of his followers are being robbed of free SPEECH, & OPEN ALL THE FACEBOOK, GOOGLE, TWITTER,ETC DEMS SITES that are NOT able to be sued,protecting them, so sign PRESIDENTIAL degree (like Obama did legal or NOT) to change their statuses to public utilities systems and subject to ALL DISCRIMINATION LAWSUITS, & CLASS ACTION LAWSUITS BY ALL OF US REPUBLICANS, CONSERVATIVES, &DEMS THAT VOTED FOR OUR PRESIDENT TRUMP. FINES WILL NOT WORK, BUT 2BILLION INDIVIDUALS SUEING THEM WILL MAKE THINGS RIGHT, AND FAIR, OPEN TO ALL 1ST AMENDMENT RIGHTS PROTECTIONS. THANK YOU

J on 6/26/2019 7:15:45 PM
I just want to make some money

Amy J Brown-Freeman on 6/27/2019 9:11:24 AM
Oh Charles... thank you for the classic boxing reference. I watched Leonard/Hearns again last night and almost 40 years later it was thrilling. I was a Hagler man back in the day - just watched the "War" - I was yelling at screaming at the KO. Miss those days!

Dean Fairbrother on 6/27/2019 9:33:52 AM
 

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