Ready.

Set.

Go Nowhere.

Monday was a lackluster session that saw small rally efforts fade, and slight dips bought as the Dow Jones Industrial Average swung back and forth across the unchanged line more than 150 times.  Broader indices were firm all session long but held in check after initially gapping higher at the open.  

In fact, market breadth was largely negative, as there were more decliners than advancers on the NYSE and the NASDAQ. There were more 52-week lows than highs on the NASDAQ, even though it was the best performing large equity index. The volume was slightly more bullish, underscoring a greater commitment from buyers than sellers.

Feel Meh

Although there is an air of caution and even an indifference, this kind of action or inaction reflects angst. However, it also underscores the notion big money on the sideline could be a coiled spring.

Coming into the week, investors were feeling more upbeat about earnings after the first 79 companies changed the narrative.

There was a time when it looked as earnings for the quarter could see a close to 3% decline, which now looks like a gain of 1.0% or 1.6% sans the Energy sector.

2Q 2019 S&P Financial Results 79 companies	Revenue	Earnings
Beat Consensus	77%	65%
Long term average	65%	60%
Four week average	76%	63%

Feeling Out The Fed

Yesterday, Fed nominee Judy Shelton said the Federal Reserve needs to cut rates by 50- basis-points (bps). She explained the Fed would still have some dry powder. Moreover, she also thinks it’s time for the Fed to stop paying banks interest on excess reserves, a policy implemented back in 2008. 

From her point of view, the practice incentivize banks to “essentially….do nothing,” as relates to lending money.  She believes this arrangement is “unhealthy.”  I must say I agree.  It’s just another example of all the favoritism shown in the largest banks in the nation, but it doesn’t help Main Street.

I think Shelton makes great points, but there are pockets of weaknesses, including manufacturing. 

There are more signs the economy is slowing from the Chicago Fed National Activity, which came in weaker than expected and negative for the 7^th month in a row. The thing is, the numbers are drifting, not plunging, so it’s hard to make the case that we’re in dire economic straits.

This morning, we will get the latest on existing home sales. Housing has been a serious problem for some time, so the hope is that lower rates may have moved the needle.

Trade war worries

State of Consumers

The consumer is doing amazing and has room to be an even greater part of domestic economic growth.  Household debt service payments as a percentage of disposable personal incomes show a lot of room for additional spending, although I’m not sure folks that survived the Great Recession are going to get too far out of their lanes again.

Sure, student debt is an issue. However, for many households, it’s a necessary expense, and not in the same category as the frivolous spending that preceded the fall.

That said, I’m worried about selling in a lot of retailers yesterday, including Hibbett Sports (HIBB), which got smacked more than 9.0%. A lot of this is about weaker brick-and-mortar names, but we’ll be spying it even closer to see if we can discern a greater insight.

We are overweight in Consumer Discretionary in the model portfolio, and I feel comfortable with most of the ideas - yesterday was a yellow flag.

Portfolio Approach

We took profits on a Material name yesterday. To get started on the Hotline today, contact your account representative or click here.

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
3	0	1

Today’s Session

The parade of earnings continues with many beating on revenue, earnings and increasing forward guidance:

• United Technologies (UTX)
• Biogen (BIIB)
• Lockheed Martin (LMT)
• Coca-Cola (KO)
• Whirlpool (WHR)
• Hasbro (HAS)

I think the market should be indicating even higher.

Boris Johnson is officially going to become next leader of UK, and I hope he steps up.  When asked on Twitter this was my reply:

Less concerned with initial market reaction as those are often globalists pulling strings in an attempt to scare folks back into submission.  I love his comments this morning on how to "build a great society" & "promote good for whole country." I say stick to deadline on Brexit.

 

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