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Morning Commentary

DEALING WITH SUMMER DOLDRUMS

By Charles Payne, CEO & Principal Analyst
8/21/2019 9:29 AM

Question of the Week

With the conscious capitalism in America, including the Business Roundtable, saying profits are no longer the primary goal of business, are you changing your spending and investing habits?

For instance, reports are out that Dick's Sporting Goods (DKS) is looking to stop selling guns. The retailer stopped selling certain rifles last year and raised its age to purchase firearms.

If the company stops selling firearms altogether, would you stop shopping there, and would you invest in the stock?

Post your answer below.

While there was no chance of buyers emerging in Tuesday’s last hour of trading that swooned into the close, it wasn’t pretty. I mentioned in yesterday’s Afternoon Note that the market should have been lower halfway through the session based on the underlying market breadth, and that’s what happened.  The extraordinary light volume is also exacerbating moves during these late summer sessions.

Financials (XLF) took it on the chin again, weighed down by American International Group (AIG) and American Express (AXP). The XLF sector is up 11.2% in 2019, but it is down 6.3% over the past year, and it’s looking vulnerable after hitting a double top earlier this year.

Materials (XLB) were also hit hard yesterday, as the winners in the sector reversed lower - perhaps it’s a sign of profit-taking. We’ve been overweight in the sector, and while there are some big winners, the losers are gaining to the downside. We are going to lower exposure in the model portfolio today.

S&P 500 Index

 

-0.79%

Communication Services (XLC)

 

-0.67%

Consumer Discretionary (XLY)

+0.03%

 

Consumer Staples (XLP)

 

-1.09%

Energy (XLE)

 

-0.84%

Financials (XLF)

 

-1.34%

Health Care (XLV)

 

-0.85%

Industrials (XLI)

 

-0.59%

Materials (XLB)

 

-1.17%

Real Estate (XLRE)

 

-0.74%

Technology (XLK)

 

-0.50%

Utilities (XLU)

 

-0.16%

Gyrations & Market Shakeouts

These market gyrations may be frightening for some and frustrating for most. However, they serve an important purpose if the market is to regain traction and rally into the end of the year. Let’s face it, the last couple of weeks have shaken weak hands and made others weaker. 

I’m not sure the market can break out between now and Labor Day. This is a great time to solidify a buy list, and even put on some positions until the big players return from back from the Hamptons and other locales to reload on the market. Keep in mind that it’s been a good year, and it could still be a great year for the stock market.

S&P 500 +15.7%

Dow Jones Industrial Average: +11.3%

NASDAQ Composite: +19.8%

Russell 2000: +11.1%

Homebuilder stocks act great, although there could be pressure today after Toll Brothers (TOL) posted results that beat on revenue and crushed (beat by $0.18) on earnings. The guidance was slightly cautious, as there was a backlog decline in the total numbers and value. Management raised the lower end of the average selling price. Still, the better action isn’t in the $881,000 average home sold by Toll Brothers, so this stock isn’t the perfect proxy for homes in the heartland, where people leverage low mortgage rates.  

The iShares US Home Construction ETF (ITB) index is trying to break out through a serious resistance point.

 https://www.tradingview.com/x/z1lAPHHC/

Beware Bad Headlines

“Home Depot beats quarterly profit estimates, warns of tariff impact”

-Reuters Business

I wrote about the National Association for Business Economics (NABE) report on Monday. Since then, I haven’t seen a report or headline that echoed the real story of fewer business economists seeing a recession in 2019 and 2020. Instead, the news focused on 2021.  If the media wants to really scare people, they should focus on a possible recession by 2025. This way, headlines could read: “100% of economists see recession coming.”

Question of the Week

With the conscious capitalism in America, including the Business Roundtable, saying profits are no longer the primary goal of business, are you changing your spending and investing habits?

For instance, reports are out that Dick’s Sporting Goods (DKS) is looking to stop selling guns. The retailer stopped selling certain rifles last year and raised its age to purchase firearms. If the company stops selling firearms altogether, would you stop shopping there, and would you invest in the stock?

https://www.cnn.com/2019/08/20/business/dicks-sporting-goods-gun-sales/index.html?utm_medium=social&utm_content=2019-08-20T13:20:04&utm_term=link&utm_source=twbusiness

DKS

https://www.tradingview.com/x/8fJNfStF/

Approach

No new positions on yesterday. Stay tuned for alerts in the model portfolio today.

Communication Services

Consumer Discretionary

Consumer Staples

1

2

1

Energy

Financials

Healthcare

1

1

2

Industrial

Materials

Real Estate

3

3

1

Technology

Utilities

Cash

1

0

4

Today’s Session

More Signs of Recession?

Target (TGT) Monster Financial Results

  • All-time record earnings.
  • Best two-year comp sales in more than decade.
  • Raises full year guidance.
  • Comp store sales +3.4%
    • Traffic +2.4%
    • Same day fulfillment (pick up and drive up) add close to 1.5 percentage points to comp sales
  • Digital +34%

Lowe's (LOW) Crushes It

  • Revenue $20.99 billion (estimate $20.94 billion)
  • Earnings per share $2.15 (estimate $2.00)
  • Operating margins surge 12.0 from 11.0
  • Comp store sales +2.3% (estimate 1.9%)
  • Home improvement comp sales +3.2%
  • Strong full year comp store guidance +3.0%

Comments
Dick’s is aptly named. I refuse to do business with them for many reasons. Their decisions regarding firearm sales is the paramount reason, though.

Harry on 8/21/2019 9:42:12 AM
I would buy nothing from Dick's

Jim Erdy on 8/21/2019 9:46:08 AM
If you don't mind paying greatly inflated prices and getting very poor in-store service, then DICK'S is the place to go.

pcinbend on 8/21/2019 9:55:06 AM
and there's that...beyond selling firearms they have to find ways to get folks in the store and its not high prices. If I;m the CEO and board its my main focus. CP

Charles Payne on 8/21/2019 10:19:15 AM
There other places to buy rifles

Bert on 8/21/2019 9:55:51 AM
I have already stopped shopping at DKS because of their stance on firearms.

Douglas V Eatough on 8/21/2019 10:02:23 AM
You aren't alone many have stopped shopping at the store and the stock has suffered. If they go through with this it would really be a major test of conscious capitalism. CP

Charles Payne on 8/21/2019 10:15:43 AM
I stooped shopping at Dick's on their last rifle announcement because they weren't even selling those rifles and were just a bandwagon jumper. All my golf needs are met very nicely online - with dick's political spin.

Brian Schaeffer on 8/21/2019 10:04:56 AM
If goal is not profits why invest? Dick’s has capitulated to the PC culture. Again, why invest here?

Larry Leonard on 8/21/2019 10:11:18 AM
Yes, I will stop shopping there.

Tim Nesler on 8/21/2019 10:13:47 AM
I have already stopped shopping at Dick's due to their position on Firearms. I'll I am willing to pay more for my other sporting items somewhere else or do without, rather than shop at Dick's. That said, I invest to make money. If I see a profit to be made in Dick's stock, I WILL take advantage of it and I will sell it just as fast when I see a better investment is available. I disagree with Starbucks and will not shop there either, but I currently own their stock. It is making me money. When enough people stop shopping there, it will lose profitability and I will sell without looking back.

Mike Kiernan on 8/21/2019 10:17:59 AM
To your point I have written about separating our politics from investing. Lots of folks have =missed the moves in several tech stocks and names like WMT, SBUX and TGT (all time high today) for those reasons. There are stores i will not give my money to but would buy the stock if I thought there was value. That said 95% of the time a badly run business is also a bad stock too. CP

Charles Payne on 8/21/2019 10:21:51 AM
Just a reminder, the 2nd amendment says nothing about sporting, hunting or even self protection.

El Zorro Oro on 8/21/2019 10:24:40 AM
I resent them trying to impose their so-called morality on me. The hell with them.

Steve Whitlock on 8/21/2019 10:26:23 AM
Steve, I understand this holier than thou issue is problematic for businesses and will hurt their workers that kose jobs and hours even as CEOs get paid. That need to play out the real morality and true impact other. CP

Charles Payne on 8/21/2019 10:29:59 AM
Better stocks better stores elsewear

Lou on 8/21/2019 10:26:54 AM
I STOPPED SHOPPING DICKS WHEN THEY GOT POLITICAL AND STOPPED SELLING GUNS. RAISING THE AGE TO BUY IS VERY OKAY WITH ME, BUT SAYING GUNS ARE THE PROBLEM IS NOT OKAY. MY FAMILY AND I FEEL MUCH SAFER KNOWING WE CAN PROTECT OURSELVES UNTIL THE POLICE CAN GET TO US IF NECESSARY.

PHIL on 8/21/2019 10:27:40 AM
If profits are no longer the goal of businesses, what are we doing??? Have we this quickly given in to the mean spirited mouths of socialism? Guess I will be selling my business since someone has decided I should not profit from it. Better wake up before it is too late!!

Bonnie on 8/21/2019 10:32:24 AM
I stopped buying ANYTHING from Dick's on the first announcement. That was mainly ammo, shoes, workout clothes, etc.

John Kimmel on 8/21/2019 10:33:58 AM
I am tired I guess, of every day hearing other people who don't even know me, and don't care anyway who I really am, because of their agenda, call me a racist, a misogynist, a homophobe, a privileged white guy, or a danger to the world because I own a gun and support the 2nd amendment. Might as well throw in that I am Pro Life too, and believe in God and Christmas and the good of American traditions, and the flag and anthem. Well there you are, I must be someone who wants to mess with other people, make them unhappy, or hurt them, because of all the above beliefs, and the slander that is applied heavily and daily by the folks on the left of politics, who are for far to long the real haters in our country right now. The current groups of so called leaders of the Left in the democratic party are the ones who daily, bully, call names, put others they don't want around in labeled groups, start riots, kill millions of babies, get people fired for no proven reason, Dox people that simply hold a terrible thing called an opposite opinion. Now another Company who has or is thinking about bowing to the bullying, hateful attacks from the New( but not better) Democrats and the hate filled young people who have been brainwashed by them into believing that you attack others not talk to them, you follow people to their places of relaxation, or worse their homes(all peoples place of safety and off limit place to raise the family in peace). It's not a surprise any more that in this case Dicks is feeling the pressure and folding, The Left knows their, hateful, cruel, lying tactics work, AS LONG as we continue as a wonderful American society to allow it to go unchallenged day in and day out. Quite a bit of correction and shaming is the bare minimum that is called for to hope to start to turn the New Hateful Democratic leadership around then finally stop their direction for our Wonderful country. So for now, yes I will think twice, which logically mean shop, other than a Dicks store for now.

Randall Keith Reid on 8/21/2019 11:05:50 AM
I would shop there for the convenience because it’s close to other stores I shop at but would not invest in the stock.

Charles Mansur on 8/21/2019 11:30:37 AM
Yes. Human cells contain more mitochondria (4T), than the closest 4 galaxies contain stars. As a by product of their metabolism, mitochondria they make ATP which we used to power our cells and thoughts. Mitochondria produce ATP from glucose we produce from eating food. Without this symbiotic relationship there would not be enough energy for complex systems other than pond scum. The basis of Life, and the energy that powers socialists efforts to heist value from producers is an economy based on "the free energy of a systems", i.e. excess energy, we call the profit that makes life possible.

Michael Willy on 8/21/2019 11:39:35 AM
F.W.Woolworth had 370 stores when they decided to drop firearms. It was "only 20 million dollars in gun volume. None of the ivory tower people could see that a very large percent of that volume came from 30 or so of the biggest stores. Company continued going downhill, ONLY FASTER. Guys would gladly come into the store to "look" etc at the guns and other sporting equipment, prior to discontinuing guns. We lost that guy. When and if they do what you mentioned I would buy LEAP puts.

Michael Corbett on 8/21/2019 11:42:31 AM
Wow I never knew about the Woolworth story (now you given me more homework). These businesses must be careful and realize who their customers are. Bending to the will of folks that will never shop in their stores would be a serious mistake.

Charles Payne on 8/21/2019 11:57:36 AM
Dicks should stay out of politics. I’m tired of these antics(NFL). I will never shop at Dicks!

Wright Glenn V. on 8/21/2019 11:57:02 AM
I think that changing our mind set to reflect a new focus on society versus profits is a noble endeavour, however, let's not forget that business, by design, is initiated to provide a product or service for profit. You can be a good steward of your community while running a profitable business. I would argue that the two are a symbiotic relationship.

I do not agree that choosing to demonize or stereotype a certain product or service to demonstrate your intent is logical. You are subjectively (and not unintended) assigning liability to those inanimate objects or services, that in all reality have been misused by the end user. In that instance, it is the user that is taking the object out of context and using it for "nefarious" purposes.

Should Stanley stop selling claw hammers? Should Buck stop making knives? Should Louisville Slugger stop making bats? Should Ford stop making cars? All of these products have been involved in illegal, immoral or criminal purposes at the hands of the end users. By choosing to assign liability (and I underscore CHOOSING) you are removing the onus from the end user. The end user is ultimately responsible, not the object.

They can choose to not offer a product, but I can choose to direct my money to a different business. Voting with your money is at the very nature of capitalism, in it's purest form.

John on 8/21/2019 12:15:20 PM
PC is not a fundamental pillar of capitalism. Message to C-levels: mess with it at your own peril. Whatever Dicks does with gun sales, it doesn't address the real reasons behind gun violence. If the two aren't solidly connected, it's a bad idea. This leads me to believe management is listening to the major news networks more than their customer base. Their virtue signaling better be extra special because it has to find new customers to make up for me, my family and my friends who no longer do business with them.

Steve on 8/21/2019 3:20:26 PM
There is no doubt we all want to do the right thing and the CEO has become a media darling called courageous and given other platitudes. But in the end we must all make sure our actions do more than feel good and are cheered by certain crowds especially when they have power to alter lifes or in this case be used to alter the Constitution. So call this the law of unintended consequences and its not worth it when its only corporate virtue signalling. We'll find out tomorrow when the company reports financial results. CP

Charles Payne on 8/21/2019 3:48:36 PM
Dick's is making a business decision. If I can get best price on something they sell besides guns, I would shop there. It's their choice on how to run their business.

Mitchell Schiff on 8/21/2019 3:51:56 PM
I already stopped shopping there. I do not shop at stores that cow tow to the Left PC movement.

Hardy L Crumby on 8/22/2019 12:16:42 PM
I forgot to mention that I do not invest in what looks like losing companies.

Hardy L Crumby on 8/22/2019 12:17:53 PM
Yes, I would stop shopping there!

Christine Gibson on 8/22/2019 3:07:35 PM
Dick's did good in Q2 of this year, look at Q2 report issued Aug. 21. . Appears to have stopped the bleeding. Hope they keep selling outdoor hunting stuff.

Jacob on 8/22/2019 4:07:52 PM
Charle,

I find Dick's Sprorting Goods aptly named. I refuse to trade with this snowflake company. The straw fro me was thinking they were doing good for no longer selling Semi Auto rifles. If they choose to no longer sell firearms of any kind is the icing on the cake. Let the millennials buy their spandex tights and their over-priced Nike sneaks there if it makes them feel superior.

I have Cabelas's and my Local Gun Store to serve my needs.

I have spent too much time in the boonies as a Captain in the USMC to worry about butt-hurt millennials and their feel good policies.

Harry Towler

Harry on 8/22/2019 8:00:23 PM
I second the comments on bullying by the leftists. Mean-spirited behavior by the left needs to be fought by all Americans. These racist, hateful fascists force their agendas by using economic power. They conscripted AT&T to strong-arm the Boy Scouts through economic power into abandoning their principals of teaching great character. They use boycotts and slander to kill businesses that dare to oppose their unrelenting hate for anyone who has different views from them. They unleash great hate campaigns, and then use political power to push for laws against "hate speech" which they define as any reasoned arguments opposed to their viewpoints, but the laws they propose exclude the hate speech that pours forth daily from their lips.

The one way that we can oppose them, as it is our duty as Americans to oppose anyone who daily assaults our freedoms, is to stop doing business with anyone who supports their narrow-minded non-inclusive agendas. Yes, I will stop doing business at Dicks. I will do so just because they have even considered joining the leftist hate campaign.

One final note: gun violence is properly a subset of VIOLENCE, not guns. The leftists (and the media) have run a 2 decade campaign of name-calling, disregard for respect of others and other viewpoints, and violence against anyone who disagrees with them. That is a growing source of violence in this country. The left is the primary source for teaching this growing violence to our younger generations. Teaching violence is the real problem, and the violence will grow with knives, bombs, clubs, cars, and anything else people can find regardless of whether guns are available. It is the fascist left we need to stop if we want to decrease the violence. We need an end to their ways and a return to the days when we could debate the issues instead of being attacked for disagreeing with them. We will only get there by using our economic power to overcome their economic bullying.

Bob G on 8/23/2019 12:01:03 AM
if dicks stops selling guns and ammo i will no longer do business with them

frank gill on 8/26/2019 1:56:55 PM
Great discussion. As a new member of the card-carrying-concealed-carry-crowd (alliteration!) and there are many of us joining the fold because we feel an urgency to do so. I wonder if they will include those of us who are cleared to carry. The locations prohibiting carrying will be losing on a major niche of the market. Many of us make our choices based on their alignment of our views. Their stocks are going to plummet. Writing from a border state in the wild wild west.

BW on 9/4/2019 4:13:36 PM
When a company starts social engineering it can hurt the stock.
Starbucks "let's talk about race". Stock tanked. Target, "any bathroom you want". Stock tanked. I have never bought the stock and doubt that I ever would. You can but most of their stuff elsewhere.

Frank on 9/5/2019 12:59:10 PM
 

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