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Morning Commentary

Is the (Party) Train Leaving the Station?

By Charles Payne, CEO & Principal Analyst
9/12/2019 9:40 AM

Talk about a stealth rally. Not only is it unloved and underreported, but even as stocks power higher feeding on a bunch of stimuli, including the adage that new highs beget new highs, there is much doubt in the air.  There is another old Wall Street adage about climbing a wall of worry, but what about a wall of negative thoughts based on politics, not number-crunching?

All aboard

Every all aboard

Anybody want to take this ride’

Anybody want to ride

All it takes is a nickel or a dime

-Gap Band - “Party Train”

Uncle Charlie and the Gap Band were the best-selling R&B group in the early 1990s because of their unique funk and ubiquitous happiness in their music.

The market once again got stronger into the session and rallied to close at the highs yesterday, but there wasn’t any joy or happiness. The only ubiquity is the disbelief and the theories about why the doom-and-gloom theories didn’t work. And for the smartest mavens, this current leg higher is a part of the ultimate destruction prediction. I guess the higher it goes, the harder it falls comes into play. However, in all seriousness, I’m a little tired of the curmudgeons being right even when they’re wrong.

As a natural-born contrarian, I’m thrilled the experts are downplaying the rally because there’s a difference between hoping for destruction and coming to such a conclusion of fear or other emotional inputs. Toss in mainstream media, which has taken to the siren call of a recession - they use it for every report on the economy.

Did you see all the reports on more Americans without health care insurers yesterday?  Did you see any headlines on how many came out of poverty (a number remarkably equal to those that got off Medicaid), or the number of Americans working full-time jobs, otherwise known as the cornerstone of living?

I didn’t think so.

Why They Make the Big Bucks

To be sure, some folks are looking for a big pullback based purely on research, but the loudest voices are all tainted by animosity, not bottom lines or valuations. Of course, it’s one thing to predict doom and gloom, but professional money managers must make their clients’ money…at some point.

Headlines from Global Money Managers in Bank of America Survey

‘Fund manager cash levels hit highest point since 2009’

February 2019

  1. 44% overweight cash
  2. 18% overweight emerging markets
  3. 14% overweight FAANG

Six-month performance

  • FB +8.7%
  • AMZN +7.8%
  • AAPL +23.1%
  • NFLX -20.2%
  • GOOG +2.3%
  • SPX +6.8%

‘Fund managers haven't been this bearish since the financial crisis thanks to the trade war’

June 2019

21% of global fund managers are underweight stocks the lowest exposure since March 2009.

Market breadth was good on Tuesday. Yesterday, it moved to a level that underscored a scramble to get positioned in something. 

Market Breadth

NYSE

NASDAQ

New Highs

2,095

2,342

New Lows

830

789

New Highs

102

76

New Lows

6

12

Up Volume

2.73 billion

1.62 billion

Down Volume

143 million

667 million

Rotation & More

I think the rotation story got too much press yesterday, and money suddenly decided to test this market by finding stocks with the largest short positions. 

Semiconductors, coupled with Apple (AAPL), lifted Technology to the best performer by the closing bell. 

S&P 500 +0.72%  

Communication Services (XLC)

+0.53%

 

Consumer Discretionary (XLY)

+0.19%

 

Consumer Staples (XLP)

+0.36%

 

Energy (XLE)

+0.10%

 

Financials (XLF)

+0.57%

 

Health Care (XLV)

+0.99%

 

Industrials (XLI)

+0.93%

 

Materials (XLB)

+0.96%

 

Real Estate (XLRE)

 

-0.23%

Technology (XLK)

+1.04%

 

Utilities (XLU)

+0.99%

 
 

Watch the iShares PHLX Semiconductor ETF (SOXX) today for a potential monster breakout.

Approach

Also, Consumer Discretionary names were among the worst performers of the session yesterday. I sensed it was coming in part because the hype build-up was too fast. We asked subscribers to take a monster gain on Macy’s (M) even though the idea was only a week old and put on a new tech idea in the model portfolio.  

After the close, a couple of retailers Oxford Industries (OXM) and Tailored Brands (TLRD) took it on the chin and reminded us that oversold bounces don’t change underlying fundamentals even if they make for great trades.

Communication Services

Consumer Discretionary

Consumer Staples

1

2

1

Energy

Financials

Healthcare

1

1

2

Industrial

Materials

Real Estate

3

2

1

Technology

Utilities

Cash

3

0

3

It’s Happening…

Last night, President Trump reacted to a series of small Chinese overtures with one of his own, which sent equity futures higher.

Donald J. Trump @realDonaldTrump​

Trump said the delay came “at the request of the Vice Premier of China, Liu He, and due to the fact that the People's Republic of China will be celebrating their 70th Anniversary...”

Donald J. Trump @realDonaldTrump

“...on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th. “

Today’s Session

Mario Draghi is going out with a bang!

I’m not talking about the dramatic changes to ECB monetary policy, but shots he’s taking on feckless European governments.  As a result of failed fiscal policy, there seems to be panic over lack of inflation leading to deflation.  In addition, Draghi admits the "protracted slowdown" in the Eurozone economy is more marked than expected.

ECB goes back to its toolbox and pulls out quantitative easing just nine months after ending the program.

Some observers were looking for even more Draconian moves.

When Draghi broached the topic of more fiscal policy help, the room erupted in laughter.  This seemed to move the outgoing president of the ECB to be even more direct, saying the overwhelming reason Europe came back from the brink, including creating 11 million jobs since the Great recession, is because of the ECB.

He says its "high time for fiscal policy to take charge" to help create growth.  Moreover, some of the risk of today’s actions would be mitigated by pro-growth fiscal policies and bring earlier success.

Additional Observations:


Comments
The media and the Left are engaged in an abundance of hate. A wiser man, experienced in hate, once said this -
“Always remember, others may hate you, but those who hate you don't win unless you hate them, and then you destroy yourself.”



― Richard Nixon
Hate never makes you wealthy!

Ed Murchie on 9/12/2019 9:54:32 AM
Fiscal policy to take charge... Let's see, Japan never cut taxes or regulations and has been in the doldrums for how long? Europe, ditto. US, under Obama copied their plan and we had a virtually nonexistent recovery masked only by an energy boom in oil and gas and the miracle of fracking.

We cut taxes on corporations, small businesses, individuals, repatriated funds, and cut regulations and none of it worked. The proof is in the fact that the US is tanking and the rest of the world is leaving us behind. Oh, that's right, its the exact opposite. We are leaving everyone in the world behind. The irony is that the political bias and hatred for Trump and capitalism and the USA have blinded them from the practicality of what actually works. Welcome to political denial and failure on a scale not experienced before. God bless America!

Ray Weldon on 9/12/2019 10:53:12 AM
 

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