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Morning Commentary

Why We Look for Winners

By Charles Payne, CEO & Principal Analyst
12/9/2019 9:35 AM

There were a few reports last week that point to the strength in two stocks for leading the record-breaking rally this year.  There is no doubt Apple (AAPL) and Microsoft (MSFT) have been outperformers this year and have had an outsized impact on the stock market. However, that’s not the worst thing in the world, considering these are great companies that should be proxies for the U.S. economy.

The two have amassed a collective $819 billion in market cap this year, leading the Dow Jones Industrial Average to all-time highs.

If those gains were stripped from the Dow, the blue-chip index would be nearly 1,100 points lower than its current level, according to data compiled by CNBC last week.

For investors, the real lesson here is trying to be invested in the best names, not day trading or flipping, but making adjustments because there will be a day when Apple and Microsoft are a drag on the economy. That won’t be for a while.  Microsoft joined the Dow Jones Industrial Average (DJIA) in 2002, with Home Depot (HD) and SBC Communications replacing names that had been in the index from 1924 to 1930.

It was time for a makeover.

Dow Jones Industrial Average 2002 Changes

In

Out

Home Depot

Chevron (1930)

SBC Communications

Goodyear (1930)

Microsoft

Sears (1924)

Intel

Union Carbide (1928)

 

Apple joined the Dow Jones only in 2015 to a chorus of comments: It’s about time!  Imagine how much higher the Dow could be if all these changes were made sooner. Heck, we could be talking Dow 50,000.

The lesson here is clear. You must adjust your portfolio. If you are only relying on index funds and exchange-traded funds (ETFs), more than likely, those adjustments will never be made or made far too late.

Last week, Consumer Staples and Technology were the best performers 1.27% and 1.22%, respectively, while Industrials and Consumer Discretionary were performed the worst, down 1.12% and 0.65%, respectively. 

Friday Energy was the best performing sector.

S&P 500 Index

+90%

 

Communication Services (XLC)

+0.59%

 

Consumer Discretionary (XLY)

+0.80%

 

Consumer Staples (XLP)

+0.38%

 

Energy (XLE)

+1.91%

 

Financials (XLF)

+1.34%

 

Health Care (XLV)

+0.66%

 

Industrials (XLI)

+1.21%

 

Materials (XLB)

+1.03%

 

Real Estate (XLRE)

+0.03%

 

Technology (XLK)

+1.11%

 

Utilities (XLU)

 

-0.30%

Energy had a great week, following Wednesday’s pop as the Energy Information Administration (EIA) reported that a 4.9% decline in inventories was greater than expected, helping West Texas Intermediate (WTI) rally higher.

The Organization of the Petroleum Exporting Countries (OPEC) is working on major oil production cutbacks – which, coupled with structural issues in the Permian Basin (PBT), could goose crude prices even higher. I am worried about the overall output from the Permian Basin and debt issues in the oil patch. But again, that might actually send prices higher, even as it weighs heavier on the general public and the economy.

Portfolio Approach

 Last week, we add a couple of positions, and took profits on one housing stock.  If you have any questions, contact your account representative or research@wstreet.com.

Today’s Session

The futures are pointing to a slightly lower open. The latest overnight news on trade and tariffs came from China’s Assistant Commerce Minister Ren Hongbin who said they hoped to make a trade deal with the U.S. as soon as possible.  The comment come on the heels of news China plans to replace all foreign software in their state offices within the next three years.  Let’s see if this has an impact on Technology today. 

Speaking of tech, at the annual Regan National Defense Forum this weekend, Amazon CEO Jeff Bezos gave a dire outlook for the U.S. if tech companies fail to provide the Pentagon with support.  He stated, “If big tech is going to turn their backs on the Department of Defense, this country is in trouble, that just can’t happen.”

Some may say his comments are geared towards his fight for the $10 billion Joint Enterprise Defense Infrastructure Cloud contract, which was awarded to Microsoft (MSFT).  But nonetheless, his comments ring true.  It also points to a growing generational and cultural divide.

Merger Madness Continues

The consolidation in the Healthcare/Biotech space is in full force, with super hefty premiums.


 

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