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Morning Commentary

ARE WE HAVING FUN YET?

By Charles Payne, CEO & Principal Analyst
2/6/2020 9:29 AM

Image result for roller coaster fun

It was one heck of a roller coaster ride on Wednesday. In a blink of an eye, the market zoomed higher, plunged, and took off again. 

Those screams you’re hearing are mostly the boo-birds, naysayers, and politically motivated bears that only want this market to crash because of the occupant of the White House.

The scripts haven’t changed much in the past couple of years - just the ‘magic words’ inserted to trigger panic:

There is no focus on data (soft or hard), and earnings are barely mentioned without any nuance to guidance and wider implications.

The questions always include the ‘magic words’ and when brushed off, those questions are asked again until a headline comes out of the interview that justifies the initial fear and makes it an even bigger headline. 

Well, that might work for some, but the market eventually shakes off emotions and defaults back to fundamentals. That’s what’s happening this week, as a series of reports paint a picture of an economy that could support a much higher stock market.

The Message of the Market

Investors are searching for opportunities, which means even when big momentum names stumble, buyers emerge in other areas, including semiconductors in Technology.  Energy was also a big winner yesterday, but I’m not taking that bait for now. Instead, I think investors need exposure to Industrials and Materials in addition to those names whose underlying fundamentals are always rapidly improving.

The 2020 Boom! The major indices are all back in the plus column and hitting record highs:

S&P 500: +3.2%

S&P 500 Index

+1.13%

 

Communication Services (XLC)

+0.16%

 

Consumer Discretionary (XLY)

+0.51%

 

Consumer Staples (XLP)

+0.80%

 

Energy (XLE)

+3.76%

 

Financials (XLF)

+2.00%

 

Health Care (XLV)

+1.93%

 

Industrials (XLI)

+1.67%

 

Materials (XLB)

+1.85%

 

Real Estate (XLRE)

 

-0.08%

Technology (XLK)

+0.59%

 

Utilities (XLU)

+0.41%

 

Service Economy Looks Great

 

Yesterday was a hectic day. I didn’t get a chance to delve into the Institute of Supply Management (ISM) Non-Manufacturing (services) number, which came in better than expected:

Finding workers is by far the biggest problem while the only mention of coronavirus was about a run on supplies. Here are some observations from responders:

ISM Non-Service

United States ISM Non Manufacturing PMI

Portfolio Approach                   

The model portfolio mix remains the same. We took profits on a Consumer Discretionary name that had become too volatile and replaced it with an old value idea that’s looking to transition into a new growth model.

Today’s Session

Initial claims for the week ending February 1 declined yet again.  Claims of 202,000 represent a decrease of 15,000 and a nine-month low.  A better gauge, the 4-week moving average, also declined by 3,000 to 211,750.  Continuing claims increased 48,000 to 1,751,000 while the 4-week moving average for claims declined by 13,250 to 1,742,250.   These results continue to portray a tight job market and the positive demand outlook from employers.

The futures are pointing to another positive start.  Let’s see how thing go in early trading.

 

 

 

 


 

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