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Morning Commentary

Changing Fortunes

By Charles Payne, CEO & Principal Analyst
9/13/2017 9:28 AM
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Some people are in a state of euphoria and remain this way about the market as long as it’s generally moving higher day to day.  I also get excited when the market is undervalued; more so when the underlying economy is moving in a way that justifies higher valuations. This is the environment we currently find ourselves (in the chicken and egg world of commerce). The question is always: which came first?

In both cases, there is an assumption that changing fortunes are right around the corner. Right now, it is businesses that are making that assumption backed up with big money investments.  An example would be the National Federation of Independent Business (NFIB), which reported that 27% of small businesses are saying this is the time to expand, the highest level since December 2004.

Big businesses have already begun to make investments in the future. There is a sharp increase in durable goods spending to a 50% increase in orders for those big Class 8 rigs that carry the economy.   Make no mistake; the only way to crack a 3% Gross Domestic Product (GDP) is with greater business investments, and it’s beginning to happen.

 What about the consumer? Consumers are spending more and accessing credit, but wage increases have been limited to a few occupations. The good news is median wages have finally edged up to an all-time high, finally eclipsing the peak from 1999.

Needless to say, the $59,039 median reached in 2016 doesn’t engender a ground swell of confidence.  Moreover, the increase has been geographically inconsistent. The south is still flat while the Midwest has seen a significant decline. The Heartland is left out of the economy that propelled President Trump to office. Will elite/globalist forces remove their boots?

Median Income
(in 2016 dollars)

Northeast

Midwest

South

West

1999

$60,374

$61,283

$53,861

$61,359

2016

$64,390

$58,305

$53,834

$64,275

According to the Bureau of Labor Statistics (BLS), there are 6.2 million job openings right now, and that is an all-time record as more and more people are quitting their jobs to demand more money. I know we’ve been poised for this for a long time; however, we should see a sustained spike in wages real soon.

Government Debt

Congratulations, America; our national debt surged over $20.0 trillion. It’s a number that would have had conservatives quaking in their boots a year ago. It will make the budget, tax, and spending debates more interesting.  We need to spark the economy and find a way to curb this ticking time bomb.

The Market

It may have been an exciting time at Apple headquarters. However, there was an anticlimactic reaction from Apple’s shares, which edged slightly lower. I don’t think it was an indictment on the news,’ just buy the hype, sell the event,’ which isn’t unusual.

On the other hand, all the major indices closed at fresh record high points on Tuesday, and market internals was even more bullish.  There were 72% more winners than losers on the NYSE, where 172 names had high-new highs versus only 8 closing at new lows.

In fact, the lonely loser of the session was the S&P 500 Utilities Index, which declined 1.7% for the session. Smart money has been camping out in these safe stocks, so rotation into other sectors is actually a bullish sign.  

Sector Performance

% Change

S&P 500 Index

+0.25%

Consumer Discretionary (XLY)

+0.36%

Consumer Staples (XLP)

+0.13%

Energy (XLE)

+0.45%

Financials (XLF)

+1.12%

Health Care (XLV)

+0.11%

Industrials (XLI)

+0.46%

Materials (XLB)

+0.90%

Real Estate (XLRE)

-1.26%

Technology (XLK)

+0.08%

Utilities (XLU)

-1.70%

 

Many would be surprised to know that the S&P 500 Utilities Index has crushed the performance of the overall market over the past three years; those profits will probably seek out value.  One area to watch is retail. I know many have left it for dead, but there will be survivors. There is already a stealth rally in brick-and-mortar retail that should get a boost on news after the close that the Nordstrom family is close to a deal to take the company private. 

One of my favorite names is Burlington Coat Factory (BURL).  Although I couldn’t find any coats there a week ago, this was my mother’s favorite store, and the stock has gotten extremely cheap. 

Today’s Session

The market is looking to digest gains at the start of trading, which is fine.  A big focus is on chip names as the SMH Semiconductor index just broke out to a new high that was formerly a double top.  Micron and Applied materials catch upgrades this morning, and the excitement from Apple and Samsung smart phones keeping these names hot.

SMH

http://markets.money.cnn.com/cgi-bin/upload.dll/file.png?z678f7d0azb06bab8eedf64f39990eeb333a21e91d

 


 

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