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Morning Commentary

Rallyís New Narratives

By Charles Payne, CEO & Principal Analyst
9/19/2017 9:57 AM
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Monday was another record day for the Dow Jones Industrial Average and the S&P 500, along with the NASDAQ Composite Index that’s on the doorstep of making a new high. However, the major averages don’t tell the whole story – here are yesterday’s messages from the market.

Global Economy

Caterpillar

Caterpillar (CAT) caught an upgrade from UBS, which lifted its rating to ‘buy’ from ‘neutral,’ noting the amazing growth for the company. Sure, the stock is up 33% this year; while there is no doubt this is a typical Wall Street late-to-the-party upgrade, there is tremendous upside potential.   

In the most recent quarter, construction sales reached $4.9 billion +11%

For the record, I’ve been pounding the table on this stock for years, and yesterday, I upped my target to $135.

Boeing

Already, 70% of Boeing (BA)’s commercial business is outside the United States. It will only grow over the next two decades where management sees deliveries of 41,000 planes worth $6.1 trillion. Like Caterpillar, commercial airplane demand is driven mostly by China and the rest of Asia.  Keep in mind that in 1996, American cities had 14 of the top 20 busiest airports in the world, and now that number is down to 4.

Boeing Buy Signal: The Numbers

2017 – 2036

41,030

$6,100,000,000,000

Years

Deliveries

Value

Boeing also benefits from the drumbeat of war that could see Japan shift from its passive constitution to confront an imperialistic China and bombastic North Korea.  Defense stocks continue to rally turmoil in the region and around the world.

Fertilizer

CF Industries (CF) and other fertilizer stocks took off yesterday, and are looking to break key resistance point that could see rallies that lift shares back to old highs.  There is a long way to go, but in the last global economic boom, there was a sharp increase in fertilizer prices.  We aren’t there yet, but global pricing power is returning.

Fed Hiking Rates

Forget all the noise about the market being worried about rate hikes at this stage of the recovery. The market needs to see the Fed express confidence, allowing its balance sheet to run off a little and moderately adjust accommodation.  With the two-day Federal Open Market Committee (FOMC) starting today, financials were the best performing sector on speculation that the Fed will not shy away from slowly removing the punch bowl.

Short Squeezes

I’m watching serious rotation out of high-flying technology into stocks with huge short positions.  Also, fresh money looking for quick scores is willing to push and chase, too. 

Rotation

I’m watching investors exit safe haven utilities, and a lot of that money is heading to the Russell 2000, which continues to lag its larger rivals. The index outperformed the Dow, S&P 500, and NASDAQ today and breaks out big time with a close above 1,450.

Semiconductor names continue to act great, attracting fast money and longer-term institutional cash that’s late-to-the-party, but never too late for window-dressing.

Bottom Line

There are a lot of influences to this rally, and most are just gaining momentum and strength.

Today’s Session

There is compelling housing data out this morning.  Both housing starts and permits came in better than expected with internal data favorable for those (like me) that think its critical American household formation improve rapidly and would like to see the house with white picket fence come back in demand.

Housing Starts

Single

Multi

Month to month change

-0.8%

-5.8%

Year to year change

+1.4%

+17.1%

 

Permits were extremely bullish especially the 362,000 in the west – the best level in ten years.  This is considered a better proxy for the economy as it is forward-looking.

Permits

Single

Multi

Month to month change

+5.7%

8.3%

Year to year change

+22.8%

+10.2%

 

United States Building Permits

The market continues its upward bias with restaurants and retailers leading the way.  Sure, high profile names like Toys-r-Us are making headlines in local newspapers, but their bankruptcy was telegraphed, and it is really tough for the company to beat back the online threat as well as other changes in the industry.

But, other venerable names are higher before the open, including:

We are keeping our powder dry this morning.  


 

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