The stock market enjoyed another solid session on Wednesday with the Dow and the S&P 500 hitting new highs powered by consumer staples, which continues to attract value investment dollars and industrial names led by Caterpillar (CAT).

Shares of Caterpillar are up 60% this year, reacting to a strong global tidal wave that’s only gathering strength. 

Yesterday, Caterpillar posted its November retail statistics and the company is firing on all cylinders:

• Industrial +30%
• Transportation +35%
• Oil & Gas +43%
• Total +23%

The geographical story saw negative year-to-year sales at the start of the year to 26% overall, and 25% for construction equipment.

The North American story is equally encouraging. Having spent the first four months of 2017 with negative year-to-year comparisons, sales are now taking off.  I think Caterpillar is the perfect proxy for the true building blocks of the economy- physical infrastructure, construction of roads and bridges, and mining - the energy to make it all move.

Even with the abundance of strong economic data, the Federal Reserve isn’t as ebullient about the next couple of years. While its Gross Domestic Product (GDP) outlook is higher than their modeling in September, it seems conservative when you consider the economic momentum going into next year.

Currently, the Atlanta Fed sees the fourth-quarter GDP at 2.9%, while the New York Fed sees the fourth-quarter GDP at 3.9%.

GDP Outlook Federal Reserve	Current	Previous
2018	2.5	2.1
2019	2.1	2.0
2020	2.0	1.8

I suspect the strong economy will drive the market higher than most estimates. According to FactSet, the S&P 500 should see revenue growth at 5.4% and an earnings growth of 11.2% in 2018. It would be good enough to justify the market climbing higher from here. 

2018 S&P 500 Financial Estimates	Revenue	Earnings
1Q18	+6.4%	+10.6%
2Q18	+6.2%	+10.2%
3Q18	+5.4%	11.6%
4Q18	+4.3%	11.1%

Let’s not forget the bottom line. It will be substantially higher with lower rates that allow for less robust buybacks and more long-term business investments.

Today's Session

What a wonderful retail sales report, and much higher than the street’s expectations.  While autos were the lone weak spot, down 0.02, gasoline stations sales soared up 2.8.

Retail Sales November 2017	M/M	Y/Y
Headline	+0.8	+5.8
Ex-Autos	+1.0	+5.7

Home sweet home.  Furniture sales and building and garden remain strong. And people continue to eat out and restaurants are ramping higher. 

 

 

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