While the Dow Jones Industrial Average struggled to get out the gate on Tuesday, all the other major indices were higher. The NASDAQ surged on earnings from Netflix (NFLX), along with continued strength with all other tech titans, lifting them to all-time highs:

• (AMZN) Amazon
• (GOOGL) Alphabet/Google
• (MSFT) Microsoft
• (FB) Facebook

Consumers Still Consuming

Strength in the following names helped the consumer discretionary sector more than technology, underscoring the fact that people are spending money (but not where and how they used to spend money).  Three of yesterday’s big winners and themes:

• Cocooning = Netflix
• Online Spending = Amazon
• Experiences = Priceline

The biggest winner among consumer stocks was Mattel (MAT), which has been perpetually in the takeover rumor mill of late.  Although I expect a wave of takeovers this year, investors should focus on value; you will end up with a few names that get takeout bids.

Value/Hedge

Speaking of value, the biggest winners yesterday were Real Estate Investment Trusts, a group that has significantly underperformed the market over the past year with names that pay very juicy dividends.  This could be a sign some investors are seeking to mitigate their overall equity risk. The winners cover a wide range of industries.

• Macerich Co. (MAC): Retail
• HCP, Inc. (HCP): Hospitals
• Prologis, Inc. (PLD): Industrial Real Estate

Growing Concern?

One thing investors could be worried about is inflation. It is still not anywhere near setting off alarms at the Fed, but it could come on with a spike in wages. 

The Atlanta Fed is modeling for fourth-quarter Gross Domestic Product (GDP) at 3.3%. It would be a huge momentum coming into 2018, but the Personal Consumption Expenditures (PCE) also surged to 4.0% from 2.8% at the start of the quarter. For me, it’s not a major concern at the moment, but it could invite more volatility into the market.

On another note: as President Trump prepares for his visit to Davos, Switzerland, to spread the word about the virtues of “America First,” it’s important to consider just how far the U.S. and world economies have come. 

In 2008, 2009, and 2010, the World Economic Forum stated that the greatest and most likely risk to the world was a collapse in asset prices. Today, its impact is not even considered a top ten impact concern, along with asset bubbles in major economies being considered the tenth most likely risk.

After the close, there was a mixed bag on earnings:

• Texas Instruments (TXN) reported in-line earnings of $1.09. In-line earnings without a remarkable guidance aren’t going to get it this earnings season as the stock is getting hit
• United Continental (UAL) posted $1.40, beating the Street by six cents. The initial reaction has shares trading higher, and it has turned lower as well

This is going to be a tough earnings season that could see individual stocks pull back. Make sure you aren’t bailing because the crowd is bailing. If fundamentals are stalling, it’s okay to take profits and losses.

Meanwhile - The Tax Cut Dividend Continues

All day yesterday, we heard from major U.S. corporations that are putting money made from their tax windfall back into America via investments, higher wages, and greater philanthropy. 

How JPMorgan Chase & Co Will Spend Its Tax Windfall

The biggest U.S. bank is planning to open more branches, expand mortgage lending, and boosting pay for some employees over the next five years:

• $20,000,000,000 over five years
• 20% or $4.0 billion more in small business loans
• $50.0 billion mortgage lending in low-income communities over five years = 250,000 mortgages
• Wage hikes: $15 to $18 an hour from $12 to $16.50
• 400 New branches (each supports 6,000 families and 450 small businesses)
• 4,000 new employees
• 40% philanthropy increase to $1.75 billion over five years
  • FHFA House Price Index
  • Existing Home Sales
  • EIA Petroleum Inventories

Today’s Session

Equity are higher, but there is still hell to pay for companies that miss financial consensus or offer subpar guidance.  Lots of economic data out today that should also influence the outcome of the session.

Also, all eyes are shifting to Davos, that annual gathering of elites that fine-tune their speeches on global warming on private jets.  President Trump has sent the largest contingent in history, and he will make his own address on Friday.  It’s already been a blast listening to world leaders critique the administration while praising America’s economy.

Speaking of America’s economy, check out the latest from Caterpillar, which is enjoying spectacular growth around the world.  The most important part is rapid sequential gains in North America.

Will have more details on the afternoon note.

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Comments

great information and I like the charts and graph that give a nice visual to make your point Robert Lenac on 1/24/2018 10:05:56 AM

Thank you very much Robert I think it drives home the enormity of news/trends. CP Charles Payne on 1/24/2018 10:20:27 AM

Thank You Charles for all you do in-order to help all who will help themselves. Prosperity for all ----- from the laborer to the superintend and of course the owner ------ Let's all go rebuild our country! john on 1/24/2018 11:46:08 AM

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