Markets Showing Resilience And Resolve

Posted: Mar 05, 2018 11:41 AM
Markets Showing Resilience And Resolve

We’ve heard from all the experts on why tariffs are awful. Beginning with Wall Street’s temper tantrum to Electrolux of Sweden announcing it would delay a $250 million investment to expand its Springfield, Tennessee plant.

The European Union (EU) is teeing up $3.5 billion in potential tariffs on U.S. imports.  I should note that would be 1.2% of the total amount America exported to the EU last year. The same EU is loading up on threats to an independent UK if they lower taxes and cut red tape to become more attractive to foreign businesses.

However, General Motors management issued a statement:

 “We need to better understand the details… but supports trade policies that enable U.S. manufacturers to win and grow jobs in the U.S.”

Speaking of supporting trade policies during the campaign, then-candidate Trump promised to take tough action, including tariffs. I tweeted to his voters to ask if they were ready to pay higher prices to fix our trade imbalances and to bring back American manufacturing and jobs.

War Bonds

The reply was a resounding “yes”.  It reminds me of the time Americans took up FDR’s offer of “One Great Partnership” to purchase War Bonds and Stamps during WWII.  By the end of the war, 85 million Americans invested $185 billion to help win the war.

On Friday, I went on Twitter to ask if folks were still ready to pay more. The answer was overwhelmingly “yes,” as you can see in the following tweets:

Clara Silverman

And I STILL say yes!! Short term pain for long term gain.

Dale Dixon

I haven’t changed my mind. I support POTUS and will pay the extra costs if needed. China can’t continuously be allowed to get away with this fleecing of America.

Mark A. Brown

I use Steel & aluminum every single day in our machine shop. I would pay higher prices in order to keep Steel & aluminum production here in the USA. It is a matter of National Security. We don’t need to rely on foreign countries for our steel that we build our war machines from

While the market continues to gyrate over a litany of concerns, there are two very important trends that bode well for the economy and the stock market this year.

Consumers Are Back

Consumer Sentiment readings from the University of Michigan last Friday were nothing short of remarkable. The headline number climbed to its second highest level since 2004. The driving forces are increased optimism over jobs, wages, and higher after-tax pay.

The highlight of the report:

“The highest proportion of households since 1998 reported that their finances had improved compared with a year ago and anticipated continued gains during the year ahead.”

Click here to view the chart.

It’s not just the surveys; Americans continue to stampede into stores and malls with a newfound swagger.

Last week, we saw amazing action in brick-and-mortar stocks from department store names such as Macy’s (M), Dillard’s (DDS), Kohl’s (KSS), and specialty retailers T.J. Maxx (TJX) and Gap Stores (GPS).  One of the underlying storylines here is brick-and-mortar survivors are beginning to learn how to compete with Amazon. Their secret is perfecting the Omni-Channel approach, which leverages existing physical  locations with their digital efforts.

Thus far in 2018, the second-best performing sector is consumer discretionary.  but I should point out three of the top five winners are all digital. In other words, there’s room for everyone to make money when the consumer feels flush.

On that note, Amazon (AMZN) rallied from down $40 and Netflix exploded into the close giving credence to whispers of a major bid coming from Disney any day now. 

While we know the consumer is 2/3 of the economy the difference maker is when big business starts humming.  Right now, that’s exactly what’s happening as we found out manufacturing is at its best level since May 2011. The Institute for Supply Management (ISM) report saw 15 out of 18 industries enjoy growth in February.

The employment component was the highlight, which surged 5.5%, offsetting declines in new orders and production. 

Click here to view the chart.

Speaking of jobs, this week, we get employment data for last month. At this point, Wall Street isn’t sure what to root for because the January beat of 200,000 jobs and stronger wage growth spooked the folks in those ivory towers that think Americans are making too much money.

As for the market, while there is a chance of re-testing the lows, I’m very impressed with how resilient stocks were on Friday.  

Today’s Session

There is continued saber rattling and distortions on the media over potential steel and aluminum tariffs, as well as crafting a narrative that the U.S. should apologize to Mexico and Canada ahead of the NAFTA negotiations this week.  If there was such a thing as the Neville Chamberlain award for blinking, there would be a lot of nominees from the media, to the protectors of crony capitalism, to those folks that oppose everything the administration does regardless of how they might actually feel about such actions.

Let’s be cool and understand this is a volatile period where entrenched interests are scared because the president is doing what he said on the campaign trail and rocking the boat.  These special entrenched interests will shake up the market to prove a point, even while taking a near term hit.  They aren’t selling, and you shouldn’t close holdings in great companies.  

Those are my morning thoughts.