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Dirty Fingernails Winning
It was a solid rebound across the board for the market on Monday, led by industrial names, which got help from China trade developments. However, it also continues their stealth rally as a proxy for the U.S. economy. One of my big themes has been intermodal container carriers that are easily lifted off ships onto rail cars and trucks.
J.B. Hunt Transport Services (JBHT) hit an all-time high, and many others are coming on strong. I’ve been pounding the table on this, and I hope everyone has exposure in their portfolio.
The State of the Consumer
Retailers edged higher in front of an avalanche of earnings reports out this week that will continue to separate those that have figured out the right formula and have made adjustments while punishing those names that aren’t moving fast enough. In addition to retailers, we get results from several restaurant names and a key homebuilder.
Results before the open:
- T.J. Maxx (TJX)
- Kohl’s (KSS)
- Advance Auto Parts (AAP)
- AutoZone (AZO)
- Toll Brothers (TOL)
Oil Keeps Gushing
Last Friday, Baker Hughes (BHGE) released its rig count data that showed just one new gas rig came online during the week. That was really impressive in the sense there wasn’t a wild free-for-all among independent drillers. The ability to shun their own wildcat impulses could be the difference for better crude testing at $80.00 before retesting at $60.00.
Despite all the articles about activity around the country, it is still about the Permian. While the total oil rig count was unchanged at 844, the Permian Basin edged higher to 467 rigs from 463.
At the close of trading West Texas Intermediate (WTI) finished +$0.96 to $72.24. The surge in WTI is stirring speculation about a wave of takeovers with potential candidates: Range Resources (RRC) and Chesapeake Energy (CHK).
After drifting last year, corporate buybacks were all the rage, powered in part by strong corporate profits and tax cuts. There is always a debate over the best use of corporate funds with options ranging from capital investment to higher wages, but there are generally two ways to reward shareholders:
I would like to see higher dividend payments and capital spending, but as an investor, I’m okay with the current phenomenon. There is no doubt this helps to put a bid in the market for large-cap companies with strong cash flows.
After the bell, we got two major announcements:
- (ADBE) Adobe Systems: $8.0 billion
- (MU) Micron Technology: $10.0 billion
Main Street Enthusiasm
In fact, the action in the Russell has reached new all-time highs for the fourth session in a row, which reflects the domestic economy - a point underscored in the latest Gallup poll.
Sixty-seven percent of Americans believe that now is a good time to find a quality job in the U.S., the highest percentage in 17 years of the Gallup polling. However, optimism about the availability of good jobs has grown by 25% since Donald Trump was elected president.
A Nod to the Current Administration
It’s not just Gallup, but another poll sponsored by CBS shows a big shift in optimism in the economy with more and more folks giving credit to President Trump. This is important because folks have to believe to give the recovery longer-term legs.
CBS News Nation Tracker poll: Americans give Trump credit for good economy, mixed reviews on N.K.
Nearly 2 in 3 Americans think the nation's economy is in good shape, and most of them believe President Trump's policies are at least somewhat responsible for that. More Republicans rate the economy positively than Democrats.
How would you rate the nation’s economy today?
- Very Good: 18%
- Somewhat Good: 46%
- Not Very Much: 27%
- Very Bad: 9%
How much do you think Donald Trump’s policies are responsible for the current state of the economy?
- A Great Deal: 35%
- Somewhat: 33%
- Not Very: 21%
- Not at All: 11%
Retail earnings are front and center this morning including those that have shares popping ahead of the opening bell.
Kohl’s (KSS) saw revenue $4.2 billion +3.5%
- Operating margin 2.5 from 1.6
- Comp store sales +3.6%
- Lowered long-term debt
- Solid inventory management
- Management raises guidance
AutoZone (AZO) beat the street as net sales climbed to $2.7 billion
- Gross margin 53.5 from 52.6
- Operating margin 20.5 from 20.2
Adverse weather hurt sales but management confident consumers are catching up.
Advanced Auto Parts and TJ Maxx were a lot lower this morning and both have turned higher. We are looking into those as well but the fact management can turn stocks in this environment means analysts are okay and believe goals can be achieved. On that note Macy’s, the big retail winner last week, just got a fresh stock upgrade this morning.
China Trade Showdown Update
China will lower tariffs effective July 1.
Auto tariffs will decline to 15% from 25% where it was for decades
Auto parts tariffs will decline to 6% from current range 10% to 25%
The administration will also allow ZTE back into America after major management changes and a huge fine. Of course we need to make sure the rogue company isn’t spying on Americans, too. In return there will be no agriculture tariffs and China is working on increasing its imports of US agriculture.
To make an overall assessment on this is like determining the winner of the Super Bowl in the middle of the first quarter.
I’m hopeful it could be a great deal but we must admit we’d be living under the status quo if the administration didn’t push back in the first place.