Everyone's feeling pretty
It's hotter than July
Though the world's full of problems
They couldn't touch us even if they tried
From the park I hear rhythms
Marley's hot on the box
Tonight there will be a party
On the corner at the end of the block
The Market versus The Pessimism
For all the hand-wringing and doomsday prognostication, July was a hot month for the market. It’s really something when you think about all the news about tariffs, the Federal Reserve, the strong dollar, the potential inverted yield curve, and the non-stop Washington, D.C. gossip - especially when the financial media promoted more than jobs, wages, earnings, and other signs of America’s economic resurgence.
- Dow Jones Industrial +4.7%
- S&P 500 +3.6%
- NASDAQ +2.5%
- Dow Transportation +7.1%
- Russell 2000 +1.7%
The rally faded into the close on Tuesday, but it was a solid session in the midst of serious anxieties. There was news that the United States and China are back at the negotiating table, which helped the market bolt out the gate and lifted Industrials (XLI) to the best performance of the session. We continue to see that the market can move higher with tech lagging.
A lot of money is flowing into health care, which has seen Big Pharma perform well. The hot money is flowing into biotechnology stocks such as Illumina, Inc (ILMN), which popped on strong earnings, closing at an all-time high.
The IBB Biotechnology Index has a great looking chart, having pulled back from a double-top formation. A close above 119 should spark a rally to test 133.
By the way, I don’t think all Big Tech is dead. I still have Apple (AAPL) and Amazon (AMZN) in several retirement accounts. Yesterday, after the close, Apple posted very impressive financial results. The best June quarter in the company’s history (the lone negative was 41.3 million iPhone sales against expectations of 42.0 million).
The results also reflect the rejuvenated American consumer.
- Revenue: $53.27 billion versus estimate $52.43 billion
- Earnings per share: $2.34 - beating the Street by $0.16
- Service revenue: $9.55 billion
- 4Q18 revenue guidance: $62 billion
- iPhone, the average selling price (ASP): $724 (estimate $693)
- Music: +50%
- Americas revenue: $24.5 billion +20%
- Europe revenue: $12.1 billion +14%
- China revenue: 9.6 billion +19%
For those that are looking for less volatility and value, I continue to suggest Industrials, which act great. Not only should China’s trade situation be resolved soon, but the earnings from the Industrial sector have been extremely impressive. Yesterday, several names got a bigger boost:
- (HRS) Harris Corp.
- (CMI) Cummins Inc.
- (ETN) Eaton Corp.
S&P 500 Index
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
I know I’ve been saying this for a couple of months, but I think every investor should consider having greater exposure to Industrial names.
Speaking of Industrials, the Trump administration continues to focus on training, and influencing state and private enterprise to step up to the plate as well. The latest example is the ‘Strengthening Career and Technical Education for the 21st Century Act’ signed into law yesterday.
White House Press Release:
The legislation is a reauthorization of the Carl D. Perkins Career and Technical Education Act, a $1.2 billion program last overhauled by Congress in 2006. The new law allows states to set their own goals for career and technical education programs without the education secretary’s approval, requires them to make progress toward those goals, and makes other changes to federal CTE law.
Hard Work Rewarded
In yesterday’s Employment Cost Index, it was revealed that those dirty fingernail jobs I talk about all the time are seeing an outsized improvement in benefits and compensation compared to other occupations.
Employment Cost Index
Natural Resources, Construction & Maintenance
Production & Transportation
The country is a lot more than technology, although, it would be nice to see them rebound today.
The Dow looks to open flat to slightly lower despite juice from Apple after posting that monster earnings number.
Soda Stream is surging on a remarkable earnings result that saw the company beat earnings consensus by $0.41.
- Water Kits +38%
- Consumables +26%
- Americans +36%
- Western Europe +33%
- Asia Pacific +36%
This speaks to healthier trends across the planet, especially in the United States where carbonated soda, including diet products, continue to plummet.
This also speaks to the celebrity culture, especially in America, as fitness icon Jillian Michaels is now the face of the product.
Jobs Are Back
The ADP jobs report was very impressive with the headline of 219,000 besting the consensus of 185,000 and solid gains across the board. But, it’s those dirty fingernail jobs that continue to rock, especially manufacturing.
The last 19 months has seen 836,000 new manufacturing jobs versus the prior 19 months when it was only 26,000. No wonder they said it couldn't be done!