Bottom Line: No Evidence Of A Recession

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Posted: Aug 20, 2019 11:25 AM
Bottom Line: No Evidence Of A Recession

Source: AP Photo/Richard Drew

Yesterday was a good session, but once again, the market didn’t have enough oomph to get through key resistance points. And a late story about claims of accounting irregularities at Disney (DIS) seemed to spark an even wider selling into the close.

I was impressed with the market breadth, especially with the NASDAQ, which saw 307 issues hit new 52-week lows last Thursday. That was the most since December 24, 2018, when 1,110 finished at their one-year low. Yesterday, 111 names finished at new highs against 65 new lows.

During the session, big Chinese names enjoyed strong gains, including Sina (SINA) and Weibo (WB) Corporations. They were joined after the close when Baidu Inc (BIDU) posted monster results, and the shares initially popped at 15%.

Eating On The Run

We’re a very busy nation that’s always on the run, and that’s helping to fuel impressive stock results for so-called fast-casual stocks. Old-school fast-food operator stocks are also doing very well.

Fast-Casual

  • Shake Shack (SHAK): +112%
  • Chipotle (CMG): +90%
  • Starbucks (SBUX): +51%
  • Yum! Brands (YUM): +27
  • Wingstop (WING): +59%
  • Dunkin’ Brands (DNKN): +28%

Fast-Food

  • Restaurant Brands Int’l (QSR): +43%
  • Wendy’s (WEN): +31%
  • Yum! Brands (YUM): +27%

Those restaurant chains where you wait for a server to take you to a table and peruse the menu aren’t fairing as well. I still think investors should have exposure to the meteoric growth rate of fast-casual restaurants.

Newsmakers?

Home Depot (HD) at the Plate

This morning, all eyes will be on Home Depot, which is expected to announce revenue of $30.97 billion, and earnings per share of $3.08. 

Other key results from Kohl’s (KSS) and T.J. Maxx (TJX) could give insight into the strength of the consumer.

Approach

We increased our exposure to Technology (XLK) yesterday, lowering our cash levels.

Communication Services

Consumer Discretionary

Consumer Staples

1

2

1

Energy

Financials

Healthcare

1

1

2

Industrial

Materials

Real Estate

2

3

1

Technology

Utilities

Cash

2

0

4

 

Today’s Session

There is a lot of data out this morning, including several retailers.  Here’s my initial take with links back to the source information.   The bottom line is there isn’t evidence of a recession and everyone is ignoring deflation.  I hope that doesn’t include the Federal Reserve.

Because America is in Recession

US airlines expect record crowds over Labor Day weekend

https://www.washingtontimes.com/news/2019/aug/20/us-airlines-expect-record-crowds-over-labor-day-we/

The trade group Airlines for America forecasted Tuesday that 17.5 million passengers will fly on U.S. carriers between Aug. 28 and Sept. 3. That’s 2.5 million passengers a day and a 4% increase over the same week last year.

The busiest day is expected on Friday, Aug. 30, when the group forecasts just under 3 million people will board a U.S. airline.

The airline group says carriers have added seats even though Southwest, American and United have canceled thousands of flights while their Boeing 737 Max planes remain grounded.

Transportation Department figures show that travel demand has been strong all year, with fares at or near record lows, after adjusting for inflation. The numbers don’t include extra fees.

Deflation Deepening

Home Depot (HD)

https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/reports-and-presentations/quarterly-earnings/2019/Q2/q2-2019-press-release.pdf

"We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business. That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth. As a result, we are reaffirming our earnings-per-share growth guidance for fiscal 2019."

Lumber

Last May, we heard from the National Association of Home Builders that tariffs on Canadian softwood lumber was adding $9,000 to the price of a typical new home and $3,000 to multifamily units.  Right after that warning, lumber prices slipped into a deflationary death spiral and continues to struggle.

Lumber

Gaining momentum

Kohl’s (KSS)

https://corporate.kohls.com/news/archive-/2019/august/kohl-s-corporation-reports-financial-results

Michelle Gass, Kohl's chief executive officer, said, "We are pleased to report that our business strengthened as we progressed through the second quarter. Comparable sales were better than the first quarter and improved during the period, turning positive during the last six weeks of the second quarter with 1% growth. 

This positive trend has continued into August driven by a successful start to the back-to-school season.  We are confident that our upcoming brand launches, program expansions, and increased traffic from the Amazon returns program will incrementally contribute to our performance during the balance of the year and beyond.”

Summation

Major indices haven’t taken out key resistance points, and there are still lots of questions as well as the September 1st tariffs. 

I continue to say don’t panic.