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OPINION

Still Cautious Bull With Compelling Undertones

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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With the market closing up for four straight weeks, there are several storylines investors can’t ignore.

There is still a cautious tone to this rally that belies any notion of irrational exuberance.  Individual investors continue to dump billions of dollars in U.S. equity funds; it’s a trend that goes all the way back to early 2014.  When buyers do step up to the plate, they’re doing so in a cautious manner.

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The top performing sector in Friday’s session was ultra-conservative utilities up 1.3%, bringing the year- to-date gain to more than 20%. 

Possible Building Boom

The S&P 500 closed on Friday at a new all-time high despite news of more assaults on mankind in major western cities.  While there’s something morbid about this, the fact is the stock market is focused on other aspects of what’s happening and may continue to happen in the world.  The market sees the world on the cusp of a building boom.   In America, it stands to reason that no matter which candidate wins, there will be a push to spend money on infrastructure.

According to the American Society of Civil Engineers (ASCE), which assigns letter grades for the nation’s overall infrastructure in the form of a school report card, it assigned our nation a grade of a D+. It will take $3.6 trillion to bring it up to snuff by 2020.  I suspect the market thinks that will happen along with the building that continues with the urbanization of America.

There are three signs this is a winning trend going into the election and beyond:

United Rentals (URI) posted a blowout earnings report.  The company leases an array of construction equipment in all 50 states, and management seems very optimistic.

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Tetra Tech (TTEK), which most people consider a water play has a deep infrastructure portfolio and it has seen its stock take off like a rocket.  I think it has a lot more room to the upside. 

There’s the merger I am sure that Donald Trump will begin mentioning in his speeches.  His favorite construction company Komatsu (KMTUY) of Japan is buying Joy Global (JOY) of Wisconsin for almost 70% less than its market cap back in 2007.

These are investable trends.

Meanwhile, coal has surged just as General Electric (GE) was reporting earnings where the high point was a major sell to Dubai of a coal system increasing their power grid capacity by 25%.  While America’s coal has been forced to the edge of extinction, the rest of the world is using more than ever. I am focusing on metallurgical coal more than thermal; however, the world is using both.

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