On Monday, there were stock market records across the board as most sectors of the market were higher with the exception of utilities. Utilities have enjoyed a remarkable year, considering the strength in the rest of the market. Investors are now rotating out of those safer investments and taking more of a risk with the stock market, which doesn’t look like it’s going to stop.
I still love material names that continue to outpace the rest of the market. I hope everyone has exposure and even overweight in this particular sector. (Make sure to check with your rep or research desk.)
Of course, there’s a lot of talk of selling on the tax news this week. It might happen; at this point, investors need to be looking down the road well beyond 2018. Understand that pullbacks aren’t sell signals as long as the underpinnings of the economy continue to surge.
Corporate America and the Tax Bill
As for tax cuts and the stock market, excitement has officially been held in check. However, in the third- quarter, 93 out of 445 S&P 500 companies mentioned “tax reform” during third-quarter earnings calls according to FactSet Data.
The pace increased for those reporting after the House version were released on November 2nd:
- 34 mentioned “tax form” during their call
- 14 expressed positive sentiment
- 17 are cautious and want to know more
Enthusiasm on the Front Lines
While some companies were positive and cautious at the same time, five companies said they hadn’t factored tax reform into guidance. From what I’ve read and listened to, no company could assume the passage, so many were guarded with respect to guidance. However, the optimism is palpable.
Case in point, FactSet mentioned Marriott International (MAR).
"I have participated in a number of events with a whole bunch of our corporate customers recently, and I think generally the view from our corporate customers, not surprisingly, is if tax reform gets done, it will be a boost to the economy, a boost to their fortunes, and a boost to GDP generally. And in that sense I think they would be a bit more optimistic about growth."
Recommended
–Marriott International (Nov. 8)
In this case, not only is Marriott a perfect proxy because of its relationship with the business world, but it also serves as its own global footprint. There are now more units and rooms internationally, but the revenue per available rooms in third-quarter 2017 grew at a rapid clip (China +10.6%).
Marriott is the typical company that we want to bring some of those profits from abroad back home.
Businesses Putting Money to Work
Businesses are already beginning to invest money after pulling back dramatically in 2016. In the current quarter, real gross private domestic investment in fixed investments and business equipment are a big driver of a potential 3.3% Gross Domestic Product (GDP) growth.
Conclusion
The train is gathering steam. This isn’t the time to guess about tops or fret about missing the rally thus far; instead, this is the time to consider owning Great American Companies on this Great Rebound.
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