Despite hitting an air-pocket midway through the session yesterday, the Dow Jones Industrial Average climbed off the canvass to close at its 9th record high in 2018 and the 80th since President Trump came into office. The NASDAQ had the most difficult session, swooning 45 points after several high-flying tech names stumbled on profit-taking.
While many attributed midday market struggles with comments by Treasury Secretary Steven Mnuchin about the virtues of a weak dollar on a short-term basis, I find it odd the names that benefit the most from a weaker US dollar would turn lower.
- Apple
- Alphabet/Google
- Amazon
They have more than $400 billion offshore and generate enormous revenue outside the United States. I think this is more about anxiety associated with the parabolic rally in technology stocks.
The Treasury Secretary reiterated his comments about not being fixated on the dollar each moment of each day and stating the obvious benefits of a competitive currency in a global economy. I do think it’s amazing all those globalist with weak currencies would rail at the United States, even hinting the dollar should make American goods more competitive.
I don’t think it’s a big deal at this point, and indeed, the timing is perfect on the heels of tax reform that is encouraging overseas profits to come home.
Trade War
On that note, and for those afraid of a trade war, I’m not saying it’s not a dangerous path to go down, but I am saying we need to take a stand.
Yesterday, shares of American Superconductor (AMSC) rallied 12% on a guilty verdict for one of China’s largest wind turbine companies. Sinovel was found guilty of stealing intellectual property and then brazenly selling it back to American customers.
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As for everyone invoking Adam Smith, and the cautionary tale of Smoot-Hawley, Thomas Jefferson and William McKinley saw the virtue in reciprocity in trade and the occasional need for tariffs. Besides, solar panels and washing machines aren’t the same as the 20,000 items hit back in 1930.
After the close, Whirlpool reported financials results that saw revenue come in slightly better than expected, but it missed earnings consensus. The sore spot was Asia, where revenues were down 8.3%, and margins in the United States, which suffered from product dumping by Lucky Group and Samsung.
Financials was the best performing S&P sector as money continues to rotate out of tech and into names like Goldman Sachs and AIG. The Financial sector is up more than 7% this year and 28% in the past year.
While energy stocks were flat, West Texas Intermediate soared to $66.00 a barrel even after crude drawdown was less than expected. Part of the move in oil is trading related, but another part reflects confidence that global demand will remain strong and producers will act smart.
Manufacturing Renaissance
Caterpillar (CAT) reported before the open, and as you know, I have been pounding the table on this for some time. The company didn’t disappoint. What’s really great about the beat is the strength in North America, not only is it CAT’s largest geographic segment, but it enjoyed the fastest growth.
- Construction +50%
- Resources +68%
- Energy +35%
- Total Machine $5.46 billion +46%
Domestic Infrastructure
Another favorite is United Rentals (URI), which posted strong results that underscores the same theme, as all elements of industrial economy had rapid growth coming into 2018.
- The company’s utilization rate increased 70bps
- EBITDA $947 million or 49.3% margin
- Free Cash Flow $1.4 billion
Surging demand has allowed United Rental to raise its rates. The chart below mirrors charts associated with other aspects of the industrial economy and consumer confidence.
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