Although the Dow Jones Industrial Average finished higher on Thursday, it was tough sledding for the market which saw two significant rally attempts fizzle under a cacophony of headline issues that all add up to one big cloud of uncertainty and a source of anxiety:
- Trade War Surrender
- Trump Cabinet Shake-Up
- Mueller Investigations Scuttlebutt
The result was pressure on the NASDAQ and the S&P 500, and a more serious pressure beneath the surface. The NYSE saw more than 1800 decliners against only 1000 advancers, and 136 stocks hit new 52-week lows against only 33 reaching new highs.
There was a lot of chatter about yesterday’s session being a proxy from Larry Kudlow, but I think that’s inaccurate. Strong dollar beneficiaries in the Russell 2000 were mostly lower, while cheap dollar multi-nationals were mostly higher.
The weakest sector was material names, pulled down by a 3.9% decline in agricultural chemical stocks; this happened after reports of Bayer facing additional antitrust hurdles in its efforts to acquire Monsanto.
But there was a negative bias that actually matters more than media headlines, driven by animosity toward the White House. Industrials was the best performing sector, led by Ingersoll-Rand (IR), Pentair (PNR), and Caterpillar (CAT).
We also received good news on manufacturing from two Fed regions yesterday. We highlighted the Empire State Manufacturing Index (ESMI), which came in substantially better than expected.
Highlights
- Headline
- New Orders
- Shipments highest since Nov 30, 2007
The Philly Fed report was slightly less than consensus, but its key components point to a continued momentum:
- New orders +11 points
- Shipments +17 points
There are supplemental questions that point to the biggest obstacle to growing the economy, especially manufacturing:
- 64% Shortage of Labor
- 70% Skills Mismatch
While there has been a marked improvement in the skills gap in production, machinery, and tools; still, 67% say it’s a problem.
In addition, a computer skills gap was noted by 35% of respondents from 25% a year ago, and a shocking 21% said a proficiency in English is a big skills issue, up from only 9% in 2017.
It’s nuts to consider there’s a lack of job candidates who can speak English. A lot of this reflects on the fact there is still more money to be made chilling out rather than getting a job. That’s beginning to change, along with the notion that a near-term hit to the wallet would only be temporary.
As for the stock market, I am once again urging investors to keep their powder dry, and don’t panic. In fact, continue to refine your buy list, and wait for the big breakout.
Today’s Session
Futures began chipping away at a big overnight dip and will open slightly higher, but at this point, it’s about how we close and that last hour of trading.
This morning, we received mixed economic data as housing numbers were less than anticipated, but there was a big bounce in industrial production (more details on both in the afternoon note).
We are waiting for the latest from the University of Michigan on consumer sentiment, which the street expects pulled back from last month.
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