As the political fever boils over into the typical rhetoric, watch for more articles and commentary that acknowledges the economy is on fire, followed with “but…”
Just as we are hearing concerns about governmental debt from folks that never thought it was a bad thing before, we are going to hear about measures and metrics that adjust headlines into a less-than-flattering picture.
It’s despicable, but it’s the oldest page in the playbook - to make people that might otherwise feel better about themselves lose that feeling and hope by shining the light on someone else that might be doing even better.
Conservative commentators should take care not to fall into any traps by overplaying headlines, and not articulating the fact that any recovery will be uneven. On that note, while news that the median income in America has reached an all-time high is a great headline, incomes in Black and Asian households have declined.
However, that’s because so many Blacks came back into the labor force and started at the bottom; nonetheless, they have jobs and they are on their way. Case in point: on the other end of the spectrum, every race in America saw household incomes in the highest bracket ($200,000+) soar to record highs.
More than half a million Black households are now in that bracket, whereas the year after I graduated from high school, there were only 8,961 such households. That’s a monster success, and we should all be proud while acknowledging there is still a lot of room for improvement.
White | Black | Hispanic | Asian |
8.2% | 3.1% | 3.8% | 14.6% |
8,205,000 | 526,907 | 658,084 | 983,310 |
We are hearing about gasoline prices. And yet, in the month of August, there has been an all-time record low volume of cars sold as a percentage of overall vehicle sales. It was the first time ever cars were less than 30% of the total because Americans are spending more on SUVs, pickup trucks, and crossovers with a much larger fuel demand.
The Message Of The Market
It was another session on Friday that didn’t look like much as the Dow and S&P 500 eked out small gains. The NASDAQ had a small loss, but beneath the surface, it was a tooth-and-nail fight that underscores an upside bias that investors shouldn’t ignore.
A midday report shows that President Trump has given the “green light” to tariffs. He had already given the “green light” to tariffs on several occasions, which triggered algorism to sell without regard to the fact this wasn’t really news.
A 65-point rally on the Dow became a 77-point drubbing, and the perfect test to measure the appetite of the buy-on-dips crowd. The buyers took the bait. The stealth rally continues; if you are watching the news, you are probably missing it.
I continue to urge everyone to ignore the noise, or at least understand the agenda of the source of that noise. There are big differences on what you are hearing, and what’s happening in the market.
Speculation versus Facts:
- There’s speculation based on historical precedent
- There’s speculation based on conventional wisdom
- There’s speculation based on ideological dogma
- There are real news and facts
Investors have to grapple with a combination of all the above these days.
The market is in the midst of a very impressive stealth rally, but it’s masked behind daily headlines that that often focus inaccurately on things, such as overpriced curtains and overreacting speculation on the latest political drama in Washington, D.C.
There will never be favorable coverage of this administration. Consequently, there have been market-crushing stories that are later retracted or walked back.
Here are facts that should matter and factor into investing decisions more than other stuff. The American consumer is back, and confidence has been buoyed by job security and increasing wages. Businesses are responding this week with holiday hiring plans, which include 120,000 at Target, 80,000 at Macy’s, and 55,000 at FedEx.
Michigan Consumer Sentiment | Sep | Aug | Sep | M-M | Y-Y |
Index of Consumer Sentiment | 100.8 | 96.2 | 95.1 | +4.8% | +6.0% |
Current Economic Conditions | 116.1 | 110.3 | 111.7 | +5.3% | +3.9% |
Index of Consumer Expectations | 91.1 | 87.1 | 84.4 | +4.6% | +7.9% |
Economy On Fire
The Atlanta Fed Gross Domestic Product (GDP) model is back at 4.4% for the quarter after benign inflation and strong retail sales (with revisions).
America’s Economy Pulling Away
All models of global growth jive with current economic trends showing America pulling away -even in the International Monetary Fund (IMF), which appears to be much too conservative with the U.S. GDP estimates for 2018.
Global GDP Estimates IMF | 2018 | 2019 |
United States | 2.9% | 2.7% |
Euro-Zone | 2.2% | 1.9% |
China | 6.6% | 6.4% |
India | 7.3% | 7.5% |
Mexico | 2.3% | 2.7% |
Manufacturing Renaissance
Production and capacity utilization continue to be robust. Mining capacity rose to 92.0% from 84.0% a year ago, and mining and business equipment moved the needle for production. The manufacturing sector of the economy is enjoying a miraculous revival.
In recent months, Caterpillar Monthly Retail Sales (CAT) have grown faster in North America than the rest of the world. The demand has paced equally by construction and resource product growth.
What About The Fed?
In February, the market experienced several record-breaking losing sessions, including two days of more than 1,000 Dow points lower as the 10-year yield approached a 3.0% yield. It’s been there since, including Friday, but the market has come to grips with this and it no longer goes crazy.
Higher yields did help the Financials (XLF) to the best performance in the S&P 500, followed by Energy (XLE) and Industrials (XLI).
S&P 500 Index | +0.03% |
Communication Services (XLC) | -0.19% |
Consumer Discretionary (XLY) | -0.37% |
Consumer Staples (XLP) | -0.27% |
Energy (XLE) | +0.53% |
Financials (XLF) | +0.71% |
Health Care (XLV) | -0.33% |
Industrials (XLI) | +0.50% |
Materials (XLB) | -0.03% |
Real Estate (XLRE) | -0.86% |
Technology (XLK) | -0.08% |
Utilities (XLU) | -0.53% |
Keep watching the Dow Jones Transportation (DJT) Index for validation of the economic boom and a stock market rally – it closed at an all-time high on Friday.
Today’s Session
The futures are relatively calm, albeit down, pre-open despite the percolating trade war with China. President Trump is expected to ramp up tariffs, with an additional $200 million on goods this week. However, the tariff rate on this batch is anticipated to be 10%, and not the 25% already imposed. China has vowed to retaliate, and President Xi has indicated he may skip the next round of trade talks.
In a tweet from Trump this morning, he stated, “Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”.”
Hurricane Florence has taken the life of 18 and hundreds are still trapped. Over a half a million people are without power. And it’s far from over. Our thoughts and prayers remain with the families and those impacted by the storm.
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