Yesterday, we learned the manufacturing renaissance continues to gain strength - this time from the Kansas City Federal Reserve.
Statement:
The Tenth District (covers western Missouri, Kansas, Colorado, Nebraska, Oklahoma, Wyoming and northern New Mexico). Manufacturing activity continued to expand rapidly, with the composite index at its highest level in survey history for the second consecutive month. Highlights include gains in new orders, number of employees, and average workweek.
Observations:
A very strong month for sales across all markets and weather was not the deciding factor - individual spend was.
Steel tariffs continue to be a strong headwind. When Trump decided not to make a final decision until June 1 all that did was raise pricing by the domestic suppliers again and keep the foreign suppliers out as they did not know what their tariff rates would be if at all. Some stability in the marketplace would be nice.
Work force availability is a big issue right now. Hiring skilled and relatively unskilled labor is very difficult.
Market Worry & Resolve
The market had another chance to show its grit on Thursday. Once again, buyers materialized to buy the dip, which is the good news, but the major indices closed lower. This reflects the fact that outside “noise” is more than a speed bump for the rally.
That noise is a geopolitical risk and the uncertainty over trade negotiations.
Ironically, I think the worst-case scenario is the status quo that the markets and Washington, D.C. have learned to live with a long time ago. Right now, the unknown continues to distract from great economic data.
I’m loving the action in truckers, one of my big investment themes centers around those intermodal containers. There is no pure ETF to position yourself for the boom in trucks and intermodal, but iShares Dow Jones Transport ETF (IYT) comes the closest.
Top holdings by weights:
- FedEx (FDX): 14.8%
- Norfolk Southern (NSC): 8.8%
- Union Pacific (UNP): 8.2%
- J.B. Hunt (JBHT): 7.2%
- United Parcel (UPS): 7.0%
- C.H. Robinson (CHRW): 4.8%
- Landstar System (LSTR): 4.8%
- Kirby Corp (KEX): 4.7%
- Kansas City Southern (KSU): 4.7%
- United Continental (UAL): 4.0%
Consumers Strong But Selective
I also love the smarter and wealthier consumer theme, but that means there will continue to be distinct winners and losers in retail.
That brings me to the conference call, which has become the most important job of management at publicly traded companies. The tirades going on (like Elon Musk's) mean instant selling, but it also means one wrong word, like the CFO at Caterpillar learned, can erase three months of amazing business execution.
Yesterday morning, the conference call saved L Brands (LB) after a terrible earnings release but sunk Best Buy (BBY) after a great earnings release.
Today’s Session
Yesterday evening word came out of North Korea that the regime still desires a meeting with President Trump calling it something in the best interest of the whole world. That development helped stocks early in preopen trading but major equities began to slip and it looks like we’re in for a bumpy start.
Speaking of reversals, there are two that are intriguing. The Ten Year bond yield is now back under 3.0% and some are reading that as anticipation of weaker growth.
West Texas Intermediate is getting slammed on reports that Saudi Arabia and Russia are considering production increase in the second half of the year. WTI is now below $70.00 which needs to hold as a psychological support point.