It was an interesting session on Thursday that saw the Dow Jones Industrial Average give up gains, in part to political intrigue and to the biggest spike in the Dollar Index (DXY) since December 2016. Conversely, the Russell 2000, which is a better proxy for the U.S. economy, hit an all-time high.
Investors were eagerly buying up tech stocks, driving the NASDAQ, which closed at the high of the session, its 100th new all-time high since Election Day.
Consumer discretionary continues to be very impressive along with technology and industrials. Those financial names continue to disappoint.
The overall market breadth was strong:
- NYSE: 1685 advancers against 1270 decliners; 102 new highs versus 52 new lows
- NASDAQ: 1689 advancers against 1250 decliners; 194 new highs versus 35 new lows
It’s the Economy
There is major news about the American consumer as retail sales soar. As I mentioned yesterday, the key takeaway is that the consumer is leaving the house, as department store sales increase faster than the Internet sales and restaurant sales pop, while grocery stores fall flat.
The report was strong enough to get the Atlanta Fed to up its modeling for its current Gross Domestic Product (GDP) to 4.8%.
Pricing Power and Investing
Yesterday, the stock of the day was Etsy, Inc. (ETSY), which skyrocketed after management announced it was increasing its prices. One of the biggest buy signals for any stock is the ability to hike prices and not lose volume.
Summary
The stealth rally continues despite Washington, D.C. hijinks and confusion over trade and foreign policy.
Overall, the market has gone back to climbing the wall of worry:
- Fed hikes
- Strong dollar
- Geopolitical issues
- Valuations
This might be better than a “Goldilocks” scenario where it feels like nothing could go wrong. That notion will be tested today when the Trump administration begins its China tariffs program, which many expect to be less than threatening.
Today’s Session
The market is under some pressure as the White House has followed through on its threats to implement additional duties on China. The headlines have the numbers all wrong, including the number of categories. Here’s what’s happening.
Two Sets of Additional Tariffs:
- Covers 818 category lines from the original 1,333 submitted on April 6 valued at $34 billion. These tariffs begin on July 6, 2018.
- Covers 284 category lines based on Section 301 and focused on “China 2025” valued at $16 billion.
The industries focused on:
- Aerospace
- Information
- Communications
- Robotics
- Industrial machinery
- New materials
- Autos
Note- consumer items like cell phones and televisions would be exempt.
There will be a process to undergo further review in a public notice and public hearing, and American companies can request exclusions. The final decision and implementation comes a few weeks from now.
I think the market is overreacting to the news, but there are enough unknowns to test the resolve of weaker hands.