Market Minutes for the week of February 25th:
“Worry does not empty tomorrow of its sorrow; it empties today of its strength.” – Corrie Ten Boom
Here’s what I’m thinking and hearing: *1.) “On December 24, only 1% of stocks in the S&P 500 closed above their 50-day moving avg, one of the most extreme oversold levels in history. After an 18% vertical rally over the last 8 weeks, that number now stands at 92%, one of the most extreme overbought levels in history.” This according to Charlie Bilello, Director of Research at Pension Partners, LLC. *2.) Jim Cramer: “I have been taught by the greatest pros on earth, including the legendary, late Marty Zweig, that as long as you are not fighting the Fed, you should be buying stocks. Ever since the Fed switched directions and decided to be more worried about a recession than an expansion, we have not been at war with the Central Bank. That’s a green light.” *3.) From the front lines of the trade war: The U.S. and China are discussing a late March meeting between President Trump and Chinese President Xi Jinping. According to CNBC, China has committed to buying up to $1.2 trillion in U.S. goods but remains distant on certain issues, including the forced transfer of technology and intellectual property. Last Friday, amid optimism on both sides, the U.S. and China agreed to extend trade negotiations by two days. President Trump was quoted as saying, “I think we’re making a lot of progress” and there is “a very good chance a deal could be made.” CNBC reports, “U.S. Trade Representative Robert Lighthizer said Wednesday the U.S. is working towards formally abandoning plans to hike tariffs on Chinese goods from 10% to 25%.” *4.) Investors Intelligence reports that the percentage of Bulls rose for the 8th straight week to 52.4 from 51.9, the longest winning streak since the presidential election of 2016. Bulls sunk to a 10-week low of 20.4, with those anticipating a correction remain around a 4-month low. The spread between bulls and bears is the widest since mid October. The CNN Fear & Greed index climbed to 73, just shy of entering the “Extreme Greed” category. In late December, the index registered 2, “Extreme Fear.” *5.) Jim Cramer on what’s happening that lets him sleep easy at night: “Number one: our economy is the strongest on earth. I simply do not understand how people can be petrified when we have fabulous employment yet still have slack so there’s no real inflation…[Reason number two]: Jay Powell [Fed Chairman]. After making a rookie mistake, this guy’s all in…Reason number three…: I am loving some of these executives who are taking franchises that have fallen on hard times and rejuvenating them while not missing a beat…Reason number four: dividends. You know that you could care less about these dividend increases, especially if you are in ETFs. I mean like who cares?…I care because we are seeing dividend boosts that are out of control:…Best Buy puts through an 11% increase, TJX Cos. 18%, Dick’s Sporting Goods 22% or how about Big Daddy Home Depot…with a 32% increase…Reason number five…: The retailers. We are seeing some incredible moves in this group, mostly from companies that were considered Amazon roadkill not that long ago…Reason number six…: How about how nobody likes the market and there is an incredible amount of fear no matter what? I can’t believe how there’s been money pouring out of this market because people are so scared. Don’t they realize we already had a mini-crash? That’s what December was all about for heaven’s sakes.”
The Commerce Department said that 4th quarter GDP increased at a 2.6% rate. Growth was aided by a 2.8% increase in consumer spending along with nonresidential fixed investment, exports, private inventory investment, and federal government spending.
The Dallas Fed Manufacturing Survey for February came in stronger at +13.1 vs. a consensus of +4.8 and +1.0 in January.
The Chicago Purchasing Managers’ (PMI) jumped 8 points to a reading of 64.7, the largest monthly rise since February 2017.
The Census Bureau said that December wholesale inventories rose by 1.1% vs. +0.4% in November. The reading may add to a better 4th quarter GDP number.
The Conference Board reported that consumer confidence rebounded in February to 131.4 and up from 121.7 in January. The Present Situation index rose to 173.5 from 170.2 in January and the Expectations Index rose to 103.4 from 89.4 in January.
The Commerce Department announced that factory orders edged up 0.1% in December, tempered by a decline in demand for machinery, electrical equipment, appliances and components.
The Census Bureau stated that the December U.S. trade deficit rose by 12.8% in December to $79.5 billion. Exports declined by $4 billion to $135.7 billion and imports rose by $5 billion to $215.2 billion.
The National Association of Realtors (NAR) said that its pending home sales index climbed by 4.6% in January to 103.2. Pending sales were the highest in Seattle, Boston and San Jose.
The Commerce Department said that December housing starts fell by 11% in December to more than a 2-year low. The biggest decline came in multi-family which took a 20% dive in the month.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index/Composite 20 rose by an annual rate of 4.2% in December. The 10-city composite rose by 3.8% and the overall all-city index rose by 4.7%, the slowest rate of increase since August 2015.
GE has said that it is selling its Biopharma unit to Danaher for $21 billion in an all-cash deal. The GE Life Sciences unit (which is expected to generate $3.2 billion in revenue this year) will join Danaher’s Life Sciences as a stand-alone business.
Gap has announced that it will shutter 230 stores over the next two years and split into two publicly traded companies, Old Navy and another yet-to-be named company.
Roche will acquire Spark Therapeutics for $114.50 per share in cash for a total transaction valued at $4.8 billion.
Berkshire Hathaway said that 4th quarter operating income rose by 71% to $5.72 billion from $3.34 billion a year ago. The company said that it bought back nearly $417.6 billion of stock in October and December of last year. The company had roughly $30.4 billion in cash and equivalents as of Dec. 31, 2018.
Macquarie Infrastructure has reported 4th quarter earnings of -$0.01 per share on revenue of $437.76 million, an increase of 0.4% year over year.
Best Buy reports 4th quarter earnings of $2.72 per share on revenue of $14.8 billion, a decrease of 3.6% year over year. The company also announced a new $3 billion share buyback program.
B&G Foods reports 4th quarter earnings of $0.34 per share on revenue of $458.06 billion, a decrease of 1.8% year over year.
Square reports 4th quarter earnings of $0.14 per share on revenue of $464.25 million, an increase of 64.2% year over year.
Booking Holdings (Priceline), reports 4th quarter earnings of $22.49 per share on revenue of $3.21 billion, an increase of 14.6% year over year.
Home Depot reports 4th quarter earnings of $2.25 per share on revenue of $26.49 billion, an increase of 10.9% year over year. The company also announced a 32% increase in its quarterly dividend to $1.36 per share from $1.03.
Workday reports 4th quarter earnings of $0.41 per share on revenue of $788.6 million, an increase of 35.4% year over year.
Next week: Earnings from: Salesforce.com, Target, Kohl’s, Dollar Tree, Costco and Vail Resorts. Economic reports: U.S. Manufacturing New Orders for February, Single Family Housing Starts for December, U.S. ISM Non-Manufacturing Index for February, ADP Private Payrolls for February and U.S. Non-Farm Payrolls for February.
WTI crude oil: $57.28 per barrel. 10-year U.S. Treasury bond: 2.65%. Gold: $1,315 per ounce.
Sources: CNBC, Real Money Pro, Estimize.com, Morningstar, First Trust Economics, The Calafia Beach Pundit, Seeking Alpha, MarketWatch, The Wall Street Journal, Charlie Bilello, Bloomberg, Zero Hedge and Yardeni Research.
At the time of publication Cascade Investment Group and /or its clients owned shares of TJX, HD, AMZN, GE, DHR, RHHBY, BRK, MIC, BGS, SQ, BKNG, WDAY, CRM, TGT, DLTR, COST.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.