The gains may not seem spectacular but with all of the cross and headwinds, the market isn’t doing half bad! All the NASDAQ needed to do was climb a smidgen, and it would have found itself at a new all-time high but it just didn’t have the stamina. That notwithstanding, with trade fears rampant, mid-terms nearing, and Trump regaining his footing after his botched Russian summit, there’s not much that we can complain out. The Dow is experiencing its longest winning streak in a month. That notwithstanding, the market has been unforgiving, and expects perfection from reporting companies. Any miss, revenue or earnings, or a miss in future projections, can send a stock sliding. The stakes are high, so before you assume a stock will rally, recall that “God is in the details,” and if top and bottom line numbers are right on the money, but projections disappoint, a stock could go through the shredder, and that’s just what we’re seeing!
One of the big focal points yesterday was the release of the anecdotal account of the Fed’s 12 member districts, otherwise known as the Fed Beige Book. The picture was optimistic, offering market support. One of the highlights was a swiftly growing domestic economy, though one with a ceiling from above given a paucity of skilled worker. Add to that, noted the Fed, the rising cost of raw materials, and an ongoing expansion could be called into question. All-in-all, of the 12 districts, 11 regions grew at a pace that was “modest” or faster, with only those states in the St. Louis region seeing “slight” growth.
On the political front, Capitol Hill has been awash with tension as lawmakers themselves, from both sides of the table, try to battle Trump’s go it alone approach. Though Trump has boasted that “cars” – plain and simple – are his path to victory, American and foreign manufacturers alike have repudiated that approach, going for the jugular, teaming up to fight Trump’s one-upmanship negotiating tactics. The Senate already voted 88-11 to give Congress more power to reject Trump’s contentions that tariffs are needed on national security grounds. And yesterday, the House sent the Oval Office a joint letter stating the following: “We do not believe the imports of automobiles and automotive parts pose a national-security threat,” adding, “Rather, we believe the imposition of trade restrictions on these products could undermine our economic security.” Likewise, the auto industry has sent a letter of its own: “Raising tariffs on auto and auto parts would be a massive tax on consumers, who buy or service their vehicles.”
We have seen a solid trend in so far as earnings reports go. Altogether, 90% of reporting companies have seen bottom line beats, earnings outstripping analyst forecasts. It’s hard to say, though, that we’ve seen large-scale momentum carrying the market higher. Over and beyond earnings, Fed Chair, Jerome Powell fleshed out again the comments he had made the day before, more pointedly, that we can plan on seeing moderate, gradual rate hikes. In Wednesday’s testimony, the Fed Chair stated that there are few signs of an impending economic recession. For now, he noted, the Fed will continue to hike rates every 3 months.
Another development that may or may not drive markets from hereon in is the statement made yesterday by Trump’s advisor, Larry Kudlow, namely, that further pro-growth measures could be around the corner. We’ll have to see if that’s translated into any policy changes. At this point it’s key to note that Trump, perhaps less skilled at creating global coalitions or consensus in his own party, is nonetheless a master of branding himself and forging expectations that fuel market growth. When the market started falling, he started tweeting, something unprecedented for presidents in recent years or decades. With the market climbing significantly since Trump’s ascension, it might be premature to expect a bear market, especially when all of the indicators and the Fed itself saying otherwise.
One landmark decision that’s worth noting was the turnaround made by the board of Berkshire Hathaway. The company has been sitting on an enormous pile of cash, cash that it has done nothing with. Buffett has failed in his “elephant hunt,” those moneys doing little to return value to investors. Yesterday, though, the company board approved a share buyback beneath the threshold of 1.2x book value, a monumental shift in the thinking at one of the most storied and celebrated companies of all time. Berkshire soared 5% on the day, the company now allowed to buy back shares at a higher denominator. The gap between book value and intrinsic value growing for years, the company has failed to provide returns adequate to many, and therefore, failed deals and all, it seems like Buffett is searching for elephants in his backyard, or home market.
Buffett, in last quarter’s financial letter, wrote as follows: “Some people have come close to calling [buybacks] un-American — characterizing them as corporate misdeeds that divert funds needed for productive endeavors. That simply isn’t the case: Both American corporations and private investors are today awash in funds looking to be sensibly deployed.”
Prudential Financial chief market strategist, Quincy Krosby, noted, “Earnings reports so far have been solid and despite today’s disappointing housing starts, economic data have also been trending higher, providing support for markets.”
Market Summary: The S&P 500 was up 0.2%. The catalyst for the gains were the financial sector which tacked on 1.5%, and industrials, which saw gains of 1.1%. The blue chip Dow climbed 0.3%. making it the index’s 5th consecutive winning session. It was the index’s longest winning streak since an 8-day streak came to an end on May 14th.
Economic Calendar: Today won’t lack for economic events, with weekly jobless claims and the Philly Fed report coming out at 8:30. Then at 10:00, the Leading economic indicators report will be released.
Thursday’s Hot Stocks: CSCO, IBM, AA, EBAY, AXP
IPOs: AFGL, ALLK, CNST