Bricks Are Back

The broad view of Tuesday’s session was mixed. However, looking under the hood, it was a very encouraging day for the market and the economy.

The Russell 2000 and NASDAQ hit new all-time high points and the S&P 500 climbed off the canvas to close in the plus column.

Market Breadth

NYSE

• Advancing 1,796/Declining 1,889
• Advancing Volume 1.85 billion/Declining Volume 1.53 billion
• New Highs 175/New Lows 52

NASDAQ

• Advancing 1,889/Declining 1,055
• Advancing Volume 1.22 billion/Declining Volume 723 million
• New Highs 268/New Lows 41

The Message of the Session

Materials

Materials were the best performing sector of the S&P 500 on Tuesday, are up more than 3% in the past five sessions, and on the cusp of a breakout that could see a re-testing of the 2018 high. You should have more exposure to this sector than you normally would.

I understand this isn’t the most exciting part of the market, which makes it very exciting for those looking to be positioned and looking for balance.

I think the sector will outperform for the remainder of this year, powered by chemicals, agricultural, and copper names.

Consumers: Alive and Shopping

“The reports of my death are greatly exaggerated.”

-Mark Twain

Then there’s the group no one in the financial media is talking about (except me), and that’s consumer stocks, especially discretionary names.

I have raved about the resilience of consumer confidence, especially the present condition component that’s holding at a 17-year high.  Wall Street calls these surveys and polls “soft data,” but those emotions are morphing into reality, otherwise known as “hard data.” 

Forget what the experts are saying,  people are spending money at brick-and-mortar stores. Those companies that have survived and are figuring it out, well their shares have had blockbuster performances that have dwarfed even Amazon (AMZN) and Netflix (NFLX).

Companies up to more than 100% from the 52-week low:

• Yesterday, G-III Apparel Group led the way (please read the story of company’s founder)
• Macy’s (M)
• Kohl’s (KSS)
• Foot Locker (FL)
• Restoration Hardware (RH)

There are a lot of deeply oversold names in retail that look compelling. On that note, choose carefully.  I like The Children’s Place (PLCE) and Gap, Inc (GPS).  

Jobs Everywhere

The retail move reflects the fact that this is the most robust jobs market ever.

Yesterday morning, the government’s report on jobs openings was a jolt. There are 6.7 million job openings and only 6.4 million available workers.

This takes me back to last week’s Beige Book report and a part that really stood out the most was from the St. Louis Fed:

Some local employers have begun relaxing drug-testing standards and reducing restrictions on hiring convicted felons in order to alleviate labor shortages.

I think this is a compelling situation that intersects society and the economy in a very unique manner. I’m thinking about the case of Nashville native, Matthew Charles, who was released from prison after serving 21 years of a 35-year sentence for a nonviolent drug offense.

If President Trump were to grant pardons, I think it would speed up hiring nonviolent felons, especially in industries such as trucking, which could fall short 63,000 drivers this year. That being said, it will stall this recovery, even possibly reversing this booming economy.

Tariff Update

Business Roundtable members annually:

• Employ more than 16 million people
• Provide health care and retirement benefits to tens of millions of Americans and their families
• Make more than $6 billion in charitable contributions
• Invest $130 billion annually in research and development
• Generate more than $440 billion in revenues for small and medium-sized businesses
• Pay nearly $270 billion in dividends to shareholders

Business Roundtable CEO Economic Outlook Index Eases, Remains Near Historic High: CEO Plans Strong Yet Slightly Diminished Amid Increased Uncertainty around Government Policies, Particularly Trade

The headline above was rewritten by most publications to make it seem as if big businesses were shutting down completely over the administration’s efforts to enact fair-trade from our friends and allies. It’s true that these are the biggest globalists in the world, and I love the status quo, but big businesses plans are still significantly more robust than the last two years.