Stocks Up As Impressive Retail Earnings Underscore The Strong Economy
Stocks closed solidly higher, building on gains from earlier in the week.
While optimism grows over the next round of trade talks with China in September, and for another round of interest rate cuts in September as well, the real catalyst for the market's gains recently, and all year, has been our stellar economy.
That was on full display again with company after company reporting strong sales and impressive earnings. Walmart and Home Depot reported earlier in the week, with Lowe's and Target reporting yesterday – with all of them crushing the ridiculous narrative of an economy in danger.
I've been railing against this false narrative since early last year when everybody thought the so-called trade war was going to cause a recession. (It didn't.) Then when various parts of the yield curve began inverting starting back in December. (No recession then or now.)
In fact, the economy has only gotten stronger, and the market has only climbed higher.
I bring up the yield curve because the 10-year vs. 2-year briefly inverted again yesterday.
But don't pay any attention to it.
Former Fed Chair Janet Yellen dismissed the yield curve inversion hysteria by explaining that there were a number of factors other than market expectations causing the yield curve to invert. And that there's no threat of a recession at this time.
And she's right.
Our full year GDP is on pace for 2.6%, which is stronger than the average annual GDP of this entire 10½ year expansion. Unemployment is near record lows. Consumer confidence is near record highs. And corporate earnings continue to impress.
The biggest reason why the yield curve inverted is because there's an enormous demand for our Treasuries. And it's easy to see why. With the slower growth rates around the globe, and the pervasiveness of near zero yields and negative yields in bonds of other countries, where else are bond investors going to put their money?
Think about it -- if you have hundreds of millions of dollars or billions of dollars, capital preservation is priority number one (and the virtual risk-free guarantee of the U.S. Treasury satisfies that), and then a positive yield is priority number two. And that makes U.S. Treasuries the best game in town.
But when/if the Fed cuts rates again, that will push short-term yields down, where they belong, and correct the inversion. And not so incidentally, it will stimulate more economic activity and likely send the market higher.
And the odds are at 74% that we'll indeed get another rate cut when the Fed meets on September 18th, with more and more people speculating that it could be 50 basis points this time.
That's very bullish for the economy and the market.
While I wouldn't be surprised to see some additional volatility as we approach the action-packed month of September. I'd definitely buy any dips. Because it looks like there's a lot more upside to go.
So make sure you're taking full advantage of it.
That means getting into the right stocks and staying out of the wrong ones.
If you're looking for additional stocks to add to your portfolio for the next leg up, be sure to read our latest commentary on insider trading (the legal kind). When top executives at companies are buying more shares, or when large numbers of executives are making new purchases, that can send a powerful signal that something good is happening to that company and will likely happen to that stock. And that can translate to big gains. So be sure to check out our latest commentary...
When "Insider" Greed Is Good
Best,
Kevin Matras
Executive Vice President, Zacks Investment Research
|
_)_08222019_b_128.jpg)
_money_earnings_10357_75x75.jpg)
