We have been forcing ourselves to be neutral over the past few weeks as we tried to wait for a pullback and buying opportunity for our retirement funds. Well we put those funds to work last Friday and discussed the move yesterday in our daily commodity article (see here). We are not convinced that there will not be a pullback, especially due to the stall in the S&P's march higher, but with our strict observance of buying yield and value with a timeline for news flow, we think that the odds are in our favor that even in a down market our new position outperforms the general market and even its peers.
Our article today is a little bit different in that we focus on the consumer goods names rallying and discuss what that means for the bull market rather than specifically on those names. We think that this is important and maybe even more so than company specific news as it pertains to the stock market in general and how some of the great moves have been set up. As readers are well aware, we are bullish here and this is one of the reasons why.
Chart of the Day:
Looking at this chart of the adjusted monetary base according to the St. Louis Fed, we can see it took a while for the CPI to come back after the initial shock from the recession and consumers withdrawing from the market. Obviously the inflationary pressures helped, but it takes longer for that inflationary reaction to infiltrate the stock market and could we be about to see this same "pop" across asset classes near-term? We think so as we have tons of liquidity and an economic story which continues to improve.
Chart courtesy of BusinessInsider.com
We have economic news due out today, and it is as follows:
Durable Orders (8:30 AM EST): 3.8%
Durable Goods - Ex Trans (8:30 AM EST): -0.2%
Case-Shiller 20-city Index (9:00 AM EST): 7.5%
Consumer Confidence (10:00 AM EST): 66.9
New Home Sales (10:00 AM EST): 426k
Asian markets finished mostly lower today:
- All Ordinaries - down 0.74%
- Shanghai Composite - down 1.25%
- Nikkei 225 - down 0.60%
- NZSE 50 - up 0.12%
- Seoul Composite - up 0.30%
In Europe markets are trading higher this morning:
- CAC 40 - up 0.75%
- DAX - up 0.32%
- FTSE 100 - up 0.11%
- OSE - UNCH
Shareholders in Acadia Pharmaceuticals (ACAD) saw shares rise strongly again on Monday as more positive comments trickled out from the analyst community. Shares rose $0.74 (9.78%) to close at $8.31/share on volume of 7.9 million shares after an analyst at Jefferies, Thomas Wei, reiterated his 'Buy' rating on the stock and the $13/share price target he has on it. They think that the drug gets approval and after speaking to the medical community they feel that the results really were as good as they were perceived to be. As we said last week, this is a story which will continue to get better and can be traded moving forward.
The usual retracement was averted with the analyst comments coming out yesterday. Short-term we probably see one, but medium to long-term we should see a continued rise as the company's drug looks set for approval.
Chart courtesy of Yahoo Finance.
We have long been bulls, even when it was unpopular to be so at the depths of the 'Great Recession', and our optimism continues to grow as we see certain segments of the economy begin to turn positive and show "green shoots" or new growth. It is still fragile and could be easily killed or hindered, which is what keeps us up at night, but the bottom line is that we believe that all of the liquidity that was created over the past few years is beginning to find its way into assets and beginning to flow through and cycle throughout the economy.
We also think that the retail investor is beginning to get back into the market as we have seen rallies to all-time highs in consumer goods names. Look no further than PepsiCo (PEP), Anheuser-Busch InBev (BUD), Johnson & Johnson (JNJ) and Proctor & Gamble (PG) as names we are talking about. There are more but they trade less and some have rather large shareholders or activists who have helped push shares higher, so we view those names as outliers in a way.
The stock market really does act on "Reaganomics" where there is a trickle-down effect from the largest stocks doing well to the smaller stocks doing well because as ordinary investors build confidence while holding onto their blue chip names, they also begin to grow an ego and believe that the investing game is easier than it truly is. This is why we think the positive multi-month moves in Pepsi, Anheuser-Busch, Johnson & Johnson and Proctor & Gamble will lead to a risk-on trade bigger than what we have seen already take place in the market. There is a ton of capital still on the sidelines and yields are still pretty high based off of recent history so we could see a bit more of a run using the current payouts and such which only builds further confidence, creates more wealth and allows for investors to move down into riskier assets.
Obviously BUD has been the big winner over the past two years, but the rest of the consumer names have performed strongly as well ... even more so when one factors in the dividend yield at the time of purchase over this time.
Chart courtesy of Yahoo Finance.
So for the short-term we like these big names (and over the long-term too, do not misconstrue this please) but we also see an opening to put some money into the mid and small caps which we think will see outsized gains at the index level as the shift we anticipate begins to happen. This is a bull market within a bull market (the consumer goods names) which should be watched due to its importance.