The markets were powering higher yesterday until we had a bunch of news hit the wire at the same time. Many were stating that you could choose between the 10-year yield and House Speaker Boehner being at fault, but the real blame lies with the good construction spending numbers which were seen as very good and further reason for the Federal Reserve to begin their tapering program. As we have stated previously, we do not think that tapering begins in September and would look towards December or even 2014 before the Fed takes its foot off of the pedal.
Syria shall dominate the news this week, but we would not expect any military attacks until this weekend at the earliest, and that would be only if the U.S. was content with going it alone on this exercise. We have no idea what the course of action will be in that regard, but to bring allies in and formulate a plan of action would only further delay any attacks.
Chart of the Day:
Initial unemployment claims continue to decline and show a positive trend for the economy. Our attention this week shall be upon the news due out tomorrow and Friday which will give a much better idea of employment than we currently have. Really good numbers will spark fear in the market centered around tapering, so that is something to keep in mind.
We have economic news today and it is as follows:
- MBA Mortgage Index (7:00 a.m. ET): Estimate: N/A Actual: 1.3%
- Trade Balance (8:30 a.m. ET): Estimate: -$38.2 Billion Actual: -$39.1 Billion
- Auto Sales (2:00 p.m. ET): Estimate: N/A
- Truck Sales (2:00 p.m. ET): Estimate: N/A
- Fed's Beige Book (2:00 p.m. ET): Estimate: N/A
Asian markets finished mixed today:
- All Ordinaries -- down 0.62%
- Shanghai Composite -- up 0.21%
- Nikkei 225 -- up 0.54%
- NZSE 50 -- up 0.08%
- Seoul Composite -- down 0.04%
In Europe, markets are lower this morning:
- CAC 40 -- down 0.86%
- DAX -- down 0.63%
- FTSE 100 -- down 0.38%
- OSE -- up 0.20%
J.C. Penney (JCP) saw Bill Ackman's Pershing Square hedge fund divest its 18%+ stake in the company but it appears that other hedge funds have been gobbling up shares recently with quite a few of them announcing large stakes in the past few trading sessions. Hayman Capital announced a 5.1% stake in the struggling retailer which is a new holding for the fund. Glenview Capital, which was already a shareholder, increased its stake to 9.1% which makes it one of the retailer's largest shareholders along with George Soros who also has a 9.1% stake. Also on the list of large holders is Perry Capital, which added to its stake by buying a portion of the Pershing Square share offering and now has an 8.6% stake. It appears that a lot of smart people are calling a bottom here, and doing so before an equity offering from the company - something that has been long rumored now as many worry about J.C. Penney's cash position. Still the shares sit near multi-year lows and have a long way to go in order to regain investor confidence.
J.C. Penney is most definitely the opposite of Michael Kors (KORS), which is trading near all-time highs that it hit in yesterday's session and seems to be able to do no wrong. Consumers are infatuated with the company's products and the product offerings from Kors seem to fit perfectly into the purchasing habits of consumers now as the shift continues towards buying new accessories and moderately priced clothing rather than entire wardrobes. This is a name we have been bullish on for some time and have watched as the stock has risen over 75%. This is one of the few names which have really worked in retail over the past year and one which we continue to have faith in moving forward even though we prefer to see readers diversify into a retail sector ETF. As this one approaches a double we would certainly look at booking the gains and moving that money into the diversified ETF for sure.
Michael Kors has been one of our better calls in the retail sector over the past year plus and so long as consumer tastes do not shift overnight we expect this one to continue to outperform the sector. Some money needs to be taken off of the table soon though.
Source: Yahoo Finance
We watched as the 3D printing companies rallied yesterday and have to admit that we were quite impressed with 3D Systems' (DDD) move higher which resulted in a new all-time high before the shares backed off a bit. More and more people are becoming aware of the 3D printing industry and although it is more of a novelty among consumers these days we do see it gaining traction and some day down the road serving as a common household appliance such as the microwave, toaster or coffee machine. Margins will undoubtedly come down as more enter the field, but right now this is most certainly one of those mini bull runs hidden within the stock market. For investors looking for a medium term investment, this one most certainly fits the bill with some strong upside still available.
DDD has been a strong performer since we called a bottom, however over the past 3 months the performance has been quite strong as well and indicates to U.S. that the momentum shall carry U.S. higher.
Source: Yahoo Finance
We have made known our propensity to favor PepsiCo (PEP) over Coca-Cola (KO) as an investment, and that is a position we continue to believe in. However, we find yesterday's news about the potential of Coca-Cola to alienate or scare away consumers with new ads stating that their diet drinks are safe is a bit off base. Yes some consumers may find the ads a bit concerning, however for many it will simply be shrugged off because it is telling of a situation they already feel informed about. It is like one of those "duh" moments. Coca-Cola may have some issues on the operational side of the business they need to focus on, but the ads are no reason to sell the shares. The company must have already tested these ads in focus groups to make sure that it would not scare consumers away and we would rather bet on the market research of Coca-Cola rather than an epiphany from a Wall Street analyst, no matter how highly regarded she is among peers and others.
If one is buying into this downside, then PepsiCo needs to be sold too because they have exposure to diet sodas as well and it would not only be Coca-Cola hurt by these ads (if viewed negatively by the public) but rather the entire category. Just something to think about if you do want to buy into this story, which we do not. In fact, we would view Coca-Cola as more of a buy at these levels than a sell.