Sell Into the Current Strength -- The Fed Will Raise Rates Twice More

Includes: BA, CAT, GM
by: Yaser Anwar

The government reported that orders to U.S. factories for big-ticket durable goods jumped by stronger than expected 3.1% in June, powered by a rebound in demand for commercial aircraft.

The Labor Department said that the number of Americans filing claims for unemployment benefits last week fell by 7K to 298K, indicating continued strength in the labor market even though job growth has slowed in recent months.

For June, orders for durable goods (items expected to last at least three years) totaled $216.3 billion, an increase of $6.52 billion from the May level. Excluding transportation, orders were up a solid 1 percent in June with strength being shown in demand for computers, communication equipment and primary metals such as steel.

Tomorrow's GDP report, which I expect to be stronger than expected (at least 3.2%), will further add to my belief that the Fed will now raise rates two more times.

Bottom Line: The strength in business investment shows that the economy, while definitely slowing, is still doing better than expected. Falling unemployment claims means companies are hiring, and thus adding wage pressure. The market is showing strength due to two days of stellar earnings by DJIA component companies (BA, CAT, GM). I think you should sell into it 'cause the Fed will be raising rates two more times.

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