Best Business- Surprise By Charles Payne

May 19, 2016 1:07 PM ET
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Long/Short Equity, Portfolio Strategy

Contributor Since 2009

Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political, and general opinions by several prestigious news organizations. Currently, Mr. Payne is a contributor to the Fox News Network and Fox Business Network. He also hosts his own radio show on KFIAM 640 every Saturday from 2-4pm PST. Mr. Payne recently released his first book entitled Be Smart Act Fast Get Rich. Our all-star analytical team is called first when the media needs to know. We are regularly featured on several well respected finance-oriented radio and television programs such as Fox, CNBC, BNN, WSJ to name a few and widely recognized in the media as a leaders in the analyst community. In addition, Wall Street Strategies is part of Thomson-Reuters Consensus Estimates. Brian Sozzi is an equity research analyst specializing in the softline/hardline goods sectors of the retail industry for Wall Street Strategies Inc. Mr. Sozzi graduated Summa Cum Laude from Dowling College, receiving his Bachelors of Business Administration with a concentration in Finance and Accounting. Routinely sought after as a trusted point of reference for opinions and insight on the global economy and retail sector stock evaluation, Mr. Sozzi is a frequent on air contributor to CNBC, Fox Business Network, and Bloomberg, and is cited regularly by online/print publications that include Forbes, Bloomberg, The Wall Street Journal, Thestreet.com, CBS Marketwatch, Reuters, Seekingalpha, Associated Press, Crain’s NY Business, Fortune, Barron’s, AOL Finance, and the Financial Times. In 2009, Mr. Sozzi became recognized by Starmine as a top-ranked equity research analyst for stocks under coverage in such categories as EPS Estimate Accuracy and Industry Excess Return. Carlos Guillen is an Equity Research Analyst providing coverage of the technology sector for Wall Street Strategies, Inc. Mr. Guillen has had experience working in both the sell side and the buy side. Prior to working as an analyst, he was a Design Engineer for Lambda Electronics. Mr. Guillen holds an M.B.A. from NYU’s Stern School of Business, and he has a B.S. in Electrical Engineering from Manhattan College. David Urani is a research analyst with concentrations on the homebuilding, staffing, medical devices, and logistical services industries. Along with providing institutional clients with up-to-date reports of individual stocks within his industry coverage, David assists the rest of the Wall Street Strategies research desk with timely analysis of vital economic data. A graduate of the A.B. Freeman School of Business at Tulane University, David earned a Bachelor of Science in Management while majoring in finance. With prior training experience running small businesses, he has an eye for key fundamentals that keep Companies running efficiently. David’s insight has been featured in several outside sources, including the Fox Business Network, MarketWatch, and SeekingAlpha. Carlos Guillen is an Equity Research Analyst providing coverage of the technology sector for Wall Street Strategies, Inc. Mr. Guillen has had experience working in both the sell side and the buy side. Prior to working as an analyst, he was a Design Engineer for Lambda Electronics. Mr. Guillen holds an M.B.A. from NYU’s Stern School of Business, and he has a B.S. in Electrical Engineering from Manhattan College.

The markets and the presidential race are going to be tied into the same sentence more and more as we approach November; it's inevitable that business will take sides and root for one candidate over another. It seems a no-brainer that business and Wall Street would be rooting for the billionaire businessman; however, that notion turned on its head in a survey of trade organizations. They emphatically say Hillary Clinton is the best candidate for business.

So, how does this happen?

Let me point out that these are 53 Washington, D.C. -based trade associations, of which 16 lobby for 100,000 businesses that do a combined $3.5 trillion in annual sales. Considering that Trump is talking about trade wars and individual punishment for companies that outsource manufacturing jobs outside the country, it's not a surprise those businesses that are growing via trade and open borders would have the most anxiety.

Business & Race for White House

Best

Worst

Clinton

50%

12%

Trump

25%

24%

Sanders

0%

53%

None

6%

6%

Can't Decide

6%

5%

I will say I was confused Trump didn't get a larger vote of confidence on taxes; his 15% business tax is perhaps the most enticing part of his economic platform.

  • Immigration: 71% Clinton, 6% Sanders
  • Trade: 63% Clinton
  • Taxes: 31% Trump, 25% Clinton

Small Businesses

I would like to get a handle on how small businesses feel about Donald Trump's economic policies and rhetoric. I am sure they would appreciate less trade (although cheap parts drive down their costs) and more domestic manufacturing even if it means lowered margins for the big boys.

Here's the dilemma for small businesses. They overwhelmingly have created the most jobs over the past decade, and yet have no voice in Washington D.C. They would benefit the most from lowered tax rates and the removal of the Dodd-Frank Act; certainly, things like the new overtime pay rule is a much larger economic issue for them as well.

Business Employment Growth

Very Small
1-19

Small
1- 49

Mid-Sized
50 to 499

Large
1,000+

Current

31.4 million

51.1 million

43.7 million

18.6 million

One Year Change

2.0%

2.1%

1.8%

2.4%

10-Year Change

9.9%

9.3%

7.9%

0.2%

When it's all said and done, Hillary Clinton and Bill Clinton have made a fortune from big business and are seen as pragmatic. Maybe that's why she can't close the deal for the Democratic nomination as that party continues to drift farther left and toward socialism. It should be noted that big business saw President-elect Barack Obama as pragmatic, too.

The Fed's Jawbone

"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June."

The Federal Open Market Committee (OTCPK:FOMC) Minutes

This is the statement that took the Dow rally of 106 points, and momentarily turned it into a rout before the index closed unchanged.

Make no mistake; the Street knows there is more pressure on Yellen to keep Fed hawks at bay - one even voted for a rate hike in the last meeting. Now Fed funds are pricing in a 30% probability of a 25 basis point hike in June; a month ago, it was only a one percent probability.

June Fed Rate Move

+0.25 bps

April 16

May 16

May 17

May 18

Probability

1.2%

15.0%

18.8%

30.0%

Even though the market was jawboned lower after the release, there are obstacles to a rate hike in June or July, including:

  • Not enough time for strong data to materialize
  • Growing risk, things like Puerto Rico (PR) bonds and commodity price increases
  • UK potentially voting to leave the EU
  • China's exchange rate issues

The bottom line is that the economy is too weak and spending too inconsistently to move the Fed needle. Moreover, the stakes are simply too high. Nonetheless, I do find it intriguing that the market sees the chance; albeit still slim, of 50 basis points and even a 75 basis point rate hike in September.

July Fed Rate Move

+0.25 bps

April 16

May 16

May 17

May 18

Probability

19.5%

30.0%

35.1%

42.4%

Sept Fed Rate Move

+0.25 bps

April 16

May 16

May 17

May 18

Probability

31.2%

38.8%

41.1%

43.8

Sept Fed Rate Move

+0.50 bps

April 16

May 16

May 17

May 18

Probability

3.9%

9.7%

12.2%

17.2%

Sept Fed Rate Move

+0.75 bps

April 16

May 16

May 17

May 18

Probability

0.0%

0.8%

1.2%

2.2%

The market isn't afraid of a 25 basis point rate hike, it's afraid of the Fed acting irrationally. In fact, I think this market has been looking for leadership and is ready to treat good news as good news.

Market Outlook at Close

There was great action in banks (the only one I would buy is Goldman Sachs (GS)), biotechnology, and high technology. Biotech has an inherent risk, but it is oversold and technology acts like it is ready to rally higher.

After the bell, evidence shows that the consumer isn't completely dead with earnings beats from American Eagle (AEO) and Urban Outfitters (URBN), while big tech names such as Cisco (CSCO) and Salesforce (CRM) both beat top and bottom and offered higher earnings guidance.

Today's Session

There's a major push-pull to this market with major earnings beats, including Walmart WMT crushing consensus on the top and bottom line and offering guidance above the street. The stock will gap open more than 8% for the first time since 1991, and it could have the best session since Oct 2008.

  • Comp stores +1.0% (sixth consecutive quarter positive)
  • Neighborhood Market +7.1%
  • International $31.6 billion constant currency

The American consumer is wobbly to be sure, but there are signs people are spending money for stuff they really want and need but must be lured in by value, service and experience.

This has become a manic-depressive market where some winners are strongly rewarded while losers are more severely punished. Let's stand back and see how things shake out this morning.

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