Morning Market Thoughts
Good Morning! Steve Mnuchin confirmed this morning that President Trump is indeed after a 15% corporate tax rate. But I think we’ve already seen the market’s response to that over the last couple of days after it was first reported. While that news is a definite boost for a market that’s already on the move, it’s probably a good example of “buy the rumor, sell the news.” Or, in this case, “buy the promise…and then just buy a little more when the promise is repeated…and then buy a wee bit more…and finally take a seat and see what others are doing.”Frankly, the gridlock and “resistance” to any government change is not particularly bad for the market. Seems like it would be — but the numbers speak for themselves. The S&P rallied about 13% since the last election and is, after all the hiccups, lawsuits, Paul Ryan failures, and riots, the S&P is down 1/2 of a percent below the all time high. And by the looks of things, we could see that level eclipsed today. Why is this? Well, stripping away the politics, the market loves gridlock!
Mr. Market tends to think: “Governmental policies and regulations may be the enemy of business, but they are the enemy we know. It’s nice to think about lower taxes, reduced regulations and infrastructure spending, and all that good stuff. But money is still cheap right now. The possibility of business-friendly change makes me smile…but change is also complex, and let’s admit it — we really don’t know WHAT the final picture is going to look like. So, with gridlock, we’re not guessing. And confidence breeds buying.” And that’s that.
So, party on, Garth.
Twitter (TWTR) crushed and is up nearly 10% pre-market after beating estimates on revenue and earnings, and reporting stronger user growth than estimates. So that’s a great report, although the revenue actually declined despite user growth. So it’s kind of backasswards to me — but this is a big development for the stock, which has been languishing in a shallow slide of prices since last October. After a horrible 3 report last October, the stock lost 34% in market cap in 7 trading days. Since that time, we’ve seen a slow drift to $14. So you’d have to interpret this pop as evidence that the worst has been priced into the stock. And when the worst is priced in, things can only get better. So Twitter is one to watch today.
One other comment — Chipotle Mexican Grill (CMG) reported solid earnings and the stock is up just slightly pre-market. This is one to watch. The March breakout remains intact and the stock has a lot of upside over the next several quarters. While it has to run through $500 first, I don’t think a price target of $600 is unreasonable — and I’m just looking at a weekly chart and drawing some lines. And even a price of $600 is still 20% below the all time high. A $600 handle is almost exactly halfway between the breakout in late March and the all-time high of $760. It won’t get there anytime soon…but I do believe it will get there.
I’ll be in the forum this morning, so don’t be a stranger.
–Dan
Market Update