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The Strongest

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The next two weeks historically provide the best equity returns in the fourth quarter. 

Rollbacks Matter

The lede from Goldman Sachs:

The U.S. economy is heading into 2018 with strong momentum that’s likely to boost wages and inflation more broadly, requiring the Federal Reserve to raise interest rates four times next year, Goldman Sachs Group Inc. economists said in a research note.

 The New York-based investment banking and securities firm raised its growth outlook for 2018 to 2.5 percent and lowered its forecast for unemployment to 3.7 percent by the end of 2018, said Goldman chief economist Jan Hatzius, a co-author of the note, which was released by email late Friday.
Read the whole thing:  www.bloomberg.com

Trump Versus The Deep Regulatory State

Rollbacks matter…

Great piece from Christopher DeMuth.  It’s behind a WSJ.com pay wall but here’s the key bit:

Federal regulation has been growing mightily since the early 1970s, powered by statutes that delegate Congress’s lawmaking authority to mission-driven executive agencies. Beginning in 2008, the executive state achieved autonomy. The Bush administration during the financial crisis, and the Obama administration in normal times, decreed major policies on their own, without congressional authorization and sometimes even in defiance of statutory law.

President Trump might have been expected to continue the trend. As a candidate, he had railed against imperious Washington and promised to clear regulatory impediments to energy development and job creation. Yet he also was an avid protectionist, sounded sometimes like an antitrust populist, and had little to say about regulatory programs like those of the Federal Communications Commission and the Food and Drug Administration. He was contemptuous of Congress and admiring of President Obama’s unilateral methods. Clearly, this was to be a results-oriented, personality-centered presidency.

The record so far has been radically different. With some exceptions (such as business as usual on ethanol), and putting aside a few heavy-handed tweets (such as raising the idea of revoking broadcast licenses from purveyors of “fake news”), President Trump has proved to be a full-spectrum deregulator. His administration has been punctilious about the institutional prerogatives of Congress and the courts. Today there is a serious prospect of restoring the constitutional status quo ante and reversing what seemed to be an inexorable regulatory expansion…

More:

A third indicator is the introduction of regulatory budgeting, which sounds tedious but is potentially revolutionary. The idea goes back to the late 1970s, when the new health, safety and environmental agencies were first issuing rules that required private businesses and individuals to spend tens of millions of dollars or more. It seemed anomalous that this should be free of the disciplines of taxing, appropriating and budgeting that applied to direct expenditures. Jimmy Carter’s commerce secretary, Juanita Kreps, proposed a regulatory budget as a good-government measure; Sen. Lloyd Bentsen (D., Texas) introduced legislation; and several academics (myself included) worked out the theory and practicalities in congressional reports and journal articles.

The idea never went anywhere.

Excellent read.  Hat tip Austin Bay of instapundit.com

The Monthly Streak

The S&P 500 Index is on its way to another impressive record.  With November winding down the index is headed for its thirteenth straight monthly advance which would break the longest streak in history: 

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Steady. Higher. Relentless.

Hat tip Charlie Bilello

The Lone Man

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Key bit: 

“Far away from cameras and fanfare,” Brown saw a “lone man” who he later realized was retired U.S. Marine Corps Gen. James Mattis, who is secretary of defense. At the time, he was surprised to see him at Section 60, but upon reflection, he told IJR, “I can’t imagine anywhere else he’d be on Veterans Day.”

An older man, who donned a hat and sweatshirt with Marine Corps logos and slogans, approached Mattis, shook his hand, and called it an “honor” to meet the general. While the father was moved to see him, he clarified to Mattis, “I know that’s just the kind of man you are.”

Brown explained to IJR that the man had been visiting the grave of his son, who was a Marine and told Mattis his son considered him “his hero.”

The general smiled and said something similar to, “Well, I think your son is one of mine.”

Read the whole thing:  www.ijr.com

Merck Stabilizing

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Merck had a brutal second half of October.  Ahead of a disappointing third quarter earnings report the stock was already on its heels.  The post earnings flush, which began with a huge downside gap on October 27th, sparked a massive breakdown.  One day later MRK had extended the collapse from the September high to nearly 20%.  Since then shares have been stabilizing and are now setting up as a low risk buy.

Earlier this week MRK retested the October lows as downside pressure has eased.  As this area comes into play the stock has returned to a deeply oversold(daily MACD)level.  We believe shares are now setting up for a healthy rebound and are a low risk buy near current levels.  In the near term MRK should be considered a buy near the $55.00 to $54.00 area.  On the downside, a close back below the $53.00 area would indicate a more prolonged basing process is ahead.  

We remain long MRK in some managed accounts.

 

 

Johnson & Johnson Continues To Fade

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JNJ has been steadily fading for the last four weeks.  The stock was able to extend its powerful   earnings inspired breakout before running out of steam near $144.00.  Since the October 24th peak shares have been in pullback mode.  As this week comes to a close the stock is at new November lows and has retraced nearly all of the post earnings rally.  This soft action will develop into a very low risk entry opportunity for patient investors.

We regard the $37.00 t0 $135.00 area as a major support.  This $2.00 zone includes the stock’s summer highs near the upper band and the September high near the lower band.  Also in this area is the 50 day moving average.  As this area comes into play, which will likely happen next week, JNJ will have erased the entire October 17th earnings inspired breakout.  We believe this A rated stock will attract attention once again here.  On the downside, a close back below $134.00 will indicate more rangebound trade is ahead before a return to rally mode.

At time of publication we are long JNJ in some managed accounts.

 

 

So Earnings Have Been Pretty Good

To say the least.  Just how good? 

Third quarter earnings season is pretty much over and it will be the 23rd consecutive quarter that the final number exceeded the estimate. The highest revisions came from the important tech and financial sectors.

Hat tip Ryan Detrick

 

It’s Over

Stat of the day(courtesy of Ryan Detrick):

So yesterday the S&P 500 closed more than 1% away from its all-time high. This came after 54 consecutive days closing within 1% of the all-time high. Where does that incredible streak rank? Second, behind only 84 days in ’64.

Steady. Higher. Relentless.

Hat tip LPL Research

FedEx Falling

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FedEx has left behind an ominous top.  The stock has been struggling since late October and is now in danger of a deep sell off.  FDX closed at new November lows today with the help of a 2.5% loss, its biggest drop since August.  This breakdown type action drove shares below a solid support zone that included the summer highs.  FDX has now left behind a massive supply zone.  All the post earnings buyers, who reacted quite favorably to a strong third quarter report, are underwater.  

We expect FDX to continue lower in the near term as overhead pressure intensifies.  Eventually this extended pullback will provide patient investors with a very low risk entry opportunity.  If the stock can begin to stabilize near major support a significant low could develop.  We are focusing on the $205.00 to $202.00 area.  This important zone includes the stock’s 200 day moving average near the upper band and the October low marks the lower band.  Also near the lower band is the stock’s 2016 peak set back in December at $201.60.  On the downside, a close below $200.00 would indicate a more prolonged basing period is ahead before FDX can return to rally mode.

We are long FDX is some managed accounts. 

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