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BOOM! Stock Market All-Time Highs... What's Next? - boom11

The S&P 500, Dow and Russell 2000 hit all-time closing highs on Friday. And despite the mainstream media's Technology "rout" narrative, the sector actually lead the S&P 500 last week, up +3.4% or a gain of +17.6% year-to-date.

Meanwhile, the much-talked about FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) were up between 2.4% and 7.3% on the week. Leading this list of high-flyers is Facebook (FB). The stock is now up 39% year-to-date. This is exactly what you'd expect to happen as the U.S. economy heats up and precisely why we say investors should be "Long Large Caps, Growth Stocks & Tech."

On June 9th and June 27, Technology stocks fell as much as -2% intraday. If you bought the dip, congratulations. Following the early June selloff, the Nasdaq is up +1.7%. The tech index is off just -0.5% from its early June all-time high. And yet, Wall Street and mainstream media outlets continue to hate Technology stocks:

  • CNBC: The big tech rout may just be getting started
  • Fortune: Risks From the 'Mindless Buying' of Tech Stocks
  • NYTimes: Tech Stocks Boom, but Some Stock Pickers Are Wary

We say take the other side of that trade. Continue to sell the rip and buy the dips in Tech stocks. It's been working all year.

The U.S. Economy is Heating up

We received critical updates for the U.S. economy last week on Industrial Production and Retail Sales. Here's a rundown of recently reported economic data.

  • Retail Sales, Control Group (this is the Retail Sales input for U.S. GDP) fell to 2.4% in June versus May's 2.9%.
  • Industrial Production rose slightly to 1.97% in June from May's 1.95%.
  • Factory Orders accelerated to 4.2% year-over-year versus 3.7% in the prior month
  • Industrial Production accelerated to  +2.2% year-over-year (a 29-month high)
  • Durable Goods Ex-Defense & Aircraft (a proxy for household spending) accelerated from +3.7% year-over-year in April to +5.3% in May. That's a 33-month high. 
  • Capital Goods (Capex) accelerated from +3.1% year-over-year growth in April to +5.0% in May. That's a 33-month high too.
  • Consumer Price Inflation: Year-over-year headline CPI decelerated for a 4th consecutive month. Core inflation decelerated for a 5th consecutive month. Inflation subtracts from U.S. GDP. To the extent inflation continues to fall that will be supportive of our U.S. #GrowthAccelerating call.

We say the U.S. economy is accelerating. Again, stay long Tech, large caps and growth stocks.

Breaking Down the S&P 500

As Hedgeye CEO Keith McCullough writes in this morning's Early Look, financial market moves continue to corroborate our call on the U.S. economy and Tech, large caps and growth stocks.

From a non-sector US Equity market Style Factoring perspective, Mr. Market’s macro message was the same last week:

  1. LOW YIELD stocks led the way at +2.4% on the week and are now +14.6% YTD (vs. High Yield = +0.3% YTD)
  2. TOP 25% SALES GROWTH stocks were up another +2.1% last week to +12.3% YTD (vs. Slow Growth at +1.6% YTD)
  3. TOP 25% EPS GROWTH stocks were up another +2.2% last week to +11.5% YTD (vs. Slow Growth at +1.5% YTD)

*Mean Performance of Top Quartile vs. Bottom Quartile for SP500 Companies

See the Chart of the Day below for more.

BOOM! Stock Market All-Time Highs... What's Next? - 07.17.17 EL Chart

Bottom Line

We continue to reiterate our call to buy Tech stocks, especially on pullbacks, as the U.S. economy heats up. It's working and will continue throughout 2017.