“The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day – and you lose more than you should had you not listened to hope – the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out – too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts . . . Instead of hoping he must fear; instead of fearing he must hope.” — Jesse Livermore

1. Trump Named New national security adviser, Update travel ban — Lieutenant General H. R. McMaster has been named as President Trump’s new national security adviser, while retired Army Lt. Gen. Keith Kellogg, who had been his acting adviser, will now serve as the National Security Council chief of staff. Trump also plans to issue a revised version of his temporary travel ban as early as today, with a likely focus on fewer people so it could survive immediate legal challenges.
2. Fed Reserves Harker, Williams & Mester Fedspeaks Summary — speaking of rate hike signals, Philly Fed President Patrick Harker stated last week that he didn’t think “March should be taken off the table,” while policymaker John Williams felt the U.S. economy is “essentially at full strength.” Meanwhile, Cleveland Fed President Loretta Mester cautioned that Trump’s administration brought a new degree of uncertainty to the central bank’s outlook, but she’s “comfortable” with rates moving higher.
3. UPS Tests Drone Deliveries — UPS just tested a delivery drone on a farm outside of Tampa, Florida, with the UAV returning to the roof of the truck. The big feat? The vehicle already moved 2,000 feet down the road. “Drones won’t replace our uniformed service providers,” said UPS’s Mark Wallace. “That’s key, but in this case, it really is there to assist.”
4. Many Fed Officials See Rate Hike ‘Fairly Soon,’ Latest Minutes Show — Federal Reserve officials expressed confidence they can raise interest rates gradually, while a hike “fairly soon” might be appropriate to avoid the risk of an overheated economy, according to the latest minutes of Federal Open Market Committee’s. Before the minutes were released, traders are pricing in about a one-in-three chance of a rate increase when the FOMC next meets March 14-15.
5. S&P500 Market Stats that Show Gains in Jan & Feb –since 1945, there have been 27 years when the S&P has achieved gains in January and February. The stock index then finished up for the year (on a total-return basis) in every one those years, according to Stovall. The average rise in those years was 24%, as shown in his chart below, and the gauge was up further in the remaining 10 months 25 of 27 times.

6. New Attorney General Sessions Reverses Obama Prison Order — the U.S. Justice Department has reversed an order by the Obama administration to phase out the use of private contractors to run federal prisons. In a memo, Attorney General Jeff Sessions said the policy impaired the government’s ability to meet the future needs of the prison system. Related companies are: CoreCivic (NYSE:CWX) and GEO Group (NYSE:GEO)

The week ahead — Economic data from Econoday.com:

“Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind.” — Bernard Baruch

1. Chief Executives of Some of America’s Largest Retailers Rallied to Kill a U.S. border tax — Chief executives of some of America’s largest retailers, including Target (NYSE:TGT), Best Buy (NYSE:BBY), Gap (NYSE:GPS) and AutoZone (NYSE:AZO), will make their case that an import tax would raise consumer prices and hurt their businesses. Best Buy has even circulated a flyer to lawmakers, which cites an analyst forecast that a 20% tax would wipe out the company’s projected annual net income of $1B and turn it into a $2B loss. Furthermore, the EU and other U.S. trading partners have begun laying the groundwork for a legal challenge to an American border tax proposal in a move that could trigger the biggest case in World Trade Organization history.
2. Humana Pulls out of Obamacare for 2018 — Humana (NYSE:HUM) said it will pull out of the Affordable Care Act marketplace in 2018, making the announcement after it ended a merger agreement with Aetna (NYSE:AET). President Trump said the decision was proof that “Obamacare continues to fail” and “will repeal, replace & save healthcare for ALL Americans.”
3. CEO Dorsey buys $7M in Twitter stock — CEO Jack Dorsey bought $7M worth of TWTR shares last week, showing investors just how much confidence he has that Twitter can turn around its business. He tweeted about the stake on Valentine’s Day, appropriately adding the hashtag “Love Twitter.” The 426,000 shares ranged in price from $15.84 to $16.60 for around $7 million dollars.
4. Greek Bailout Deal to Miss Deadline — Eurozone finance ministers and the IMF seem likely to miss the coming week’s deadline to agree on a €7B bailout for Greece. The two sides remain at loggerheads over an IMF demand that Athens be granted debt relief and easier surplus targets, meaning a pact may now be months away. While Greece won’t face bankruptcy trouble until July, eurozone officials were racing to strike a deal so the drama wouldn’t be forced into the upcoming Dutch and French elections.
5. AAII Market Sentiment As Neutral As It Gets — the latest data from AAII shows a picture that is just about as neutral as it gets. As shown in the chart below, bullish sentiment this week came in at 33.09%. This is the fifth straight week that bullish sentiment has been below 40%, and the 111th straight week that bulls have failed to take a majority, and that makes this the longest sub-50% run in bullish sentiment in the history of the AAII survey.

Like the bulls, slightly less than a third (32.36%) of investors placed themselves in the bearish camp this week, but with stocks at record highs, you would expect a low level of bearish sentiment.

The week ahead — Economic data from Econoday.com:

“In matters of style, swim with the current; in matters of principle, stand like a rock.” — Thomas Jefferson

1. Trump Border Wall Could Cost $21.6B — President Trump’s “wall” along the U.S.-Mexico border would be a series of fences and walls that would cost as much as $21.6B, and take more than three years to construct, based on a U.S. Department of Homeland Security internal report. The price tag is much higher than a $12B figure cited by Trump in his campaign and estimates of as high as $15B from Republican Congressional leaders. Companies that might benefit from “Trump Border Wall” include: ACM, CX, CXW, EXP, FLIR, FLR, GEO, GVA, KBR, MLM, NUE, STLD, SUM, TPC, TTEK, USCR, USG, VMC, WMS, X.
2. Army Corps Will Give Easement For Dakota Access Pipeline — the U.S. Army will grant the final permit for the controversial Dakota Access oil pipeline after an order from President Trump to expedite the project despite opposition from Native American tribes and climate activists. It would allow the final section of the line to tunnel under North Dakota’s Lake Oahe, part of the Missouri River system, enabling the $3.8B pipeline to begin operations as soon as June.
3. China Forex Reserves Fall Below $3T — China’s foreign exchange reserves have dropped below the $3T level for the first time since 2011, marking the seventh straight monthly decline as capital continues to flow out of the world’s second-largest economy. Data from the PBOC showed reserves falling by over $12B in January, despite government efforts to tighten capital movement controls and stabilize the yuan’s exchange rate.
4. S&P500 Intra-Day Moved Within 1% Set Record Since Dec 14 — the S&P 500 (NYSEARCA:SPY) hasn’t had a 1% intraday move since December 14. Chart below courtesy of Charlie Biello.

The week ahead — Economic data from Econoday.com:

“Given the lift off — which I totally missed — it’s going to be tough to break the markets down.” — Jeff Saut

1. Chinese Markets Closed for Lunar New Year — Chinese markets will remain closed for most of the week as Lunar New Year celebrations kick off for much of Asia. The PBOC pumped 1.13T yuan (roughly $165B) into domestic money markets last week via its routine operations as consumers prepared for shopping sprees and to hand out red packets filled with fresh notes to friends and relatives.
2. Iran Tests Another Ballistic Missile & White House Puts Iran ‘On Notice’ — Iran has conducted its first ballistic missile test since Donald Trump took over as President, in another apparent violation of a United Nations resolution. As a result, the UN will hold an urgent meeting today at the request of the U.S. President Trump was a sharp critic of the Iran nuclear deal during last year’s campaign and has suggested he may seek to renegotiate its terms. National Security Adviser Mike Flynn has officially put Iran “on notice” and warned of new U.S. sanctions following the country’s weekend ballistic missile test. The pronouncement marks a pivot away from the Obama administration’s policy of diplomatic engagement, which led to a 2015 multinational nuclear deal that has been denounced repeatedly by President Trump.
3. Insulin Makers Sued Over High Prices — three of the biggest makers of diabetes treatments, Sanofi (NYSE:SNY), Novo Nordisk (NYSE:NVO) and Eli Lilly (NYSE:LLY), were named in a proposed class action lawsuit by a group of patients alleging price-fixing. The suit accuses the companies of exploiting the U.S. drug pricing system that benefits them and pharmacy benefit managers, and claims they simultaneously hiked the price of insulin by over 150% during the past five years.
4. Amazon Plans First Air Cargo Hub — Looking to accommodate its growing fleet of planes, Amazon (NASDAQ:AMZN) plans to invest $1.5B to build a large air cargo hub in northern Kentucky, signaling an expansion into transporting, sorting and delivering its own packages. The move, which is expected to create more than 2,000 jobs, will lessen its dependence on traditional carriers, including UPS and FedEx (NYSE:FDX), both of whose largest hubs are nearby.
5. Federal Open Market Committee (FOMC) Stands Pat in Feb — the FOMC announced no change in the Feb meeting and reiterated plans to raise rates gradually and leave the federal funds rate target range at 0.5 percent to 0.75 percent. Officials have penciled in three quarter-point rate hikes this year, according to the median quarterly estimate submitted by officials in December. Investors see the central bank taking its time, with a roughly 70 percent probability of a quarter-point hike by the June FOMC meeting.
6. Trump To Undo Dodd-Frank, Fiduciary Rule — removing some of the regulatory burdens on banks, President Trump plans to sign executive actions seeking a review of the 2010 Dodd-Frank law and a rollback of the so-called fiduciary rule – set to take effect in April. Trump is scheduled to issue the directives following a meeting of more than a dozen top corporate executives led by Blackstone (NYSE:BX) CEO Steve Schwarzman.

The week ahead — Economic data from Econoday.com: