October 10, 2016

Stocks surged in early trading (Dow +129 pts; SPX +.65%). All eleven major market sectors are higher, led by energy (+1.8%) and materials (+1%). Biotechs and small-caps are also soaring. European markets will close about 1% higher as well. The VIX Index is down to 13.3 and VIX November futures are trading down to 16.3. WTI crude oil is trading up around $51.50/barrel, a one-year high. Russia announced support for OPEC’s proposal to freeze oil production. Other commodities are higher as well (copper, iron ore). Bonds are slightly higher on the day. The 5- and 10-year Treasury yields are currently around 1.25% and 1.72%, respectively. 

CNBC reports Saudi Arabia is in the middle of selling a huge sovereign debt offering. This could be the reason why they are so intent on providing some stability in the price of oil. And Russia’s support of OPEC plays nicely into the plan. OPEC currently produces about 33.6 million barrels per day and CNBC says Saudi Arabia wants to trim that to a range of 32.5 to 33 million barrels when it meets next month. Of course, Saudi has said it will allow Iraq to increase production. And many investors and market strategists are skeptical that all the talk will be followed by real action to limit oil supply. 

Bristol Myers (BMY) is down about 9% this morning after additional clinical trial details confirmed its lung cancer drug Optivo is inferior to Merck’s drug Keytruda. We first learned of the trial’s results last August, which called Optivo into question. Yesterday, more information about the same trial was presented to the European Society for Medical Oncology in Copenhagen. Both Optivo and Keytruda are at the forefront of a new method of treatment called immune-therapy and both are currently approved as secondary treatments for patients who haven’t responded to first-line medications. But the fight is currently over which drug could be approved as a first-line therapy.  

Third quarter earnings season will kick off this week. Wall Street analysts currently expect S&P 500 Index companies to report 3.6% y/y sales growth and 1% earnings growth. That’s a significant improvement over second quarter results, which saw -4% earnings growth. 

CNBC contributor and economist Larry Kudlow said of yesterday’s presidential debate, “It’s like there’s something in the water this year.” 

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