October 17, 2016

The major stock market averages are meandering around flat this morning (Dow -24 pts; SPX -.05%). Utilities and telecoms are up .3% to .6% in early trading. Biotechs and gold miners are also in the green. Energy and consumer discretionary sectors are lower. Both Asia and Europe ended the session in the red. WTI crude oil is down just under $50/barrel. The dollar is slightly weaker and bonds are slightly higher. The 5- and 10-year Treasury yields ticked down to 1.25% and 1.77%, respectively. Yields are hovering near 4-month highs. Last week Fed Chair Yellen said she’s comfortable running with a “high-pressure” economy. That means she believes the Fed should be patient and slow with interest rate hikes even as inflation begins to rise. On the other hand, Fed Vice-Chair Fischer warned today that continued low interest rates are dangerous to financial stability.  

Hedge fund manager David Tepper was interviewed on CNBC this morning. He says he’s “cautious on the market.” He said stocks are fully valued and corporate profit margins are pressured by rising wages. Mr. Tepper also cites the presidential campaign as holding back investments. All of this limits the near-term upside in the market. Despite his view that rates will head higher, his fund is “more positioned in the bond market right now,” though not, he says, in Treasuries.   

Barron’s “Big Money Poll” finds that 45% of money managers are either bullish or very bullish about the stock market over the next six months. This same poll bottomed out last spring at 38%, so investor sentiment is improving. Managers who describe themselves as “neutral” on stocks tallied 39%. Now, when asked about the valuation of the stock market, about a one-third said stocks are generally overvalued and 57% say stocks are now at fair value. Barron’s concludes that professional investors “seemingly are resigned” to lower expected returns in the stock market going forward, at least in the near-term. 

US industrial production edged up .1% in September following a .5% decline in the prior month. The two months prior to that saw production rise .5%. Average it all out and Industrial production is roughly flattish. The manufacturing sector has been weak for almost two years due to a stronger dollar, lower oil prices and slower global economic growth. Factor capacity utilization edged up to 75.4%. The post-Financial Crisis high was around 79% back in 2014.  

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