November 10, 2016

Stocks opened mixed this morning (Dow +156 pts; SPX flat). The Trump rally in financials and healthcare continues; they’re the leading sectors for a second straight day. By the way, famed bank analyst Dick Bove says the election outcome is a “grand slam home run for the [banking] industry.” He sees a roll-back of excessive regulations and predicts more capital will flow back into the banking system. The defensive sectors are sharply lower in early trading (i.e. utilities). Also, the FANGs (Facebook, Apple, Google, etc.) are down as investors yank capital away to reinvest in banks and biotechs. European market will close slightly lower. The dollar is stronger today (and trending up over the last week), perhaps in response to rising expectations for a Fed rate hike in December. Not surprisingly, WTI crude oil is down to $44.70/barrel this morning. Bonds are lower again today as yields continue to rise. The 5- and 10-year Treasury yields are up to 1.50% and 2.08%, respectively. There’s really no resistance on the 10-year until we get to 2.18%. 

On his show Mad Money last night, Jim Cramer wondered, “How can you have a mini bear market and then a resumption of a bull market within a 24-hour period?” He believes yesterday’s rally was driven by relief over the end of the election and a smooth transition of power, investors betting on a strong increase in government spending over the next few years, and of course short-covering. He doesn’t see this rally as durable.  

The housing market continues to improve. We learned today that the number of US mortgages in delinquency fell once again in the third quarter to just 4.52% of total outstanding loans. That’s the lowest in nine years. In addition, the number of mortgages in foreclosure fell to 1.55% of total loans, also a nine-year low. 

Vista Outdoor (VSTO) handily beat Wall Street forecasts for third quarter revenue and profits. Earnings climbed 15% y/y. Vista manufactures sporting goods equipment and say the US retail environment is challenging, with continued emphasis on discounting. This will likely continue.  And yet, management reaffirmed its prior revenue and earnings guidance for the fiscal year ended 3/31/17. And in fact, it looks like guidance is slightly better than Wall Street analysts are forecasting. The stock is up 5% this morning. 

Wells Fargo (WFC) is up 6% this morning, adding to yesterday’s surge. In a Barron’s article titled “Trump Could Make Wells Fargo Great Again,” Evercore ISI analysts posit better times ahead for the bank. “We note that a potential loosening of the regulatory grip on the banks could provide a degree of fundamental relief longer term -- including via lower expenses, higher capital deployment, and positive implications for balance-sheet growth.”  

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