November 18, 2016

Stocks opened lower this morning (Dow -36 pts; SPX -.25%). The Nasdaq briefly touched an all-time high. The SPX is within spitting distance of its all-time high (2193). The healthcare sector is down nearly 1% in early trading. Gold miners are down 2%. Transports, banks and semiconductors are up a bit. The dollar is still strengthening (+2% YTD) and commodities are mostly lower. WTI crude oil is down modestly to trade around $45/barrel. Bonds continue to sell off. The 5- and 10-year Treasury yields are up to 1.78% and 2.34%, respectively. Keep in mind the 10-year yield is up 100 basis points since bottoming in July. Rates are back up to November 2015 levels. 

The US Index of Leading Indicators (LEI) ticked up .1% in October from prior month levels. On a year-over-year basis, LEI is up a scant .1%, and has been in a gradual descent since the end of 2014. Contributors to the gain were: higher interest rate spreads, longer average workweek and slightly better corporate capital spending. Factors dragging down LEI were higher initial jobless claims, softer ISM new orders and lower consumer expectations. I’d point out that the jobless claims issue has already been reversed this month. But it’s hard to conclude anything other than that this report points to continued slow economic growth. 

Wal-Mart reported weak third quarter results, with sales up 1% y/y and earnings down 1%. Management blamed falling food prices, and noted that about 55% of the company’s revenue comes from groceries. Wal-Mart sharply increased its wage costs at the same time as it lowered prices in order to compete with Amazon and other food retailers. Management said that lower food prices reduced sales growth by 1.5 percentage points. The stock fell about 4% after the announcement.

Last night, Jim Cramer addressed the Trump Rally and whether it is sustainable – he thinks it is. He says the market has suffered for quite a while from economic malaise. Until now, stocks had fallen out of favor. But the election outcome seems to have energized investors and awakened optimism. This could be a sea change. He says the move in banks is here to stay; the Fed will begin raising rates soon. The industrials will be given a pass on their soft third quarter earnings results. The consumer will do better with lower taxes and you can bet on the consumer discretionary sector for a rebound. Finally, plenty of tech stocks have been in purgatory for a while and are due for a rebound. Now, he does admit that we don’t have enough information to confirm the sustainability of the rally. But investors suspect the economy is improving and President Trump will boost growth if he’s able to push though his agenda. 

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