November 2, 2016

Stocks opened lower today (Dow -42 pts; SPX -.4%). The SPX is now 4% off of its peak and the VIX Index is up to 19. Utilities (-2%), energy (-1.1%) and telecom (-.75%) are the worst performing sectors in early trading. The dollar is falling today but commodities aren’t getting a corresponding bump. WTI crude oil is down to $45/barrel this morning on a higher than expected oil inventory report. Bonds are up in price today (down in yield). The 5- and 10-year Treasury yields are back down to 1.27% and 1.81%. The 2-year Treasury back at .82% shows that traders may have built in too much Fed rate hike panic. By the way, the Fed’s monthly meeting wraps up today and results will be announced. 

Brian Belski of BMO Capital Markets addressed the complexity of the stock market in an interview earlier this week. “We as strategists are probably the most neutral we’ve been in my almost 27-year career on Wall Street, principally because we don’t like this current environment on a near-term basis. It’s all about momentum; it’s all about emotions. It’s not about fundamentals. And so I think fundamentals kind of return to the market in ’17 – ’18.” Separately, Jim Cramer, host of CNBC’s Mad Money, characterizes this market environment as “confusing” and “perplexing.” He urged viewers to take a longer term view by “picking up high-quality companies at a discount. That’s the way the masters do it…”

Merger & acquisition activity continues at a torrid pace. Interest rates are very low, making it easy for companies to borrow money for mergers. And at the same time, low economic growth is forcing CEOs to get creative in generating shareholder value. Today we learned that Broadcom (AVGO) plans to buy Brocade (BRCD) for almost $6bil in cash. The move will increase Broadcom’s exposure to a wave of datacenter build-outs around the world. Other recently announced deals include: GE and Baker Hughes (BHI) are combining their oil & gas businesses; Centurylink (CTL) is buying Level 3 Communications (LVLT) ; Qualcomm (QCOM) is buying NXP Semiconductor (NXPI); AT&T (T) plans to acquire Time Warner (TWX) for about $85bil. 

Health insurer Anthem (ANTM) says it may withdraw from offering insurance under ObamaCare exchanges due to a lack of profitability. Anthem’s Blue Cross Blue Shield brand is present in 14 state exchanges. According to Bloomberg, other major insurers like Aetna and UnitedHealth Group have already begun to pull out of ObamaCare exchanges due to “massive losses.” Anthem’s CEO says not enough people are signing up on the exchanges, and the one who do tend to be very costly to insure. 

Ford (F) said US October sales fell 12% y/y vs. Wall Street’s consensus forecast of -11%. Car sales fell 28%, SUVs were down 9.4% and truck sales edged 2.2% lower. The auto market has peaked and growth comparisons are tough because year-ago sales were incredibly strong. 

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