March 15, 2016

Stocks dropped at the open again today. The Dow is down 26 pts and the SPX is off .5%. The Nasdaq is also down .5%. Energy, materials and healthcare are the worst performing sectors; all are down more than 1%. The Nasdaq Biotech Index is down more than 2.5%! We understand an executive from Express Scripts highlighted the rising cost of pharmaceuticals in a presentation this morning. So he’s just feeding the political firestorm over drug pricing. The VIX Index—a closely watched gauge of investor fear—is back up to 17. The dollar is a bit stronger on the day and commodities are lower. WTI crude oil is trading down to $36.30/barrel. The Bloomberg Commodity Index is down about .6% in early trading. Bonds are mostly unchanged; 5-year Treasury at 1.49% and 10-year Treasury at 1.96%.

Yesterday CNBC reported results from its latest presidential campaign poll of Wall Street economists and analysts. About 40% of respondents say the best outcome for the economy would result if a Republican is elected. Even more, 42%, say they don’t know or it doesn’t matter. In other words, there are no great choices. Interestingly, John Kasich is seen as having the best economic policies (42% of respondents). But a plurality, 56%, say this campaign has negatively impacted the economy.

Retail sales rose 3.1% year-over-year in February, accelerating a bit from January’s 3.0% rate. That’s a 1-year high in terms of growth. You’re not going to hear that from the financial news media this morning, however, as they are focused on the month-over-month numbers and revisions. Here’s Barron’s take: “Consumer spending did not get off to a good start after all in 2016 as big downward revisions to January retail sales badly upstage respectable strength in February.” CNBC said this: “US retail sales fell less than expected in February, but a sharp downward revision to January’s sales could reignite concerns about the economy’s growth prospects.” That’s garbage. Back to the year-over-year numbers: autos sales rose 6.8%, restaurant sales grew 6.4%, sporting goods soared 6.7%, and building materials & garden equipment surged 12.2%. What does that tell us? The US consumer is spending. Oh, and by the way, if you strip out gasoline retail sales is growing at a 4.8% y/y clip.

Wholesale inflation (PPI) fell flat in February from year-ago levels. That’s the first non-negative reading in a year. Excluding food & energy, PPI rose at a 1.2% clip. But while wholesale inflation is up a bit, it’s still not even close to what we’d call normal levels, and certainly not high enough to get the Federal Reserve thinking about rate hikes. 



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