April 18. 2016

Stocks gapped down at the open but quickly recovered. The Dow and SPX are currently up 70 pts & .4%, respectively. The Dow is very close to hitting 18,000, and the only sectors in the red are utilities and materials. The VIX Index is down under 14, suggesting very little volatility in the next 30 days. WTI crude oil is down 2.5% to $39/barrel this morning. Over the weekend, oil ministers met in Doha to discuss the possibility of freezing oil production levels. They failed to reach an agreement; Saudi Arabia says that unless Iran participates, it will not agree to a production freeze. And of course, we know that Iran is not willing to commit to a freeze. So the meeting was a non-event, although it did afford speculators a chance to create a little volatility in oil prices. Bonds are modestly lower today as yields tick higher (5-year Treasury yield at 1.23%; 10-year at 1.78%).

Hasbro (HAS) beat first quarter revenue & earnings projections. Total revenue grew 16% y/y (20% excluding negative effects of currency fluctuation).
The toy maker called out Disney products as a huge success during the quarter. Sales in Europe and Asia-Pacific posted positive year-over-year growth. HAS stock is up 5% and Disney (DIS) stock is up 2% this morning.

PepsiCo’s (PEP) first quarter sales fell 3% y/y due to currency impact, even though product volumes actually increased (snacks +1.5%; drinks +3%). Pepsi’s emerging markets business grew a very healthy 7% (excluding currency). Once again, the snack business fared better (partly due to price increases) than the beverages. The company’s CEO said, “the American consumer is still doing well and still benefiting from lower gas prices.” The stock is up slightly this morning.

Citigroup’s economics research team just reduced its outlook for the US, saying GDP growth is tracking to about 1.7% for 2016. That’s materially slower than last year. The research report vaguely cites “increased evidence of the dampening effects of looming uncertainty.” And yet, Citi projects the unemployment rate to continue lower and inflation to remain subdued. That means the Federal Reserve will probably raise interest rates only once toward the end of the year. 

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