April 26, 2016

Stocks opened higher but quickly gave way (Dow -10 pts; SPX flat). Tech and healthcare are leading to the downside. Energy stocks are rising, however, as oil prices continue to move higher. WTI crude is now trading up to $43.50/barrel. Last Friday, Baker Hughes said its count of active oil drilling rigs in the US fell 8 rigs to 343. Back in 2008, that same rig count was over 2,000. The dollar is weaker today, and down to a 10-month low against a basket of foreign currencies. That, plus higher oil prices, should be additive to corporate earnings in the last half of the year. A weaker dollar is helping the materials sector rise (groggily) from the dead. Bonds are selling off again, with yields moving higher. The 5- and 10-year Treasury yields are up to 1.39% and 1.93%, respectively. Strangely, the 2-year Treasury yield is also at a 1-month high despite that fact that no one sees the Fed raising interest rates anytime soon.

We’re less than halfway through earnings season, with 165 of the S&P 500 companies having reported. Of those, 59% reported sales ahead of expectations, and over 80% have beaten earnings expectations. Those are fairly respectable beat rates, reflecting the fact that Wall Street analysts had become too pessimistic over the last couple of months. So far, we’ve seen positive year-over-year sales & earnings growth from only three sectors: consumer discretionary, healthcare and telecom.

Durable goods orders disappointed, rising only .8% in March from prior month levels. Economists were looking for something closer to 1.9% growth. Capital goods orders excluding defense equipment & aircraft—considered a good proxy for business investment—were flat for the month after falling 2.7% in February. The year-over-year figures are no better, with business investment down 2.4%. Despite higher oil prices and a lower dollar, we still have yet to see a bump in manufacturing activity. This report is a bit worrisome, proving that uncertainty—whether from the presidential campaign or sluggish growth overseas or monetary policy—is restraining growth.

The S&P/Case-Shiller Home Price Index for the 20 largest US cities rose 5.4% y/y in February. Price growth has decelerated a bit recently, but remains pretty strong. All four geographic regions in the US posted positive price growth.

The Federal Reserve’s Open Market Committee (FOMC) will meet today and tomorrow to consider monetary policy moves. The bond market is pricing in a zero chance of an interest rate increase at this meeting.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.