April 4, 2016

Stocks opened down but (true to recent trend) are recovering. The Dow and SPX are currently flat. Healthcare and telecom sectors are leading the way. The Nasdaq Biotech Index is up 2% today after having been smashed this year. The VIX Index is trading up toward 14, but that’s still very tame. Year-to-date, the SPX and Dow are now in the green, up about 1.8% and 2.8%, respectively. The Nasdaq is lagging a bit, down 1.6% for the year. Oil and most other commodities are trading lower on the day. WTI crude oil down modestly to $36.50/barrel. Remember, back in mid-March oil was trading up around $40/barrel. So we’ve seen some give-back.

US factory orders fell 1.7% m/m in February, offsetting January’s 1.2% gain. Manufacturing business activity is struggling to recover. Excluding the typically volatile transportation goods category, factory orders were still down in both January and February. It does look like business investment (i.e. corporate capital spending) will drag on first quarter economic growth (GDP).   

I’d like to revisit the GDP report published last week. Fourth quarter 2015 gross domestic product (GDP) growth was revised upward to 1.4%. You may recall that the first estimate for Q4 GDP was 0.7%, which was then revised up to 1.0%, and now is thought to have been 1.4%. The revision was due to better than expected consumer spending, which was revised up to 2.4% growth. The GDP Price Index, which measures inflation, held steady at 0.9% growth. Business inventory accumulation was revised a bit lower, and that is welcome news. So economic growth was a bit stronger than anticipated at the end of 2015. Unfortunately, the pace of growth has slowed over the past couple of quarters. A good part of that is due to falling corporate profits. We know that the US dollar appreciated about 10% vs. a basket of foreign currencies last year, and that crimped profits for manufacturers & exporters. Plunging oil and commodity prices have also cut deeply into earnings for mining and oil exploration companies. This year, however, we’ve seen a recovery in oil prices and some weakening in the dollar. Those trends should help corporate profits going forward. 


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