April 5, 2016

Stocks gapped down at the open (Dow -90 pts; SPX -.8%; Nasdaq -.7%). All ten major market sectors are in the red; financials, healthcare and utilities are down over 1%. The VIX Index is trading up to 15, suggesting modestly higher volatility expectations. Believe it or not, the Nasdaq Biotech Index is higher—it seems institutional investors are stepping back into biotech after a 7-month drubbing. In addition, small-cap stocks and transports are faring a bit better than the Dow and SPX this morning. Commodities are mixed, and investors are beginning to notice that the inverse relationship between the dollar and commodities has broken down lately. Both the Bloomberg Commodity Index and the dollar are lower on the year. WTI crude oil is down slightly to $35.50/barrel today. Bonds are modestly higher (5-year Treasury yield at 1.18% and 10-year at 1.72%). There is some technical support for the 10-year yield right here, and it will likely bounce higher in the coming days.   

ISM’s non-manufacturing business activity index rose to 54.5 in March from 53.4 in the prior month. That’s a 5-month high for the index. It’s also a surprisingly large improvement in the service sector for one month. This news should be greeted warmly by investors because the service sector accounts for nearly 90% of our economy. ISM’s data are closely watched by investors. Last Friday’s ISM’s US manufacturing index also showed solid improvement in March, with a huge bump in new product orders activity. As a reminder, any reading above 50.0 indicates expansion in business activity. By the way, another private research firm (Markit Economics) says its service sector business activity index edged up to 51.3 in March from 51.0 in February. The bottom line is that these reports suggest corporate earnings are poised to improve as the year progresses.

We got the Job Openings & Labor Turnover (JOLTS) report this morning. US job openings held fairly steady at 5.4 million positions in February. Hiring activity surged 3.8% to 5.4 million positions. And the number of firings/layoffs/quits was unchanged at 5.1 million. Overall, this points to continuation of a very healthy job market. With data like this, it’s getting tough to believe the bears who say we’re heading into recession. And it makes one think: perhaps the most vocal naysayers in the financial news media are simply talking their book.  

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