May 23, 2016

Stocks opened higher this morning (Dow +32 pts; SPX flat). Materials and tech (semiconductors especially) are leading the way in early trading. Consumer related stocks are holding their own. Energy, utilities and telecom sectors are lower. The dollar is unchanged and commodities are modestly lower. WTI oil is down a bit to $48/barrel. Bonds are selling off again. The 2-year Treasury yield, which reflects Fed interest rate expectations, is trading up to .91%. That’s the highest since mid-March. The 10-year Treasury, which more closely reflects inflation expectations, is unchanged at 1.85%. 

Bloomberg reports Apple (AAPL) has asked its suppliers to prepare production for 72-78 million new iPhone 7 units by the end of the year. That’s roughly 10 million more than Wall Street analysts predicted. The information was sourced from a Taiwanese newspaper and based on a survey of Chinese manufacturers that provide parts for Apple products. Apple stock is up 1.7% in early trading and Skyworks (SWKS)—a known supplier of chips for iPhones—is up 4%. 

Goldman Sachs just added oilfield servicing giant Schlumberger (SLB) to its Conviction Buy List. The firm says SLB is the best way to play the “new oil order,” noting a “best-in-class” balance sheet (which is hard to come by in the energy sector). Goldman believes SLB is poised to take market share from other servicers. The stock is down .5% today.

Markit Economics’ US Manufacturing PMI fell to 50.5 this month from 50.8 last month. This is concerning for two reasons: first, economists were expecting conditions to improve; second, this is the lowest reading since Sept. 2009. As a reminder, this is a private research firm’s survey intended to capture the strength of business activity in the manufacturing sector. At 50.0 manufacturing activity is judged to have ceased growing. 

Federal Reserve officials have stepped up efforts to convince investors that more interest rate hikes are right around the corner. Fed Bank of Boston President Rosengren said over the weekend that he’s ready to support another rate increase. Today, Fed Bank of St. Louis President Bullard noted that a tightening labor market will lead to inflation, necessitating rate hikes. CNBC interviewed Allianz Chief Economic Advisor Mohamed El-Erian this morning. He said the Fed is “carrying the burden of all economic policies, and it feels compelled, compelled to try and guide markets.” He believes the market is underestimating the Fed’s resolve to raise rates this year. On the other hand, many market strategies think the Fed is aggressively shopping around the idea of accelerated rate hikes just to see how the market reacts.  

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