June 9, 2016

Stocks fell in early trading (Dow -68 pts; SPX -.4%). Financials (especially banks) and materials sectors are leading the market lower. Retailers continue to struggle as well. Utilities and consumer staples are the only sectors in the green at the moment. Asian stock markets were lower overnight and European markets are poised to close about 1% lower today. The VIX Index is up more than 4% but is still trading at a rather subdued 15. The dollar is stronger on the day, so most commodities are lower. WTI crude oil is down a bit to $50.50/barrel. Bonds are not surprisingly up in price, down in yield. The 5- and 10-year Treasury yields are trading at 1.2% and 1.66%, respectively. The 10-year is right at near-term support and if it breaks below 1.66% there is a longer term support level down around 1.64%. But the point is that the 10-year Treasury is trading at multi-year lows on yield. That should tell you the bond market expects continued strong demand from foreign bond buyers, and also doesn’t see any inflation in the forecast. 

Billionaire investors George Soros and Carl Icahn are in the headlines with some bearish bets on stocks. Soros recently sold some stocks and bought gold, etc. And we know that Soros believes a “hard landing” in China is unavoidable. He also thinks the Federal Reserve shouldn’t have raised short-term interest rates by .25% back in December 2015. Mr. Icahn said in a CNBC interview today that if “China blows up,” our market will surely suffer. He vaguely supported Soros’ move, saying that zero interest rates will end up creating asset bubbles that will “explode on you.” So lots of explosive talk from him without any specifics. I only mention this because it’s probably dragging the market down today. My personal opinion is that both have been somewhat bearish for a while and this talk is nothing new.  

The SPX is still hovering just about 1% from its all-time high set back in May 2015. Now, unlike a year ago, small-caps and transports are outperforming the SPX. That could be a bullish signal. And it looks as though oil prices have bottomed and are on the mend. But bond yields are much lower than they were a year ago, and some key economic indicators are weaker as well (i.e. retail sales, ISM Manufacturing Index, GDP growth). So although Bloomberg wants to impart some special significance to today’s dip in stock prices (“Brexit” fears, political conventions, etc.) it seems more likely that markets are seesawing as investors weigh more important, but conflicting, information. 

 

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