July 1, 2016

Stocks opened higher yet again this morning (Dow +61 pts; SPX +.2%). The SPX is apparently on pace for its largest four-day rally in about nine months. Cyclical sectors (consumer discretion, energy, industrials, tech) are clearly leading today. The VIX Index is trading down under 15. We’re losing a bit of altitude on stocks and I wouldn’t be surprised if we close down since this is the Friday before a long weekend. 

European markets are poised to close up about 1%, shrugging off the Brexit vote. This is Bloomberg’s explanation for the rally: “speculation central banks will act to limit the fallout from the UK’s vote to leave the European Union.” I don’t buy that. Central banks are already doing pretty much all they can do. Anyway, the dollar has been slightly weaker over the last couple of trading sessions and WTI crude oil is holding around $48/barrel. Shorter-term bonds are mostly unchanged (5-year Treasury yield at 1.0%) and longer term bonds are rising (10-year Treasury yield back down to 1.45%).  

The ISM Manufacturing Index surged to 53.2 in June from 51.3 in the prior month. That means US business activity expanded at the fastest pace in over a year. Of course, the manufacturing sector has languished due to the stronger dollar, plunging oil prices and weak global demand for our exported goods. So this is very welcome news. The index’s component that tracks orders for export goods rose to the highest level since November 2014. And the overall level of new orders surged during the month. Finally, the employment component indicates that manufacturing-related layoffs fell. 

We got June sales reports from auto manufacturers, and the picture is murky. On a year-over-year basis, sales fell 1.6% at GM but that’s probably due to the company’s decision to quit selling discounted cars to rental fleets. Toyota sales fell 5.6%. Both Ford and Fiat Chrysler reported roughly 6.5% growth. Honda sales rose 3.2% and Nissan sales surged over 13%. Not too bad. But auto sales in the US have been very strong in recent years and some are wondering if we’re past the peak. In the last half of 2015 auto sales were running around 18 million annualized units. Analysts now expect about 17.7 million units for 2016.  

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