July 20, 2016

Stocks opened higher again this morning. The Dow and S&P 500 are currently up 49 pts & .4%, respectively. Biotechs, airlines and semiconductors are leading the way for a change. Utilities, consumer staples and telecoms are down in early trading. Bank of America is calling this rally the “bear capitulation,” saying investors have been against this market until now but they’re afraid of “missing out.” The dollar is up again and commodities are mostly lower, except for oil. WTI crude is trading back up to $45/barrel. Stability in oil is key to this rally. Bonds are down in price today as yields edge upward. The 5- and 10-year Treasury yields are currently at 1.15% and 1.59%, respectively. So those are roughly 2-week highs on yields. 

Microsoft (MSFT) beat both revenue and earnings estimates when it reported second quarter results. Total revenue rose 2% y/y and total earnings rose 11% y/y. Importantly, sales of cloud-based software climbed 7% during the quarter. The stock is up nearly 7% this morning. 

Morgan Stanley (MS) also saw better-than-expected results. Cost cutting helped boost margins, but the firm’s fixed income trading division actually posted revenue growth rather than deterioration. Wealth management revenue fell 1.7% and investment banking fell 23%, thought that was expected by Wall Street analysts. The stock is up 2% in early trading. 

Oilfield services provider Halliburton (HAL) reported second quarter revenue that fell 35% y/y, but that was actually better than Wall Street analysts expected. Management’s outlook was encouraging. The stock is down 1.7% this morning. 

United Continental (UAL) reported better than expected revenue & earnings despite pricing pressure throughout the industry. Airline seat-miles are rising as airlines boost capacity, and that’s why the airline stocks haven’t fared well lately. But UAL’s CEO said the company will trim capacity late this year to adjust to demand. That’s what investors wanted to hear. The stock is up 2.6% today. Barron’s reaction to the announcement: “When Not Terrible is Good Enough.” 

We got a raft of economic data out of China. Household income growth decelerated to 6.5% during the first half of 2016 from the year-ago period (which saw 7.6% growth).  Those are still huge numbers because the Chinese government has continually pushed large pay gains in recent years. That policy has, of course, made China’s manufacturing sector less competitive globally (vs. Vietnam, Philippines, etc.). So now officials seem poised to step in and curb pay gains, and consumer spending is likely to moderate going forward. But for now, June retail sales beat forecasts, rising 10.6% y/y. In addition, China’s GDP (economic growth) rose 6.7% in the second quarter from a year earlier, which was a bit better than expected. So again, there are no signs of a “hard landing” for the Chinese economy. 

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