August 10, 2016

Stocks opened lower this morning (Dow -33 pts; SPX -.3%). Banks, biotechs and semiconductors are dragging but retailers, social media and materials stocks are in the green. For the year-to-date period, the SPX is up 8% (total return) and small-caps (Russell 2000 Index) are up 9%. The dollar is weaker and commodities are broadly higher. Copper is up nearly 2% and gold is now 26% higher than it was at the beginning of the year. WTI crude oil is down a bit this morning on higher inventories to $42.40/barrel. And bonds are mostly higher. The 5- and 10-year Treasury yields are down to 1.08% and 1.52%, respectively. In terms of total return this year, long-term Treasury bonds are up about 6.5% and junk bonds are up nearly 6%. 

Economist Joe Lavorgna, usually a voice of reason of Wall Street, says this economy needs fiscal stimulus to spur demand. He worries about “secular stagnation” and notes that “real [interest] rates are negative by most metrics.” The first step, he says, should be to remove some of the excess government regulation of business that is holding back economic growth. 

Second quarter earnings season is nearly complete with 453 of the S&P 500 companies having reported. About 55% of those beat Wall Street revenue forecasts and 78% beat earnings forecasts. So earnings season has been solid in that regard. But of course, year-over-year growth is still an issue. Overall sales growth is tracking to -.4% and earnings growth is about -4%. Those figures improved from the first quarter and it looks like we should return to positive growth in the third quarter. Disney (DIS) reported last night and narrowly beat sales and earnings estimates. In fact, sales growth accelerated to 9%. Strength was driven by studios (+40%) and resorts (+6%); media networks revenue rose 2%. The stock is up 1% at the moment.

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