August 18, 2016

The S&P 500 Index and Dow Industrial Average opened lower this morning but quickly turned around. The energy sector is leading the charge, up about 1.2% in early trading. One big reason why: WTI crude oil jumped 2% to $47.80/barrel and Brent crude went over $50/barrel. European markets are poised to close in the green as well. The dollar is weaker on the day (and has been falling for a month now). That’s giving some life to commodities and in fact the Bloomberg Commodity Index is up nearly 10% year-to-date. Copper, which has been smacked around for 5 years now, is actually up modestly in 2016. I suppose that says something about China’s economic growth. Bonds are mixed today. The 5-year Treasury yield ticked down to 1.13% and the 10-year is trading at 11.56%. 

Wal-Mart (WMT) reported a better than expected quarter with same-store-sales growth of 1.6% and total revenue growth of .5% y/y. Management also raised current quarter guidance and said same-store-sales will be up 1.5% this quarter as well. This is notable two reasons: because Wal-Mart’s quarterly announcements typically aren’t very inspiring, and also because Target (TGT) just reported a terrible quarter. The stock is up 2% this morning. 

The Philadelphia Federal Reserve’s Business Outlook survey improved to 2.0 this month from -2.9 last month.  So the index is flat with its 6-month average and implies continued slow growth for the manufacturing sector. The survey revealed deteriorating current business conditions (i.e. employment & new orders sharply lower) but an improvement in the six-month outlook. This survey is correlated with industrial production and the ISM Manufacturing Index and unfortunately, it’s not terribly encouraging. 

The Index of Leading Economic Indicators (LEI) jumped .4% in July vs. economists’ consensus forecast for a .2% gain. Improvement in the factory workweek, as well as stock market gains & low interest rates are responsible for the increase. Lower unemployment insurance claims also helped. On a year-over-year basis, LEI improved from June to July, but overall it doesn’t look all that great. The y/y percent change in the index is fairly flat at +1.2%. Nonetheless, Barron’s says recent improvement in LEI signals a “second-half lift for the economy.” And this is critical to a constructive stock market outlook. 


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.