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. 

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