August 24, 2016

Stocks opened lower this morning (Dow -44 pts; SPX -.2%). The Nasdaq is flat. All ten major market sectors are in the red, led by utilities, telecoms and materials. Gold mining stocks are particularly hard hit (-3%) after a disappointing earnings report from Glencore. Banks, retailers and biotech are actually up modestly. So today is sort of counter-trend for 2016. The VIX Index is trading up to 13 and VIX September futures are up to 15. So a modest increase in expected volatility in the next couple of months. WTI crude oil dropped to $/barrel this morning and the Bloomberg Commodity Index is down .8% in early trading. Bonds are little changed today, with the 5- and 10-year Treasury yields at 1.14% and 1.56%, respectively. Corporate bonds (and junk bonds in particular) are seeing a bid this month, which, by the way, argues for a better economy. The iShares Barclays High Yield Bond ETF (JNK) is up 2% so far this month. 

The CIO of Wells Capital Management, Jim Paulsen, was on CNBC again yesterday reiterating his call for a synchronized global rebound. He notes global economic surprise indices have improved, crude oil has rebounded and is fairly stable in the $40s, industrial commodity prices are higher, and corporate bond spreads are tighter. He says these things could boost earnings estimates, and that will get markets all around the world moving higher. Of course, there’s a downside to that positive outlook: it could very well quicken the Fed’s rate normalization strategy.

US existing home sales fell 3.2% in July from prior month levels, to an annualized rate of 5.39 million units. It’s a minor setback; the volume of existing home sales is still close to the top of the range we’ve seen over the last couple of years. For perspective, last year’s average monthly volume was 5.23 million. July’s dip comes after four consecutive monthly increases in sales volume. 

Bloomberg reports retail sales of e-cigarettes in the US surged 14.6% in the four weeks ended Aug. 14. That breaks down to a 12% increase in unit sales and a 2.3% price hike. Competition is tight in the e-cig industry, but Reynolds American (RAI) remains the leader. Reynolds’ VUSE brand commands a 39.1% market share, up from 37.5% in the prior four-week period. The stock is up about 9% so far this year. 

Wall Street firm Cowen & Co. published a research report on Starbucks (SBUX) that drove the stock up 1.8% this morning. The analyst says North American sales are “getting back on track” so far this quarter and foot traffic reacceleration is likely. He says the company is cutting costs in order to absorb wage increases. SBUX is down about 4% so far in 2016.  

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