August 29, 2016

Stocks opened higher this morning (Dow +107 pts; SPX +.48%). All ten major sectors are up in early trading. Financials (especially banks) are the clear leaders, with the sector up 1%. Biotechs are selling off. The VIX Index is down a bit to trade around 13.5 and VIX September futures are down around 15. European markets are poised to close a bit lower and Asia was mixed overnight. The dollar is stronger against a basket of foreign currencies and yet commodities are mostly lower. WTI crude oil is down about 2% to trade just under $47/barrel. Bonds are higher in price after selling off late last week. The 5- and 10-year Treasury yields are trading around 1.20% and 1.59%, respectively.

The S&P 500 Index (SPX) is now about .7% lower than its all-time intraday high of 2193.81 achieved back on August 15th. The Dow hit an all-time high (18,668) on the same day and is now about .9% lower. Both indexes are in the process of making a run at those highs. 

The Personal Income & Spending report came in as expected for July, and that’s a bit reassuring. Barron’s is calling this report “constructive.” Incomes rose .4% from the prior month level, which was revised a touch higher. The most important “wages & salaries” component of income posted a .5% gain, which is very solid.  On a year-over-year basis, incomes are up 3.3%, a modest acceleration from June’s 3.1%. Consumer spending posted a .3% gain in July, and rose at a 3.0% year-over-year clip. That’s also an acceleration from prior month levels. In addition, the consumer savings rate ticked up to 5.7%. Finally, the inflation rate on consumer spending (“PCE Price Index”) is still very tame at 0.8% y/y and the “core” rate of inflation, which excludes food & energy, is up 1.6% y/y. Remember, that’s the Federal Reserve’s preferred inflation gauge. This report gives no ammunition to those calling for a near-term Federal Reserve interest rate hike. 

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