August 4, 2016

Stocks gapped down at the open but quickly recovered. The Dow and SPX are currently flat. Energy and financials are giving back some of yesterday’s gains. Semiconductors, utilities and gold miners are higher on the day. The dollar is slightly higher and commodities are down a bit. Oil is the exception and at the moment WTI crude is back up to nearly $41/barrel. That’s good news. Bonds are higher on the day (lower in yield). The 5-year and 10-year Treasury yields are hovering around 1.02% and 1.49%, respectively.

US factory orders fell 1.5% in June from prior month levels after a 1.2% decline in May. Most of the weakness is due to transportation goods (commercial aircraft), and stripping out that category orders posted a small .2% gain in May and a .4% gain in June. Durable goods (meant to last 3 or more years) orders are down about 4% in both May and June. But stripping out transportation declines are a more manageable -.4%. These figures obviously won’t boost second quarter GDP; business investment is still weak. But check this out—Barron’s says “Anecdotal reports on the factory sector have shown isolated strength that actual government data have yet to show.” 

Thus far, about 410 of the S&P 500 companies have reported second quarter earnings, with aggregate year-over-year sales and earnings growth of -.5% and -4.9%, respectively. About 56% of companies beat Wall Street sales forecasts and 78% beat earnings expectations. Those are fairly constructive beat rates. It does appear that we’re seeing sequential improvement from first quarter earnings season, particularly with regard to earnings growth, which was -8%. Specifically, industrials, technology and financials sectors are seeing the best quarter-over-quarter improvement in earnings growth. 

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