September 26, 2016

Stocks gapped down at the open (Dow -117 pts; SPX -.67%) in anticipation of tonight’s presidential campaign debate. Gold miners and energy stocks are higher, but just about everything else is selling off. The VIX Index is up 12% to trade around 13.8 and VIX October futures are up around 16.2. So traders are clearly predicting increased volatility over the next 30-60 days. European stock markets are down more than 1% in today’s session and Asia closed lower overnight. WTI crude oil is back up around $46/barrel today. Bonds are trading higher as yields fall. The 5- and 10-year Treasury bonds are trading at 1.13% and 1.59%, respectively.

New home sales fell 7.6% in August to an annualized rate of 609,000 units. Economists anticipated the decline since July’s 659,000 annualized units represented a nine-year high. It appears we’re seeing a “pause” in housing market momentum, to quote Bloomberg. But it is not a cause for worry. Backlogs for homebuilders—that is, homes purchased but not yet built—climbed to a nine-year high last month. New home sales thus far in 2016 are outpacing the roughly 500,000 units sold last year. By the way, new home sales account for about 10% of the total housing market. 

Mario Draghi, head of the European Central Bank, called on Euro governments to push policies to spur economic growth. He warned that monetary policy can’t be relied upon to solve all the problems caused by weak demand, slow inflation and unemployment. “Low rates are a symptom of the underlying economic situation. Other policy actors need to do their part, pursuing fiscal and structural policies which will contribute to a self-sustaining recovery and increase the economic growth potential of the Euro area.” Mr. Draghi is not alone; Federal Reserve Chair Janet Yellen has often called for fiscal stimulus to augment and reinforce the Fed’s monetary stimulus. 

Bloomberg says Donald Trump and Hillary Clinton are nearly dead even in the latest Bloomberg Politics national poll. Each major party candidate got about 40% of likely voters (43% for Trump, 41% for Clinton). Libertarian Gary Johnson got 8% in the poll. This same poll in August gave Clinton a 4-point lead, so the momentum has apparently changed. Although perhaps the best takeaway from the poll is that this remains a very tight race. The margin of error is about 3 percentage points. 

Merger & acquisition activity remains a huge driver for the stock market, and this is “Merger Monday.” We understand both Alphabet (GOOGL) and (CRM) are in talks to perhaps buy Twitter (TWTR), which saw its stock surge 21% on Friday. Both GOOGL and CRM fell as the rumors came out. And today, Pfizer (PFE) addressed repeated, persistent calls by investors to split itself up. After four years of evaluation, management has decided not to break up the company. Investors are a bit disappointed; the stock is down about 1.5%. Analysts say Pfizer will simply continue to drive growth by buying other companies. Finally, CBOE Holdings (CBOE), which operates The Chicago Board Options Exchange, announced it will buy BATS Global Markets (BATS) for about $3.2bil in order to expand into stocks & ETFs. Since the deal was rumored on September 22, BATS is up about 15%. 

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