January 30, 2017

Stocks sank at the open (Dow -166 pts, SPX -.9%). All eleven market sectors are lower, led by energy (-1.9%), materials (-1.3%), and financials (-1.2%). Biotechs are also down over 1%. The VIX Index is up sharply to trade around 12.3. Usually, stock declines coincide with VIX spikes. The dollar is about flat today but commodities are down almost across the board. WTI oil is down to $52.70/barrel. Bonds are rising in price, with yields lower. The 5-year Treasury yield is down to 1.93% and the 10-year is trading at 2.47%. 

Pending home sales rebounded in December, according to the National Association of Realtors. On a month-over-month basis pending sales (that is, signed contracts) rose 1.6% in December after falling 2.5% in November. This suggests we’ll see stronger existing home sales over the next couple of months.   

We got December’s Personal Income & Spending report from The Bureau of Economic Analysis (BEA). Consumer spending strengthened, rising .5% in the month, driven by demand for autos and services. Income growth was a little lower than spending, so the consumer savings rate fell to 5.4%. On a year-over-year basis, spending (not inflation adjusted) is up 4.5% compared with personal incomes up 3.5% y/y. We also learned that retail price inflation continues to accelerate at a moderate pace. The BEA’s PCE Price Index is up 1.6% from year-ago levels. That’s the highest level since July 2014 but is still fairly mild. By the way, this is the Federal Reserve’s preferred gauge of inflation and its unofficial target is about 2.0%.   

President Trump’s financial market reforms are coming fast and furious. Today, he called the Dodd-Frank law a “disaster” and said “We’ll be doing a big number on that” in order to roll back restrictions on bank lending. He is also expected to sign an executive order directing federal agencies to suggest regulations they would like to drop. And according to CNBC, the order also sets a budget of $0 for new regulations in 2017. 

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