October 11, 2017

The major market averages opened mixed this morning (Dow & SPX flat). Gold miners, banks, biotechs, telecoms and basic materials are lower in early trading. Some of the more defensive and interest rate sensitive sectors are in the green (consumer staples, utilities, real estate). The VIX Index is still hovering around 10 and WTI crude oil is still trading between $50 & $51/barrel. Bonds are trading slightly higher as yields take a break from their upward climb. The 5-year Treasury yield is currently around 1.95% and the 10-year yield edged back down to 2.34%. 

The Int’l Monetary Fund (IMF) met yesterday in Washington and raised its global economic growth forecast. In particular, economic conditions are seen to improve in the US, Europe, Japan and China. Those regions accounts for about 75% of global output. The IMF now expects global economic growth to rise 3.6% this year and 3.7% next year. Bloomberg’s proprietary survey of economists and analysts, on the other hand, predicts 3.4% growth this year and 3.5% next year. But both sources agree that economic growth is accelerating around the world. 

Blackrock (BLK) reported third quarter results this morning that narrowly exceeded Wall Street forecasts. And the stock is up about .8% at the moment. During the quarter, total revenue surged 13% from year-ago levels—the highest growth rate in three years. The reason for investors’ tepid response is that net dollar flows into Blackrock investment funds slowed somewhat to $76bil from $94bil in the prior quarter. The company’s earnings have accelerated sharply from 2016 levels and so far this year the stock is up over 20%. 

A research report out of JP Morgan this morning calls into question the sustainability of General Electric’s (GE) dividend. The analyst reduced future earnings estimates and now sees “a dividend cut, or ‘adjustment’ as it is likely termed, as increasingly likely.” Therefore, the analyst reduced his stock price target to $20/share. GE is currently trading at $23. Also this morning, a spokesman for GE told Barron’s that maintain the dividend is a “top priority for the company.” But, as CNBC Contributor Jim Cramer said this morning, those words don’t necessarily convey the guarantee shareholders are looking for. 

Oilfield services provider Schlumberger (SLB) was downgraded today by an analyst at BMO Capital Markets. The firm’s rating on SLB is now Market Perform (which means neutral) and the 12-month price target is $72. The stock currently trades as $67. One key issue is that the company is increasing its capital spending, whereas peer Halliburton (HAL) is still reducing its budget. In addition, the analyst noted the country of Ecuador owes SLB over $1bil and may not be able to pay. BMO says the stock remains an OK defensive investment, but future growth expectations may have to come down. 

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