October 17, 2017

Stocks opened mixed today (Dow +25 pts; SPX flat). The Dow just hit 23,000 for the first time. Retailers & biotechs are trading higher, but most everything else is in the red. The VIX Index is up 4% to trade just over 10. VIX November futures are trading around 11.7. Commodities are trading lower (copper, gold, oil). WTI crude oil is down .8 to trade around $51.40/barrel. Bonds are down slightly as well. The 5-year Treasury yield is up around 1.96% and the 10-year Treasury yield is up around 2.31%. 

We got some economic data today. US industrial production rose .3% in September from prior month levels. Production, which includes manufacturing, construction, utilities & mining output, began to recover from hurricane-related disruptions in August. Separately, a survey of homebuilders just rose to a 6-month high. The industry will benefit from rebuilding efforts in Florida and Texas. Additionally, federal tax reform—if it comes—could buoy the housing market next year. 

Morgan Stanley (MS) reported better than expected third quarter results this morning. Revenue rose 3% from year-ago levels and earnings per share rose 11%. The wealth management business gathered more assets to reach $1 trillion under management. And that unit’s profit margin expanded as well. In addition, the firm’s securities trading business held up better than its peers during the quarter. The stock is up .9% this morning.  

Johnson & Johnson (JNJ) also exceeded Wall Street forecasts when it reported today. During the third quarter, revenue rose 10% from year-ago levels and earnings per share rose 13%. Despite the fact that the company’s biggest drug, Remicade, is now off-patent it is still selling very well. J&J has reduced the drug’s price and management says doctors are reluctant to switch patients to competing biosimilars. The company raised both sales and profit forecasts for the remainder of the year. The stock is up 2% at the moment. 

CNBC ran an article this morning highlighting that investors are finally beginning to get more bullish. The Investors Intelligence (II) Bull/Bear ratio has risen to 4x for the first time since the Spring of 2015. That means, within this survey, the number of bullish investors is four times that of bearish investors. In addition, the American Assn. of Individual Investors (AAII) Bullish Sentiment Survey has recently risen to 40% from only 25% less than two months ago. That means retail investors are beginning to feel more optimistic about the stock market. I’d also point out that Citigroup’s Panic-Eurphoria Model, which trended higher over the last month, is still in neutral territory and has a ways to go before triggering euphoria. Economists and stock analysts, of course, are using these gauges to try and guess at the market top. But at this point, there is no clear consensus. 
 


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