October 3, 2017

The major stock market averages opened higher again today. The Dow—currently up 65 pts—briefly touched a new all-time high. The SPX is up very slightly. Believe it or not, the telecom is leading the way, up .8%. A host of other sectors and industries are higher on the day as well (i.e. semiconductors, transports, consumer goods). Utilities & healthcare are in the red. European stock markets are poised to close up about .3% and most of Asia was higher overnight. The dollar is slightly lower against a basket of foreign currencies today, but has been strengthening over the last month. And if US economic growth accelerates & the Fed hikes interest rates again late this year, you can expect that the dollar will rise. Commodities are mixed today. Copper and gold are higher on the day but WTI crude oil backed down to around $50.30/barrel. Bonds are trading mostly higher as yields edge lower. The 5-year and 10-year Treasury yields are currently at 1.92% and 2.33%, respectively. 

ISM’s manufacturing index shot up to 60.8 in September, the highest level in 13 years. This is a closely-watched gauge of business activity and it has been improving since the beginning of 2016. The index’s “new orders” component, which is used to predict sales activity a month or two in the future, surged to 64.6. That is near the high end of the range for data going back to the beginning of 2010. ISM noted that hurricane-related supply chain disruptions distorted the data a bit. Even so, Bloomberg says the report “provides critical validation to the notion that underlying economic activity is on solid footing…”

It seems economic growth is improving, as is optimism among business leaders. Citigroup’s US Economic Surprise Index has rebounded from -80 at mid-year, to +1.5 today. That means economic data have been progressing better than expected over the past few months. Separately, the NFIB’s Small Business Optimism Index, which surged at election time last year, hasn’t come back to earth. The most recent report suggests business leaders are increasing capital spending because they expect further improvement in the economy. Further, CNBC reporters over the last 24 hours have begun to posit that the stock market is beginning to reward cyclical stocks—those companies that benefit the most from improving economic activity—the most. They point to Sherwin Williams (SHW), Lennar (LEN), General Motors (GM) and Paychex (PAYX) as examples of this.

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