October 4, 2017

Stocks opened mixed this morning (Dow +20 pts; SPX flat). Gold miners, biotechs and consumer staples stocks are modestly higher. In addition, interest rate sensitive sectors like real estate and utilities are rebounding a bit. On the other hand, technology, banks and industrials are modestly lower. WTI crude oil is flat on the day around $50.40/barrel. Bonds are slightly lower as yield tick higher. The 5-year and 10-year Treasury yields are hovering around 1.93% and 2.34%, respectively. 

Jim Cramer characterized yesterday’s stock market rally to new highs as a “Pamplona Run.” He noted stocks like Tesla (TSLA) and General Motors (GM) rallied hard despite bad news and poor execution. “The action was way too positive,” and yet this “rally could be far from over.” Investor sentiment is improving, and the VIX Index shows us investors are not fearful about the immediate future.

President Trump made a comment yesterday suggesting that the US Government is “gonna have to wipe…out” the municipal debt of Puerto Rico. It is unclear exactly what he meant, and one of the president’s advisors quickly back-peddled, saying, “I wouldn’t take that word-for-word.” But the bond market immediately spooked. Puerto Rican bonds are trading much lower today. And the muni bond insurance companies are down as well. MBIA Inc. (MBIA) is down 9% in early trading.  

It’s a wonder the stock market isn’t spooked by a report that Secretary of State Rex Tillerson nearly resigned in July. Mr. Tillerson apparently isn’t at all pleased with President Trump, and openly referred to him as a “moron” in a Pentagon meeting. And it seems clear that the two men have been working at cross purposes in dealing with North Korean tensions. In fact, Mr. Trump tweeted that Tillerson was “wasting his time trying to negotiate” with North Korean officials. Despite these reports from ABC News and NBC, Mr. Tillerson this morning said he has never considered resigning. Investors have in the recent past been sensitive about hints that the Trump team of experts is falling apart. The idea that Mr. Trump is surrounding himself with a highly respected and experienced team is what encouraged many to believe he could succeed as president. Perhaps Wall Street sees Tillerson as expendable. But you can be sure that investors will not sit quietly if Gary Cohn or Steven Mnuchin resigns.    

ISM’s non-manufacturing business index surged to 59.8 in September from 55.3 in the prior month. Business activity in the service sector is expanding at the fastest pace in 12 years. The new orders component of the index rose to a 5-month high, suggesting strength will continue. Other details confirm that hiring activity is accelerating, but so is wholesale inflation. As with any other PMI, or business activity index, any reading above 50.0 indicates business expansion. 

Payroll services company ADP says the US economy generated 135,000 new jobs in September, in line with economists’ expectations. That’s the lowest monthly job tally in almost a year. Results were clearly impacted by twin hurricanes last month. Economists believe this is a temporary disruption and that the underlying job market remains very strong. 

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