October 9, 2017

Stocks opened little changed this morning (Dow & SPX flat). Utilities, semiconductors and gold miners are all up about half of a percent. On the other hand, retailers are down over 1% and banks are down about .5%. The VIX Index continues to hover around 10, suggesting continued low volatility in the near term. Commodities are mixed. Copper is trading higher on the day and is up nearly 20% so far this year. WTI crude oil is up slightly to trade around $49.40/barrel. US fixed income markets are closed for the Columbus Day holiday. But I’d point out that the 5-year Treasury yield, 1.96%, is now at a 6-month high. And on Friday, the 10-year yield ticked up to 2.36%, a three-month high. After Friday’s job market report, it seems all but certain that the Federal Reserve will hike interest rates in December. 

Over the weekend, OPEC’s secretary-general expressed his view that the “rebalancing process” of aligning supply and demand in the oil market is progressing apace. However, despite what he calls “very robust” global demand for oil, he said “extraordinary measures” may be necessary to prop up oil prices around the world in 2018. OPEC’s stated goal is for stability in oil prices and he seemed to suggest that stability depends on OPEC agreeing to more production cuts. He wouldn’t admit it, but we know that two important factors: rising US oil production and also growing demand for alternative sources of energy, will serve to keep a lid on oil prices into the future.  

Reuters reports Honeywell (HON) is planning to spin off some of its non-core assets into at least two separate publicly traded companies. Bloomberg reports the company’s turbocharger unit may be included in one of these spinoffs. Honeywell’s management is dealing with an “activist” investor in the form of hedge fund Third Point, which has urged a major break-up of the company in order to unlock value for shareholders. The current plan seems like a scaled-down alternative to “keep everyone happy,” asserts Bloomberg.

Third quarter earnings season is nearly upon us. On the 11th we’ll get announcements from Blackrock (BLK), Delta Airlines (DAL) and Fastenal (FAST). And then on Thursday we’ll get JP Morgan (JPM) and Citigroup (C), among others. 

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