November 16, 2017

The major stock market averages surged at the open, reversing the pattern of the prior week. The Dow is currently up 193 pts and the SPX is up .77%. Tech and telecom are the best performing sectors, up well over 1% due to positive earnings announcements by Cisco Systems and Wal-Mart. The only sectors in the red are utilities and energy. Asia was up overnight and European markets are poised  to close about .5% higher. Commodities are rebounding modestly today, but WTI crude oil is down slightly to trade around $55.20/barrel. Day-today movements in oil are largely driven by speculators and headlines, not fundamentals, and it seems like traders are selling after a pretty big run. Bonds resumed their selloff today. The 5-year Treasury yield climbed back to 2.06% and the 10-year yield ticked up to 2.35%. 

Wall Street’s consensus opinion about the week-long selloff in stocks is that this is nothing out of the ordinary. Neither does it represent a change in overall direction in the market. There is no evidence that the bull market is in danger. Last night on his show Mad Money, Jim Cramer noted, “People are saying, ‘look this is the beginning of the big rollover,’” but that’s not likely.  

Cisco Systems (CSCO) reported decent third quarter results, meeting analysts’ expectations for revenue and earnings. The company’s transition from hardware to software & service continued apace. Recurring revenue is now 32% of the total and that shows good progress. Even more important, management said fourth quarter revenue could rise as much as 3% from year-ago levels. That’s better than Wall Street is forecasting, and would be the first positive y/y growth quarter in two years. The stock is up 6% this morning. 
Home Depot (HD) recently reported a strong quarter as well. The company posted 7.9% same-store-sales vs. expectations for 5.8% growth. That’s a huge number and it implies the company has done a great job increasing store productivity. In addition, the operating profit margin improved as management tightly controlled costs. On the conference call, the CEO noted that millennials are finally buying houses. 

Wal-Mart (WMT) stock is up 8.5% after reporting a stellar quarter, with same-store-sales growth of 2.7% from year-ago levels. That’s the fastest pace of sales growth in eight years. The company’s fledgling e-commerce business grew 54%, and encouraging sign in the fight against Amazon’s (AMZN) dominance online.

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