December 7, 2017

Stocks opened modestly higher today (Dow +74 pts; SPX +.3%). Cyclicals are leading the way; semiconductors, biotechs and transports are up about 1%. Utilities and consumer staples are losing ground. European markets will close about .2% higher and Asia was mostly higher overnight. The VIX Index is back down around 10.5 and VIX January futures are back down to 12.8. Commodities are mostly lower again today. The Bloomberg Commodity Index has lost 2.2% so far this month. WTI crude oil is bouncing back toward $56.40/barrel. Bonds prices are slightly higher today, lower in yield. The 5-year Treasury yield is at 2.12% and the 10-year is at 2.33%. The yield curve is flattening again. Over the course of 2017 the difference between the 2-year and 10-year yields has shrunk to .52% from 1.25%. Most institutional investors believe that the yield curve will probably invert—that is, short-term yields will exceed long-term yields—in the second half of 2018. 
Investors are increasingly jittery about the near-term outlook for stocks. The SPX rose shot up 7% just in October & November. The tech sector has returned 35% this year. We haven’t even seen a routine 5% pullback in the SPX or Dow in 2017. And now we’re dealing with uncertainty regarding tax reform. So it’s not surprising that stocks are down so far in December. But as CNBC Contributor Joe Terranova reminds us, “This has nothing to do with fundamentals. It’s just money flow.” Large institutional investors are doing some year-end maneuvering, booking some gains in tech and small-caps, and deploying money elsewhere. Canaccord Genuity’s Tony Dwyer calls this a “Sanford And Son correction.” It may seem significant, “ but there’s nothing to it.” He says the fundamental backdrop for investing is still good, though it’s prudent to expect some kind of pullback in the near future. Byron Wien of Blackstone says that a “ten percent correction could come along at any time, and particularly when the market has done as well as it’s done.” The market is vulnerable, but “the question is, what triggers the vulnerability.” He does believe, however, that the stock market will likely bounce back quickly.  

CNBC won’t shut up about Bitcoin. This strange fringe asset has captured the fancy of many traders and reporters. Not so for investors. In his monthly newsletter, famed bond investor Bill Gross says we should be concerned. JP Morgan Chase CEO Jamie Dimon famously called it a “fraud.” In a recent interview, Jeremy Siegel of the Wharton School of Business said Bitcoin “makes no sense to me as a real currency.” CNBC’s Jim Cramer says this is a mania, “it’s not investing” but rather “pure gambling.” And the only reason it keeps rising is that there’s no supply because it is very costly to “mine” Bitcoin using computing power. So he asserts this is “one of the least functional markets I’ve ever seen.” And he asks, “What happened to gold?”   

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