February 13, 2017

Stocks continue to rally, and this morning the S&P 500 Index (SPX) achieved another record high. At the moment, the Dow and SPX are up 124 pts & .43%, respectively. Financials and industrials are leading the way, up about 1%. A lot of banks are hitting 1-year highs. Utilities, energy and telecom sectors are flat to down. By the way, global stocks are rallying as well. The VIX Index is up about 4.7% to trade around 11.4; despite this bump the fear index is still at very low levels. A Bloomberg article posits the stock market is running because President Trump “indicated details on his pro-growth policies were imminent.” Today, the dollar is stronger and interest rates are higher. Bonds are selling off and the 5- and 10-year Treasury yields are back up to 1.92% and 2.45%, respectively. 

CNBC reports the S&P 500 has gone 84 straight trading sessions without a 1% down move. That has been driven by Trump policy expectations. But of course, economic data have been outperforming expectations. And fourth quarter earnings season has been a bit better than anticipated. Many Wall Street strategists are calling for “consolidation” or a “pullback” here. But longer term, consensus still holds that the bull market isn’t over. 

Commodities are mixed. WTI crude oil is down almost 2% to $52.80/barrel. US oil production is clearly rising again and traders are worried about potential global over-supply. On Friday, oilfield servicing firm Baker Hughes said the number of active US oil drilling rigs has climbed back to 591, the highest since October 2015. According to the Dept. of Energy, total US oil production bottomed last summer and is now steadily rising again. At the same time, OPEC is reportedly (and unexpectedly) sticking to its self-imposed production limits. But it’s unclear how long OPEC will be patient with rising US production. So the market is setting up for a continued tug-of-war between US producers and OPEC, both of whom have the ability to over-supply the market and push oil prices lower. 

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