February 8, 2017

The major market averages gapped down at the open but have pared losses. The Dow is down 38 pts and the SPX is flat. Financials, healthcare and industrials are lower in early trading. On the other hand, interest rate sensitive sectors like telecom, utilities and real estate are higher on the day. That’s because bonds are trading up (yields down) today. The 5- and 10-year Treasury yields fell to 1.81% and 2.35%, respectively. Commodities are mostly trading higher. WTI crude oil is trading up around $52.50/barrel but of course that’s not helping energy stocks, which are consolidating 2016 gains. 

Once again, I’ll point out that as stocks have hit fresh highs the VIX Index is trading at very low levels (sub-12). Short-term traders typically like to sell stocks when the VIX bottoms out around these levels. And they like to buy into stocks right after the VIX spikes. So, as CNBC contributor Art Cashin says, “It is a little discomforting to…see you make brand new record highs…and see the VIX hanging around 10. You start to worry, is that a sign of complacency…” 

Sam Stovall, strategist at CFRA, reminds us that “bull markets don’t die of old age. They die of fright. And what are they most afraid of? Recession.” So he says investors need to be watching economic metrics like housing starts, consumer confidence, leading indicators and movement in the yield curve. And right now, none of those metrics are flashing warning signs. Even though this is the second-longest bull market in history, he believes it could very well persist. “There is still upside potential.” That said, volatility isn’t going away. “Bull markets are like humans, the older they get, the more unstable they become.” 

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