February 9, 2017

Stocks opened higher this morning after President Trump promised a “big league” and “phenomenal” announcement on tax reform. We’ll see about that. The Dow and SPX are currently up 128 pts & .6%, respectively. Most sectors are higher in early trading, led by financials and energy. Those two groups have not done well lately, mostly because they’re digesting late 2016 gains. And by the way, the leading sector so far in 2017 is tech, up nearly 7%. One of the key reasons is that we’ve seen very good earnings announcements from major players in tech (i.e. Facebook, Alphabet, Apple). The VIX Index is down again today, trading around 11.1. VIX February futures are down around 12.3. So we’re still hearing traders bemoan “complacency.” Today, WTI crude oil is trading up around $52.80/barrel. Most other commodities are faring well so far in 2017: copper +6%, iron ore +18%, agricultural commodities +4%, gold +7%. After selling off for nearly 2 months, bonds are rising in price today. The 5- and 10-year Treasury yields ticked up to 1.85% and 2.38%, respectively. 

On his show Mad Money last night, Jim Cramer characterized the current investing environment as “Visceral and polarized.” But that’s the emotional response to a change of national leadership and political agenda. The real story for investors is improving economic activity and corporate earnings. He believes there is a solid fundamental basis for this stock market rally continuing. With about 350 of the S&P 500 companies having reported fourth quarter results, aggregate sales are up 4% y/y and profits are up 5% y/y. A year ago, S&P 500 earnings were down nearly 7% y/y. 

New filings for unemployment insurance suggest the job market continue to tighten. Initial jobless claims sank last week to 234,000, which is a three-month low. And the average of new filings over the last four weeks has fallen to the lowest point since 1973. According to Bloomberg, economists are generally positive about weekly readings below 300,000. 

Meanwhile, it seems like everyone is waiting for the next shoe to drop. The American Assn. of Individual Investors’ (AAII) Bullish Sentiment survey just registered a huge drop in the percentage of investors who are bullish on stocks. The index shot up from 24% to 50% in the wake of the election, but has recently fallen back to 36%. Retail investors remain fairly cautious.

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