March 17, 2017

Stocks opened mixed this morning (Dow -11 pts; SPX flat). Some key groups are lower in early trading, including banks, transports, biotechs, and retailers. On the other hand, utilities, energy, telecom and materials sectors are in the green. The VIX Index is up around 11.3 (considered very low). VIX April futures are trading at 13.2, and have been trending lower this month. Commodities are mostly higher on the day. Oil is flat around $48.76/barrel. Over the past month oil prices have fallen about 8%. Bonds are mostly higher in early trading. The 5- and 10-year Treasury yields ticked down to 2.01% and 2.50%, respectively. 

So far this year, technology is the best-performing sector, up 12%. Healthcare is up 9% and consumer staples/discretion are up 7%. The worst-performing sectors are energy (-7%) and telecom (-2%). As for individual stocks, here are some names trading near their 52-week highs: Goldman Sachs (GS), Carnival (CCL), Dunkin Brands (DNKN), Visa (V), Intercontinental Exchange (ICE), Orbital ATK (OA), Jabil Circuit (JBL), Celgene (CELG), and Abobe (ADBE). 

Famed equity strategist Tom Lee discussed his favorite investment ideas for 2017 in a recent CNBC interview. He believes the best chance for a positive surprise in growth lies in these groups: financials (especially US banks), resources,  telecom, “old” tech (i.e. computers), as well as FANG. But he’s grown more cautious of late, saying we really need clarity around the modest flattening of the yield curve. “The yield curve and the stock market are really arguing with each other.” It seems like the bond market is saying we won’t get the tax breaks and fiscal stimulus investors expect from the Trump Administration. If that’s the case, corporate earnings won’t accelerate as quickly as many equity investors expect. And if the “E[arnings] isn’t coming through” and we can expect a correction.  

The US Index of Leading Economic Indicators (LEI) showed unexpected improvement in February. On a year-over-year basis, the index accelerated 3.1%. That’s the highest y/y rate of improvement since November 2015. Barron’s says, “This report is pointing to accelerating conditions for the nation’s economy over the next six months.”

US industrial production failed to grow in February from prior month levels, but that’s entirely because utilities output fell due to unseasonably warm weather across the country. The manufacturing component of the report was encouraging, with strong growth in both January and February. And capacity utilization at the nation’s factories rose to 75.6%. Factory production may at last be in recovery mode.

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