March 22, 2017

Stocks opened mixed after yesterday’s selloff. At the moment, the Dow is down 27 pts and the SPX is up .1%. The Nasdaq is up .25%. Biotechs, semiconductors and transports are bouncing back. But utilities are also higher and that suggests investors are looking to position a little more defensively for the near-term. The VIX Index, which jumped to 12.5 yesterday, is back down to 12. VIX April futures are trading at 13.6. So traders are clearly not panicking in the wake of yesterday’s surprise dip. The dollar (and most commodities) are a little weaker this morning. WTI crude is down 1% to $47.70/barrel and we’re hearing constant chatter about rising US oil production, which will add to global over-supply. Bonds are up modestly in price, down in yield. The 5- and 10-year Treasury yields ticked down to 1.94% and 2.40%, respectively. 

Famed bond fund manager Jeff Gundlach was interviewed on CNBC this morning. He acknowledged, “Risk is starting to get risky.” We’re starting to see some “tired action” in junk bonds and stocks. But crucially, he doesn’t see any indicators of a coming recession. So it’s hard to be negative on the stock market. Stocks will “continue to grind higher.” Mr. Gundlach acknowledged US economic growth (GDP) will likely come in weak for the first quarter of 2017. But, he says, GDP has been “weirdly seasonally weak” in recent years, so investors will shrug it off. Other economic data are positive.  

US existing home sales softened a little bit in February from prior month levels. The volume of transactions fell to 5.48 million annualized units. But that’s still a lot higher than the 5.2 million units a year ago. Housing continues to improve in most areas, but a scarcity of homes for sale—as well as higher prices—is clearly restraining transaction growth. In February, first-time buyers accounted for 32% of total transactions, in line with the recent trend. The median price of an existing home (nationwide) is up to $228,000. 

Sears (SHLD) is down 13% this morning after acknowledging in its annual report “substantial doubt” about its future survival as a company. Sears has been around 131 years, but the US retail landscape is increasingly competitive. Sales fell 11% last year and are expected to fall another 18% this year. Bankruptcy appears to be around the corner. In the meantime, other companies are picking through the wreckage. Stanly Black & Decker (SWK) announced it will buy Sears’ Craftsman brand for $900mil. 

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