March 24, 2017

Stocks opened higher but just gave way ( Dow -22 pts; SPX flat). Semiconductors are bouncing back (+1%). Biotechs and utilities are trading higher as well. But it’s been a tough week for stocks, with the SPX down about 1% and small-caps down 2%. The VIX Index is trading down around 12.4—still very low. The dollar is flat today (around 15-month lows) and commodities are mixed. WTI crude oil is up modestly to trade around $47.80/barrel. Bonds are trading higher as well as yields tick lower. The 5- and 10-year Treasury yields are currently trading at 1.94% and 2.40%, respectively. Lower yields in the past couple of weeks suggest pessimism about President Trump’s approach to repealing and replacing ObamaCare. The vote on the GOP health bill will take place today, and Bloomberg just forecast that it WILL PASS. 

Earlier this week, CNBC Contributor Jim Cramer said the longer term rally is still intact but could pause for a while due to politics. Investors are nervous about whether Mr. Trump’s pro-growth agenda—specifically the GOP health bill—is in trouble. But, Mr. Cramer says, we shouldn’t ignore the fact that corporate earnings are improving. Don’t ignore fact to focus on fear. He reminds us that “It’s the fortunes of individual companies that determine the long-term direction of the stock market.” Temporarily, a fear narrative is in control, but it won’t always be that way. But for all the hand-wringing, the stock market was down 1% last week. CNBC Contributor Josh Brown says, “It’s like an alternate universe because with all this consternation, it’s not affecting your portfolio.” 

Durable goods orders came in stronger than expected  last month. Business orders for equipment meant to last more than 3 years rose 1.7% in February following an upwardly revised 2.3% gain in the prior month. But digging into the details, the picture is more mixed. That’s because much of the strength in orders has been focused on commercial aircraft orders. Excluding defense equipment and aircraft, orders declined slightly in the month, and on a year-over-year basis orders are flat. 

The Atlanta Federal Reserve’s forecast for first quarter economic growth (“gross domestic product”) is very low—just 1.0%. This closely-watched gauge of growth expects strong consumer spending (+.99%), nonresidential equipment investment (+.42%), and residential investment (+.51%). Unfortunately, GDP is being held down by a lack of government spending (-.05%), weak net exports (-.49%) and soft business inventory investment (-.76%). By the way, other Wall Street forecasts are looking for first quarter GDP closer to 1.5%. Both forecasts are rather weak but as I’ve said before, investors have noticed a pattern of very weak GDP in the first quarter over the last several years. That’s why this news isn’t spooking the market. 

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