April 13, 2017

Stocks gapped down at the open but quickly recovered. The Dow and SPX are currently flat. Financials and tech are the best-performing sectors, up .3% to .5% in early trading. Biotechs are also up nicely. On the other hand, energy, materials and utilities stocks are in the red. The VIX Index is down today to 15.5. The dollar is a bit stronger today—and by the way, President Trump said yesterday he favors a weaker dollar to strengthen our global trade position. Anyway, oil prices continue to rebound and WTI crude is currently at $53.30/barrel. So it’s strange that most oil stocks (Chevron, Schlumberger, EOG Resources) are down on the day. Most other commodities are also higher, and I’ll point out that increased geopolitical tension has driven gold up 11% so far this year. Bonds are down a bit today as yields tick higher. The 5- and 10-year Treasury yields are at 1.78% and 2.25%, respectively. The next support level for the 10-year is at 2.23%.

JP Morgan (JPM) and Wells Fargo (WFC) reported first quarter earnings this morning. JPM beat both revenue and earnings forecasts, posting 9% y/y loan growth and 11% deposit growth. It is true that net charge-offs are rising, but not sharply. Securities trading and investment banking posted better-than-expected results. CEO Jamie Dimon said US consumers are financially healthy overall. The stock is up 1.5% this morning.

WFC, on the other hand, posted quarterly revenue that fell short of analysts’ forecasts. Revenue from mortgage banking fell 23% y/y and the net interest margin from traditional banking held steady at 2.87%. Interestingly, Wells raised its lending standards for auto loans during the quarter, and saw new auto loan originations fall 29% y/y. The bank is clearly responding to concerns over rising default rates of sub-prime auto loans. There were two bright spots during the quarter: Wells’ wealth management business grew 22%, and its investment & commercial banking rose 10%. The stock is down 1% this morning and about 4.5% so far this year.

The Producer Price Index (PPI) accelerated slightly to 2.3% y/y growth in March. Economists expected to see 2.4% growth. This is a closely-watched gauge of wholesale price inflation throughout the economy. And it is rising at the fastest pace since the spring of 2012. Obviously, inflation has been heavily influenced by massive swings in energy prices over the last several years. And lately we’ve seen a rebound in both energy and food prices. If you strip out the more volatile food & energy categories, “core” PPI rose 1.6% y/y. That’s still pretty tame. The takeaway is that while inflation is rising, the pace is moderate.


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