May 11, 2017

Stocks opened lower this morning (Dow -123 pts; SPX -.6%). Ten of eleven sectors are in the red, led by real estate, materials and consumer discretionary sectors. It does look like a pretty typical risk-off day. Small-caps, retailers, biotechs and transports are all down at least .6%. Gold miners are up over 2% and energy stocks are about flat. The VIX Index is trading back up toward 11. Believe it or not, oil prices continue to recover. WTI crude oil is trading just shy of $48/barrel this morning. The Bloomberg Commodity Index is up .3% today but still down 5% on the year. Bonds are trading slightly higher. The 5-year Treasury yield ticked down to 1.92% and the 10-year is trading at 2.40%. 

Macy’s (M) missed first quarter earnings expectations and the stock is down 13%. Same-store-sales fell 5.2% and have been declining for nine straight quarters. Management noted consumer traffic is shifting to online rather than brick-and-mortar. Kohls (KSS) also reported declining same-store-sales (-2.7%) but said business got better as the quarter progressed. KSS is down 5% this morning. 

Wells Fargo (WFC) is hosting an analyst day and the stock is down over 2.5%. Management said loan growth is slowing and profitability won’t be as high as it was in the past. Sales growth guidance for 2018 is now just 1%. New cost-cutting initiatives were announced, essentially doubling previous targets. Wells has paid about $450mil to deal with last summer’s bogus account opening scandal. In response, the company is reorganizing its retail banking operation.

The Producer Price Index (PPI), which measures wholesale price inflation, accelerated to 2.5% y/y growth in April. That’s the highest y/y rate of price increases since February 2012 and it took economists by surprise. Price gains were pretty broadbased. Even excluding the more volatile food & energy categories, PPI still rose 1.9%. Inflation accelerated for computers, cigarettes, hotel rooms, gasoline, food, and even financial advice. This report will likely convince the Federal Reserve that core inflation is accelerating toward their 2% target and that further rate hikes will be necessary this year. 

Kinder Morgan (KMI), a widely owned natural gas pipeline company, plans to IPO its Canadian assets on the Toronto Exchange. The new company will be called Kinder Morgan Canada Ltd. It is estimated to be worth C$7bil. KMI still plans to retain a majority ownership stake in the new company but will use the roughly C$1bil raised in the IPO to fund pipeline expansion projects. 

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