May 12, 2017

The major stock market averages gapped down at the open but quickly turned around. At the moment, the Dow is down 14 pts and the SPX is off .13%. Tech, telecom and utilities are the only sectors in the green. The VIX Index is trading up again, now around 10.7, and VIX June futures are up around 12.5. The dollar is down .45% today (and down 3% so far this year), but that’s not helping oil. WTI crude oil is trading down to $47.50/barrel. Bonds are rising again in price, falling in yield. The 5-year Treasury note is trading at 1.86% and the 10-year note is at 2.34%. The 10-year, by the way, has been trading in a range of 2.20% to 2.60% for the past six months. It really seems like the stock market is treading water, waiting for oil and rates to turn around and move up.  

Retail sales disappointed economists, rising .4% in April from prior month levels vs. the .6% gain forecast. On a year-over-year basis, retail sales decelerated a bit to 4.5% growth from 4.8% in the prior month. Of course, that’s still a lot better than the 2-3.5% sales growth we saw in 2015 and 2016. Auto sales, which have been weak, rebounded in April and electronics/appliances/hardware continued to show strength. By the same token, department store sales remain weak. I’d classify this report as just OK. 

Clearly, US economic growth (“GDP”) was weak in the first quarter, rising only .7%. But we’re all expecting a rebound this quarter. The St. Louis Federal Reserve Bank’s GDP forecasting model (called “Nowcast”) predicts 2.8% growth for the second quarter. The Atlanta Fed’s “GDPNow” model sees a 3.6% jump in GDP. The Federal Reserve’s consensus forecast for 2017 GDP is currently 2.2%. But that’s what they always say. 

General Electric (GE) stock is down 2.5% today after Deutsche Bank downgraded the stock to “sell.” The firm says its research suggests GE’s cashflow is not healthy enough to continue the current dividend and stock buy-back program over the long term. In addition, it believes the unfunded pension liability could also reduce cashflow. Deutsche concludes there is a good chance the dividend is cut and earnings guidance is reduced. The stock hasn’t done well this year (down 11%) and has now given up all the price appreciation gained since the presidential election. It is essentially flat over the last two years. 

CNBC picked up on a report from eHealth which details the dark side of ObamaCare. The bottom line: if you’re receiving government subsidies for your health insurance, the inflation rate on your policy premium is probably fairly low. But if you’re not receiving subsidies, premium (and deductible) inflation is skyrocketing. Since 2014, “the average premiums for individual coverage have jumped 39%” and premiums for family plans are up 49%. (By the way, government reports claiming that ObamaCare reduced healthcare costs conveniently leave out the cost of health insurance.) Here’s what the CEO of eHealth has to say about many of those who don’t receive subsidies: “And they’re not being subsidized, yet they are subsidizing others, and they’re being priced out of the market.” The eHealth report is clear that “double-digit prices hikes” are likely for health plans in the future. 

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