May 17, 2017

Stocks are having their worst day since March (Dow -239 pts; SPX -1%). The Nasdaq is down 1.57%. At the moment, the SPX is 1.3% off of its all-time high (set yesterday). The safe-haven plays are catching a bid (i.e. utilities, gold & gold miners, bonds). The banks are down 3% on a weaker interest rate outlook. The VIX Index shot up to 13 and VIX June futures are trading up around 13.2. So this is not panic by any means. The dollar is weaker but gold and oil are pretty much the only commodities up on the day. WTI crude oil is up around $49.37/barrel. Bonds are trading up in price. The 5-year Treasury yield is down to 1.77% and the 10-year is down to 2.24%. The 10-year looks like it wants to drop to near-term support at 2.17%. 

Yesterday, the New York Times reported former FBI Director James Comey wrote a memo detailing a conversation with President Trump in which he asked Comey to halt an investigation into former NSA advisor Michael Flynn’s questionable interactions with Russian officials. We’ve also seen reports that the FBI was investigating Mr. Trump’s ties to Russia. And we know that the president recently fired Comey. Anyway, congress is now asking the FBI for records on communications between Trump and Comey. This situation is cleary more fraught than it was a week ago, and investors are concerned that the distraction could make passage of tax reform and a fiscal spending package untenable in the near-term.  

Household debt has risen to $12.7 trillion in the US, finally eclipsing 2008 levels. Household debt includes mortgage, auto & student loans, and credit card debt. The headline may be shocking, but the fact is that loan delinquencies are way down from Financial Crisis levels for most forms of debt. That’s because for the most part, banks aren’t lending to financially unstable borrowers. Debt per capita is about $48,000 today vs. $53,000 in 2008. There are a couple of areas that bear watching, however, due to rising delinquencies. Auto loan delinquencies are up to 3.8% and student loans have been above 10% since 2012.  
 


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