May 19, 2017

The major stock market averages opened sharply higher again today. The Dow is currently up 91 pts and the SPX is up .7%. Cyclical sectors are surging (industrials +1.24%, energy +1.1%, financials +1.1%, materials +1.1%). The VIX is back down to 12. European markets closed up about .5% and Asian was mostly positive overnight. The dollar is a bit weaker against a basket of foreign currencies, and has been trending lower all year. Commodities are broadly higher today. WTI crude oil has made its way back to $50/barrel today after having fallen below $46 a couple of weeks ago. That’s good for stocks. Bonds are a bit lower in price, higher in yield this morning. The 10-year Treasury yield ticked up to 2.25%, and that means it has gone nowhere over the past 12 months. I don’t mean to suggest a lack of volatility, though. US interest rates have shown massive volatility over the last year. It’s just that we haven’t seen a sustained up-trend in rates that many predicted.   

David Kelly of JP Morgan Asset Management, in a CNBC interview, says the Trump political agenda will not likely come to fruition in its proposed form. But he thinks that’s ok. “This is a full employment economy. It makes no sense to push massive fiscal stimulus into a full employment economy.” A toned down version [of the president’s tax reform and stimulus] might be better for markets.”

Footlocker (FL) missed Wall Street expectations when it reported first quarter results today. Same-store-sales rose .5% compared to analyst forecasts closer to 1.4%. Management acknowledged sales fell short of its own expectations, and blamed delayed tax returns for particularly bad results in February. By the way, fellow retailers Wal-Mart, Ross Stores and L Brands said the same thing. Unfortunately, sales in March and April did not bounce back much. The stock is down 14% this morning. 

Bloomberg ran an article today about a synchronized global expansion in corporate earnings. According to Bloomberg, S&P 500 earnings grew 16.5% year-over-year in the first quarter. European earnings were up 14%. In both regions, about 70% of companies are beating analysts’ profit forecasts. Citigroup says 2017 “is on track to be the first year since 2010 when all major regions should be posting earnings growth.” The MSCI All-Country World Index earnings estimate has risen sharply since the end of 2016, with global corporate profit dollars back up to 2014 levels. 
 


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