May 24, 2017

The major stock market averages opened higher again this morning (Dow +30 pts; SPX +.1%). The best performing sectors are real estate and materials. The defensive sectors (utilities, consumer staples) are also modestly higher. The VIX Index, a common gauge of trader fear, is again languishing around 10.6 and that’s the very low end of the range we’ve seen over the past 10 years. WTI crude oil is up slightly to $51.50/barrel. OPEC kicks off its policy meeting in Vienna today and investors expect an extension of the cartel’s production freeze. Most other commodities are lower. Both iron ore and copper have faded recently, probably a nod to modestly weaker economic data out of China. Oh, also Moody’s Investor Service downgraded China’s sovereign debt to Aa3 from A1. The ratings firm cited a very rapid rise in debt throughout the Chinese economy. 

The dollar is flat today against a basket of foreign currencies, and is down about 5% year-to-date as US economic growth expectations have softened a bit. Right after the election it almost looked as though GDP growth could possibly reach 3% in 2017, but delays to the Trump policy agenda and a lull in first quarter economic data have squashed that dream for the moment. You can see that play out in bond yields, which are down on the year. The 10-year Treasury note yield jumped up to 2.6% right after the election, but have since fallen back to 2.29%. 

Foreign equity markets have fared, in many cases, better than our own this year. That is quite a change in trend and of course everyone wants to know if that will persist. Both emerging markets (iShares MSCI Emerging Markets ETF) and developed foreign markets (Vanguard FTSE Developed Markets ETF) have really struggled to post a positive return since the Financial Crisis nearly 10 years ago. Going back to the S&P 500’s peak in late 2007, the two ETFs listed above have returned -13% and +2.8%, respectively. Compare that to the S&P 500 Index at +89%. But 2017 is a completely different story with both of those ETFs well ahead of our 8% return.   

Toll Brothers (TOL) reported better than expected first quarter results yesterday. Revenue surged 22% and order for new homes rose 26%. Management cited broad-based demand, especially in California. The stock is flat after the announcement, but is up 20% so far this year. 

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