May 8, 2017

Stocks opened lower this morning despite Macron’s election victory in France yesterday. The Dow is currently off 14 points and the SPX is down .15%. Energy and tech stocks are flat, which is sort of a victory. Banks and retailers are also up modestly. But again today, we’re seeing interest rate sensitive sectors like utilities (-.5%) and real estate (-.8%) suffering. And biotechs, transports, gold miners and semiconductors are lower. European markets closed lower by about .5%, but keep in mind Europe is right around 21-month highs. Commodities are mostly lower, and WTI crude oil is flat to trade around $46.16/barrel. Both iron ore and copper, the building blocks of global growth, are down over 1.5% today. Bonds are selling off again—hence the pain in utilities & REITs. The 5-year Treasury yield has bounced back to 1.90% and the 10-year is up around 2.37%. Rates are heading higher again.

The Federal Reserve’s Labor Market Conditions Index (LMCI) improved significantly more than expected last month. In addition, the index’s initially weak readings from January, February and March have been revised sharply higher. This index measures 19 different employment indicators and is a quick way of determining the health of the job market. So this report is good news, but it is also confusing. For the past two years, economists have been concerned about unusually soft LMCI readings, which came despite the fact that job growth and unemployment seemed strong. The magnitude of today’s revisions make me think LMCI has been very misleading and may not be useful. 

First quarter earnings season is wrapping up this week. About 416 of the S&P 500 companies have reported and about 78% of those have exceeded Wall Street profit forecasts. In addition, growth is accelerating. Aggregate revenue growth is tracking to 8.7% over year-ago levels and earnings growth is up around 15%. Earnings season has been very positive. 

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