July 10, 2017

Stocks opened slightly higher today (Dow +11 pts; SPX +.14%). The Nasdaq is up .25% at the moment. Technology and materials sectors are leading (+.6%); gold miners are also up about .9%. Real estate and healthcare are lagging. The VIX Index is trading down around 11 following a mini-spike to 12.5 last week. European markets are poised to close up about .5% today and most are up about 15% so far this year. Oil is up 1% to trade around $44.67/barrel, but I’ll point out that oil prices fell about 4% last week. We got confirmation that US oil production continues to rise and US drillers are adding more active rigs. Total US production is back up to about 9.3 million barrels per day. Recall that the peak of 9.6 million barrels was reached back in mid-2015 as oil prices were crashing. So over-supply concerns will continue to plague the market. The bond sell-off is taking a breather. The 5-year Treasury yield ticked down to 1.92% and the 10-year yield is hovering around 2.37%. 

In a CNBC interview, David Katz of Matrix Asset Advisors said he doesn’t see an oncoming recession and cautions investors not to overlook “significant positives.” Yes, the Fed is beginning to tighten monetary policy, but interest rates are still exceptionally low. So gradual rate normalization by the Fed doesn’t have to derail the economy. Yes, this economic cycle has been very long, but it has also been very slow. Consequently, “there have not been the excesses” in spending that have caused recessions in the past. In addition, consumer and business balance sheets are in very good shape. “Short of the government doing something that derails the economy, we think that the economy still should be good for some time.” And that means corporate earnings should be strong going forward. 

Bloomberg ran an article pointing out that the next three weeks will likely determine whether the Trump Administration can push through promised tax cuts. Congress has returned for a critical three-week session and has a lot on its plate. Healthcare reform legislation is first on the agenda, then tax reform, and of course along the way they’ll consider the 2018 proposed budget. A little further out in October, congress will likely have to raise the federal debt ceiling. Needless to say, there’s a debate as to how much of this the congressional calendar can support. Differences among Republicans on how to replace ObamaCare may dominate the session and delay tax reform until next year.

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