July 18, 2017

Stocks opened lower this morning (Dow -87 pts; SPX flat). Utilities, consumer discretionary sectors are in the green, but most of the rest of the landscape is trading lower. The VIX Index spiked 5% to 10.3. Commodities are up as WTI crude oil pushes higher to $46.25/barrel; copper, gold and iron ore are also higher. European markets are poised to close down 1% today but are still up 16-17% on the year. Bonds are higher as yields tick lower. The 5-year and 10-year Treasury yields are back down to 1.82% and 2.27%, respectively. 

Bank of America (BAC) and Goldman Sachs (GS) are trading down after reporting earnings. BAC’s net interest income actually declined even though the Federal Reserve raised short-term interest rates in December and March. Recall that other banks have reported stronger net interest income in the wake of rate hikes. The CEO said this was due to “transient factors,” such as the sale of the UK credit card business. But investors are clearly not impressed and the stock is down 1% today. To put a finer point on it, the bank was helped by higher Fed rates, however, falling long-term interest rates more than offset that positive effect. Goldman failed to impress as well, turning in a 1% year-over-year decline in quarterly revenue. The securities trading business fell 10% during the first half of 2017. It is true that other businesses—investment banking, lending, asset management—beat Wall Street expectations. But this is not a day on which investors are willing to give any stock the benefit of the doubt. GS is down 2%. 

Johnson & Johnson (JNJ) reported 2% y/y sales growth and 5% y/y earnings growth in the second quarter. But the real news is that management raised full-year sales & earnings guidance due to new products. This was the first quarter that included results for two new drugs: Opsumit and Tracleer. This is great news since the company’s top-selling arthritis drug Remicade is seeing declining sales in the face of generic competition. The stock is up .5% this morning. 

That Washington D.C. is an absolute mess could be weighing on the market as well. President Trump Tweeted out that Republicans should repeal ObamaCare now, even though they don’t have a viable alternative plan that will pass Congress. Bloomberg notes fresh “signs Trump’s healthcare reform bill is effectively dead in its current form, after two more Republican senators announced their opposition to the plan.” Continued political floundering is lending a “risk-off tone to markets.”  

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