August 14, 2017

Stocks opened higher this morning after falling nearly 1.5% last week. The Dow is up 155 points and the S&P 500 is up 1%. Secretary of State Rex Tillerson calmed tensions with North Korea by indicating the US would pursue a diplomatic solution.  All eleven major market sectors are in the green. The real estate sector is up 1.7%, financials are up 1.5% and the tech sector is up 1.4%. The VIX index is back down under 13; most international markets are trading higher. WTI crude oil is down modestly to trade around $48.20/barrel. Bonds are trading a little lower as yields inch higher. The 10 year treasury yield is hovering around 2.21%.

Japan reported second quarter economic growth of 4.0% (quarter-over-quarter, annualized). That’s not only better than expected, but also the highest economic growth in over two years. In particular, consumer spending and corporate capital spending were strong. 

The Federal Reserve is scheduled to release minutes from its last policy meeting today. Since inflation has been so subdued, it's unlikely that the Fed seriously considered another interest rate hike in the near-term. But clearly traders will be looking for details on the Fed's plan to begin selling bonds in order to reduce the size of its balance sheet.

Mike Mayo, famed bank analyst, says he is positive on the bank stocks over the long-term. He notes a recent “break-out of revenue,” as well as very strong balance sheets. And don’t forget June 28th, when the Fed announced the results of its bank stress tests. Results were very positive and the Fed is now giving banks a longer leash in terms of how they deploy capital. They are now allowed to begin returning cash to shareholders. He says bank stocks have under-performed for more than a decade but they are now poised to outperform. 

Second quarter earnings season is just about complete, with about 450 of the S&P 500 companies having reported. Aggregate year-over-year sales growth was about 5.5% and earnings growth came in at about 10%. So growth is a lot better than it was a year ago. CNBC Contributor Jim Cramer notes, “Business is so good overseas and the dollar is so weak” that US multi-national companies are reporting much better results. 

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