August 16, 2017

Stocks gapped up at the open today (Dow +59 pts; SPX +.3%). The Nasdaq is up .4%. Nine of eleven market sectors are higher, led by materials (+.7%) and consumer discretionary (+.5%). Only energy and telecom are in the red. The transports, which have really lagged this year, are up .6% today (and up over 3% in the last week). The VIX Index is back down under 12. The dollar is slightly stronger on the day, but still down over 7% so far this year against a basket of foreign currencies. That’s likely due to lower inflation. Most commodities are slightly higher; WTI crude oil is trading up .5% to $47.80/barrel. Bonds are mostly unchanged today. The 10-year Treasury yield is hovering around 2.26%. 

Federal Reserve Bank of Atlanta President Raphael Bostic was interviewed on CNBC this morning. He is not focused on President Trump’s 3% GDP growth target as a panacea to the economy. “What I want…is businesses making investments to try to improve productivity and output.” That is what has been missing in this recovery. “…the Great Recession was so deep and it scarred people so significantly that they are reluctant to trust in long-term investments.” 

Target (TGT) actually beat analyst forecasts for both revenue and earnings during the second quarter. The company reported total sales growth of 2% from year-ago levels, but Wall Street expected only .8% growth. More important, same-store-sales growth rose to 1.3% vs. .7% expected. Improvements to the company’s website helped grow online sales by 32%. The stock is up 2.7% this morning. 

Housing starts—ground-breaking on new construction projects—fell 4.8% in July to an annualized rate of 1.15 million units. Single-family home starts are holding steady at about 856,000 annual units and that’s a lot better than year-ago levels. And building permits for new developments are up as well. But the multi-family side is declining fast, with starts down 34% y/y. Economists tend to fret a lot about these monthly reports, especially if they suggest any cracks in the housing market recovery. But keep two things in mind here. First, while starts are down, they’re still at the high end of the range we’ve seen since the recession. Second, just to keep up with normal population growth, annual starts need to be in the range of 1.1 to 1.5 million units. 

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