Stocks are mostly lower in early trading (Dow +23 pts; SPX -.3%; Nasdaq -.7%). The Dow briefly touched 22,000 for the first time. The energy sector is down .4% after a negative crude oil inventory report. Telecoms are down .7% after having spiked 10% in less than a month. Semiconductors (-1.2%) are giving back some recent gains as well. Utilities are modestly higher. The VIX Index is up around 10.2 and VIX August futures are trading at 11.4. So expected stock market volatility is still very much in check. Commodities are mixed but WTI crude oil is back down to $48.80/barrel. Bonds are mostly unchanged today; the 5- and 10-year Treasury yields are sitting at 1.81% and 2.25%, respectively.
The Dow transports are not participating in the stock market’s recent push to new highs. Airline stocks are down 5-10% since the end of the second quarter and analysts are expressing some concern over industry capacity—the same thing that prompted a brief correction a year ago. Truckers are seeing lower pricing and the Dow Jones Trucking Index is down 5% year-to-date. Railroad companies, which performed well in the first half of the year, are down 5-10% since then. And of course, automakers as usual are struggling. US auto sales have peaked for the cycle, although sales should be pretty healthy this year. Ford, GM and Toyota are all in the red for the year. Of course, anytime the transports fall you get a host of analysts calling for a broad market correction. But keep in mind that over the past 1-year period, the transports have outperformed the SPX by about 2 percentage points. So current weakness is probably just some natural give-back.
CNBC interviewed two heavy-weights in the investing world yesterday: economist Dave Rosenberg of Gluskin Sheff and portfolio manager Bob Doll of Nuveen. Dave, who is typically cautious on stocks, says, “Pricing in the stock market has far surpassed what earnings are doing.” He believes valuations are a constraint on future returns, that US stocks are probably fully valued and investors should start looking overseas for better valuations. Bob, usually more optimistic, acknowledges stock market valuations are not cheap, but says he’s seeing strong fundamental improvement throughout the global economy. And that has been missing since the end of the last recession. At the same time, inflation remains very low and that suggests stock valuations can remain at higher levels without causing concern. They both agree that international investing has become more attractive.
Josh Brown, portfolio manager and CNBC contributor, went on a mini rant yesterday about the many professional investors who say one thing on television but do another thing with their investments. “It’s a great trade…to come out and say ‘I’m really, really cautious here,’ but not actually do anything with your allocation. And then caveat the hell out of what you’re saying. ‘I’m not calling the top…I’m not saying this can’t go on for a while…’ As long as the headline is, ‘I’m cautious, or be nervous…’ The reason why that’s got such a great asymmetric risk-reward is because if the market continues [to rise], that fine. Your clients are still getting paid, and…no one remembers anyway. But if you’re right, you’re the guy the called your shot! ‘I told you be cautious!’”
Apple (AAPL) reported second quarter results that exceeded Wall Street estimates by a wide margin. Total revenue came in at $45.4 vs. $44.89 expected. The company sold 41 million iPhones vs. 40.7 million expected, and shipped 11.4 million iPads & 4.3 million Mac computers. Importantly, services revenue was up 22% to $7.3bil. If there was any bad news, it was that revenue from China fell 10%. Management guided revenue up to a range of $49-52bil for the third quarter. Wall Street was expecting the company to guide lower due to reported launch delays for the iPhone 8. The stock is up over 4% this morning.