August 22, 2017

Stocks closed higher today (Dow +196 pts; SPX +1%). All sectors, especially cyclical sectors (technology, materials, financials, and consumer discretionary), were up today except for real estate. Real estate was down .2% while technology increased 1.5%. Volatility (VIX) earlier spiked to 15.5 but today is back down under 12. CNBC attributed today’s market run to optimism surrounding progress on tax legislation by Republicans. It is noteworthy that BMO’s Chief Investment Officer noted that Congress’ attempts to move forward have been obscured in the day-to-day political noise we have been accustomed to. The dollar is stronger today. WTI crude oil is up slightly to $47.64/barrel. Bonds are trading slightly higher in yield, lower on price. The 10-year Treasury yield is back above to 2.2% after dropping to its low of 2.14% in mid-June.  July’s inflation (CPI) was at 1.7% since 2014 we have not had July inflation over that level. 

As mentioned above, notable movers today were Cisco (+1.9%), Disney (+1.6), Pfizer (+1.2%). The only down sector is represented by Toll Brothers, dropping -2.6% after announcing disappointing revenue for last quarter just before the market opened.  It is now at its early May 2017 price.

A few weeks ago, bond manager Jeff Gundlach announced a reduction in speculative bond holdings (high yield and emerging market bonds…). Bloomberg recently noted that firms representing over $1 trillion of bonds assets have also announced (afterwards) that they have reduced their own portfolio credit risk levels down as well. It is unlikely that this is due to what Ray Dalio of Bridgewater claims is a rising geopolitical risk, but the fact remains the market has been reaching for more speculative bonds to maintain their portfolio yields and pushing bond premiums beyond historical norms (i.e., creating risk).  He says no one believes the Trump Administration will be able to push through tax reform. 

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