January 11, 2018

Stocks gapped up at the open (Dow +150 pts; SPX +.5%). Energy stocks are surging ahead 2.2% in early trading, with industrials, consumer discretionary and materials up about 1%. On the other hand, real estate & utilities are down. And of course, this is the recent trend, driven by rising interest rates and improving growth expectations. The dollar is weaker today and commodities are up a bit. WTI crude oil is up the most, 1.6%, to trade around $64.58/barrel. Again, don’t miss the fact that oil has broken out to the upside. Bonds, which have been very shaky, are holding steady today. The 5-year Treasury yield is hovering around 2.33% and the 10-year Treasury yield is at 2.55%. The next level of significant resistance is 2.63%. 

Earnings season is upon us, and a few big banks are scheduled to report fourth quarter results tomorrow. According to Zacks, S&P 500 companies are expected to report 8.8% y/y earnings growth on 6.9% revenue growth. Earnings growth is widely expected to be positive for most sectors. The tech sector is predicted to post 14% earnings growth and the energy sector should achieve nearly 175% growth in profits. However, certain groups like consumer discretionary, conglomerates (think GE) and transportation are expected to post negative growth. The financial sector is not scoring high in terms of projected growth, but with interest rates rising the sector’s profitability will surely increase. 

The Producer Price Index (PPI) decelerated in December to 2.6% y/y growth, from 3.1% in the prior month. In other words, wholesale price inflation in the US remains subdued. PPI excluding the more volatile food & energy categories edged down to 2.3% growth compared with year-ago levels. These figures corroborate slower inflation data out of the Import/Export Price Index report yesterday. And economists are thinking it suggests lower Consumer Price Index (CPI) data tomorrow. This could be why interest rates edged lower today. 

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