January 18, 2018

Stocks opened lower this morning on weaker than expected housing starts (Dow -98 pts; SPX flat). Defensives (real estate, utilities, consumer staples) are getting hit as interest rates head higher. For some reason we’ve seen telecom de-couple from that group day-to-day. But year-to-date the defensives are definitely underperforming the cyclicals. At the moment, semiconductors and retailers are in the green. Bonds are tanking today with yields higher. The 5-year and 10-year Treasury yields are up around 2.41% and 2.61%, respectively. So those rates are nearly on top of one another. As I mentioned yesterday, the next resistance level for the 10-year is 2.63%, and it looks like that level will be broken in short order. 

Earnings season is in full swing. Here’s a look at some high profile company reports today:

Morgan Stanley (MS) reported revenue growth of 5.3% y/y and earnings per share growth of 10%. Both metrics were modestly higher than the consensus Wall Street forecast. Just as with the other big banks, MS reported weaker revenue from securities trading. But this was offset by stronger performance in the wealth management (up 10%) and investment banking divisions. The stock initially reacted negatively to the announcement, but quickly turned around (+.3%). 

BB&T (BBT) also reported revenue (up 5% y/y) and earnings (up 15% y/y) slightly above expectations. The bank’s fourth quarter net interest margin rose to 3.43%, so profitability is getting better. Management expects loan growth in the first quarter to be 1-3% higher than last quarter, and also said it expects “strong” revenue growth this year. The stock is up .7% this morning and up 7.7% so far this year. 

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