February 5, 2018

Stocks gapped down at the open following Friday’s dip. The SPX is currently down .8% and the Dow is down 250 pts. Energy, Financials, Consumer Staples and Healthcare sectors are down more than 1% in early trading. Only Utilities are trading modestly higher. The SPX is now down 4.7% from its all-time high back on Jan. 26th. So this is not yet a “correction,” typically defined as a 10% decline. The VIX Index is up around 18 and VIX March futures are trading down around 15, so that suggests we’re approaching the bottom a short-term market pullback. Commodities are mixed. Copper and gold are trading higher—gold is now up 2.5% on the year). WTI crude oil is trading down 1.8% to $64.28/barrel. 

Bonds are mostly unchanged as the fixed income market digests the recent spike in interest rates. The 5- and 10-year Treasury yields are up around 2.60% and 2.84%, respectively. We talk about the shape of the yield curve, and specifically the difference between short-term and long-term rates. The 2-year, 10-year spread jumped up to 72 basis points recently, which means the yield curved is steepening. That should make stock market investors feel better. My conclusion is that stronger economic growth is beginning to generate higher inflation. 

CNBC’s Bob Pisani noted that despite a choppy stock market, we’ve got an “almost perfect macroeconomic environment.” Today, we learned that ISM’s Non-Manufacturing Index surged to 59.9 last month. That’s the highest level in at least 10 years, suggesting service sector businesses are gaining momentum. In addition, ISM’s Manufacturing Index at 59.1 speaks of accelerating factory orders. The flip side of higher growth expectations, however, is rising inflation. In the manufacturing survey, prices paid for wages and raw materials hit their highest level since 2011. 

Bloomberg reports US credit card issuers are prohibiting Bitcoin purchases on their cards. JP Morgan, Bank of America, and now Lloyd’s Banking Group say they need to protect their customers (from themselves). The Bitcoin Investment Trust ETF (GBTC) is down 72% from its December peak. 

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