February 8, 2018

Stocks opened lower again this morning, but we could easily close up…who knows. The Dow and SPX are currently down 412 pts and 1.29%, respectively. Cyclical sectors—consumer discretion, financials, industrials, tech—are leading to the downside. Only real estate and utilities are in the green at the moment. The VIX Index, which spiked to 37 on Monday, is trading back down to 27. VIX March futures are trading at 21, suggesting that stock volatility is expected to drop a bit over the next couple of months. While Asia closed up overnight, European markets are down between 1% and 2%. WTI crude oil is down again, trading at $61/barrel on a couple of reports suggesting higher crude stockpiles and output. Bonds are selling off as yields tick higher. The 5-year and 10-year Treasury yields are up around 2.58% and 2.86%, respectively. The for the 10-year, the next level of resistance is around 3%. 

Lee Cooperman of Omega Advisors was interviewed on CNBC yesterday. Previously, he predicted the S&P 500’s 2018 return would be somewhere between +10% and -15%. He now says the stock market no longer has 15% downside because of the economy and corporate earnings, which are better than he anticipated. His new return range is +10% to -10%. Overall, “The market outlook is OK” and stocks are not in a bubble. He believes the Federal Reserve is still hesitant to end the party and won’t be aggressive with rate hikes. Besides, the “market has room for rates to rise”; they’re still at very low levels. And he reminds us that inflation—which is finally on the rise—is historically positive for stock prices. In addition, he says there doesn’t seem to be a good chance of economic recession in the near future. Finally, Mr. Cooperman actually views the recent stock selloff as a good thing. “Breaking the complacency” is a positive because it resets stock valuations to lower levels and reminds investors to act prudently. Remember, the more hype about Bitcoin and leveraged volatility ETNs, the more wrath we’re storing up for ourselves in the future. Those products are the opposite of prudence. 

Congress has until midnight tonight to reach a deal averting another government shutdown. The Senate yesterday announced a bipartisan agreement on a new spending bill, and they must vote on it today. The bill will then be forwarded to the House of Representatives for another vote.  

Analysts at Bank of America are telling clients to “hide out” in Apple (AAPL) while the stock market is choppy. And in general, the firm likes investing in large-cap companies with strong balance sheets (low debt and lots of cash) and good growth prospects. Doesn’t everyone? 
 


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