March 13, 2018

The major stock market averages gapped up after a tame inflation report, but then quickly fell back. The Dow and SPX are currently flat. Defensive sectors—utilities, telecom, consumer staples, real estate—are best-performing. Financials, energy and tech are in the red. The VIX Index is back up to nearly 16. European stock markets closed down about .5%. Commodities are mostly higher, but WTI crude oil fell back to $60.40/barrel after a report that US shale oil production is at record highs. Bonds are unchanged today. The 5-year and 10-year Treasury yields are hovering around 2.63% and 2.86%, respectively. 

President Trump unceremoniously dismissed Secretary of State Rex Tillerson today, replacing him with former CIA Director Mike Pompeo. The move is seen as a message that the US is taking a tougher stance with China. But let’s not pretend that Tillerson and the president ever got along well.  

Yesterday, I mentioned Broadcom’s (AVGO) hostile takeover attempt of Qualcomm (QCOM). Because AVGO is domiciled overseas, the Treasury Department’s Committee on Foreign Investment in the US (CFIUS) raised objections. Well, it looks like CFIUS tattled to the president, and Mr. Trump unilaterally blocked the transaction. He made it clear he would not allow it even if AVGO completes its planned domicile move back to the US. So now QCOM is seen by the US Government as a sort of “national champion” in that its technology and products are deemed critical for national security. Therefore, QCOM is now off limits for any potential acquirer, foreign or domestic.  I should also say that over the last two days, as it looked like the deal would die, AVGO’s stock shot up over 5%. That should tell you investors don’t think the deal is in AVGO’s best interests either. 

Meanwhile, shareholders of both CVS Health (CVS) and Aetna (AET) have approved the companies’ planned merger. This will be the first acquisition of a health insurer by a drug store chain, and serves as yet another notice that the entire healthcare landscape is being remade. 

The Consumer Price Index (CPI), a widely followed measure of inflation, rose 2.2% in February from year-ago levels. That’s exactly in line with economists’ consensus forecast. This report, along with Friday’s jobs report that showed wage inflation remains tame, confirm that inflation is not accelerating very quickly. This, in turn, implies that the Federal Reserve will not get more aggressive with interest rate hikes. 

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