March 8, 2018

Stocks opened higher this morning but are fading. At the moment, the Dow is up 28 pts and the SPX is flat. The healthcare sector is leading the after a big M&A announcement (see below). Defensive sectors utilities, real estate and consumer staples are also in the green. But trading this morning can be considered a throw-away because President Trump will announce his decision on tariffs this afternoon. That event will certainly spark some volatility. The VIX Index fell below 17 earlier as traders expect less volatility over the next 30 days. The dollar is stronger and commodities are trading lower. WTI crude oil is down 1% to $60.60/barrel. Copper is now down 7.5% on the year, presumably because China’s manufacturing business activity has lost some momentum. Bonds are trading higher as yields tick lower. The 5-year and 10-year Treasury yields are back down to 2.63% and 2.85%. 

The European Central Bank (ECB) lifted its 2018 economic growth forecast today. The ECB’s governing committee noted underlying inflation in Europe is subdued, but the improved growth outlook caused the committee to drop its monetary easing bias. That is, they say more monetary stimulus is unlikely to be necessary in the near future.  

Health insurer Cigna (CI) inked a deal to acquire pharmacy benefits manager Express Scripts (ESRX) for about $54bil. The deal is likely a response to CVS Health’s (CVS) planned acquisition of Aetna (AET). Pharmacy benefits managers operate with opaque business models, are regularly bashed by politicians, and subject to intensifying competition. It’s getting harder for them to exist on a stand-alone basis. At the same time, scale is increasingly important in healthcare, and that’s why we’re seeing so much M&A activity. Cigna previously tried to buy Anthem (ANTM) but the deal was rejected by the US Justice Department. Today, Cigna’s CEO said the ESRX deal was driven by his view that “The current marketplace is not sustainable.” 

The financial news media has come alive with all sorts of threats to our financial well-being lately. President Trump threatened to impose import tariffs on steel and aluminum. The EU  threatened a trade war in retaliation. Gary Cohn threatened to quit the Trump Administration if the president pushed import tariffs. Blackrock, a huge global asset manager, threatened to change its positive view on stocks if tariffs are imposed. And for good measure, It is threatening American Outdoor Brands, maker of firearms, with exclusion from its investment funds if the company doesn’t do more to promote gun safety. Scads of hedge fund managers are threatening us with dire predictions if (actually, now that) Gary Cohn resigned. Ron Paul recently threatened certain doom for the stock market no matter what happens. This is all ridiculous, of course, but it makes exciting TV. There is a good side to it, though. We’re once again climbing the “wall of worry.”  

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