April 18, 2018

Stocks opened mixed this morning (Dow +21 pts; SPX +.4%). Energy, industrials and materials sectors are up over 1% in early trading. Tech, telecom and consumer staples are trading lower. (Year-to-date, the worst performing sectors are telecom, staples, real estate and utilities.) The VIX Index is up a bit to trade around 16.4. European markets will close up about .5% today and Asia was mostly higher overnight. 

Commodity prices are in a steady up-trend, indicating the global economy is fairly strong. The other side of the coin, however, is higher wholesale inflation. Deutsche Bank’s chief international economist says inflation is the “mother of all risks” to investments going forward. Today, WTI crude oil is up 2%+ to trade at $68/barrel, a fresh 3-year high. Lumber prices are at all-time highs. Copper has clawed its way back near 5-year highs. Bonds are trading down a bit today. The 5-year Treasury note yield (2.72%) just broke out to a fresh 8-year high. I suppose there is some creeping inflation in that move, but mostly it’s up because of tightening monetary policy. On the other hand, the 10-year yield at 2.84%, isn’t rising as fast. And longer-term bonds are usually most responsible for baking in inflation expectations.  

Morgan Stanley (MS) reported much better than expected first quarter results this morning. Revenue rose 14% from year-ago levels and earnings-per-share shot up over 40%. The firm’s equity trading business posted a 30% increase in revenue and the fixed income/commodities/currency trading unit posted 12% growth. Wealth management, a key differentiator for Morgan Stanley, achieved 21% revenue growth. The stock is up 1.7% at the moment. One would expect more given the magnitude of the beat. But it is true that Goldman Sachs (GS) and Bank of America (BAC) also reported strong quarters and subsequently watched their stocks fall. 

IBM reported 5% revenue growth in the first quarter and while that’s the highest rate of growth in years, investors were left unconvinced that the company is making solid progress re-inventing itself. Most of that revenue growth was due to the weaker dollar, not improving demand for its products. In addition, management guided 2018 earnings down a bit, disappointing analysts. The stock is down 7% at the moment. 

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