April 19, 2018

Stocks opened lower this morning (Dow -52 pts; SPX -.5%). The consumer staples sector is absolutely tanking, down 3%. Tech, materials and real estate are also down over 1%. The standout today is the financial sector, up 1% on rising interest rates. WTI crude oil is trading up yet again, now eclipsing $69/barrel for the first time since Nov. 2014. The move is partly contrived: Reuters is reporting Saudi officials want to push oil prices back up to $100/barrel. It is not clear, obviously, how supply-demand dynamics would support that. But if Bonds are trading lower as yields resume their march higher. In a somewhat surprising move, the 10-year Treasury yield jumped to 2.91% this morning, a 2-month high. 

Economic news continues to positive. According to the Labor Department, new filings for unemployment insurance fell to 232,000 last week. The total number of continuing unemployment insurance claims fell to 1.86 million. So that’s a multi-decade low. Bloomberg says the report “provides compelling evidence that there is no material degradation in the health of the labor market…” Economists generally expect the unemployment rate to fell below 4% within the next few months. Separately, the Index of Leading US Economic Indicators (LEI) rose .3% in March from prior month levels. On a year-over-year basis, LEI is up a very strong 6.2%. This is a forward-looking indicator that tries to predict economic conditions six months from now. 

Goldman Sachs (GS) CEO Lloyd Blankfein remains optimistic despite the recent stock market correction and negative geopolitical headlines. “If you divorced yourself from a general  feeling of anxiety and just look at the facts and the numbers, what you can measure, you’d say things look awfully good. And it feels like awfully good in a way that there could be a bit of a runway here.” 

Procter & Gamble (PG) narrowly beat Wall Street forecasts when it reported first quarter results this morning. But the stock continued to sell off anyway. Both revenue and earnings-per-share rose 4% from year-ago levels. That’s just not strong enough growth. And stripping out the impact of currency fluctuation and acquisitions, revenue actually fell 1%. The company is presumably seeing cost pressure but is having a tough time passing that along to consumer in the form of price increases. The US market is tough, and management knows it must increase exposure to foreign markets. Today, PG announced a deal to buy the consumer products division of Merck (MRK) for $4.2bil. That should help. And despite the disappointing quarter, management maintained its guidance for 6-8% earnings growth and 2-3% organic revenue growth this year. The stock is down 3% at the moment.

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