April 26, 2018

Stocks gapped up at the open as investors reacted to better earnings announcements and economic data. The Dow is currently up 147 pts and the SPX is up .65%. Tech, biotech and retailers are leading the way after strong first quarter reports from Facebook (FB), Abbvie (ABBV), and Visa (V). The VIX Index is trading down around 17 and VIX May futures are trading exactly in line. So traders aren’t anticipating any blow-ups over the next month. WTI crude oil is down slightly to trade around $68/barrel. Higher oil prices boosted first quarter profits for Royal Dutch Shell, and traders are getting much more positive on the energy sector. Bonds are taking a breather after selling off hard over the last couple of weeks. While the stock market is roughly flat year-to-date, bonds are down across the board. Long-term Treasuries (iShares 20+ Year Treasury Bond ETF) are down 6.6% on a total return basis. Junk bonds (SPDR High Yield Bond ETF) are down 1.1%. Intermediate high-grade corporate bonds (iShares IG Corporate Bond ETF) are down 4.5%. That’s what happens when interest rates reset to a higher level. 

Initial filings for unemployment insurance declined yet again last week to 209,000. That’s the lowest weekly level not only since the last recession, but also going back multiple decades. Continuing unemployment insurance claims also continue to drift lower and are now around levels not seen since the early ‘70s. Clearly, the labor market remains very tight. 

Durable goods orders shot up a better than expected 2.6% in March from prior month levels. And February orders were revised up to 3.5% growth. Unfortunately, most of the unexpected strength was driven by a temporary surge in aircraft orders. Month-to-month data are obviously prone to noise, and economists looking to gauge underlying health in business investment prefer to look at year-over-year growth in capital goods orders excluding defense equipment and aircraft. On this basis orders are up 5.5%, suggesting “improving conditions in the factory sector and an ongoing pickup in business capital spending over the course of this year,” according to Bloomberg.

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