May 15, 2018

Stocks opened lower this morning. The Dow is currently down 243 pts and the SPX is down .8%. The Nasdaq is off 1%. All eleven major market sectors are in the red, led by real estate (-1.6%), healthcare (-1.3%), tech (-1.2%), and utilities (-1.1%). The only bright spots today are banks and small-caps. The VIX Index jumped up to 14.2 in early trading and VIX June futures are trading around 15.2. So there’s no real fear out there. The dollar is higher on better than expected economic data and most commodities are lower—even gold. WTI crude oil is down around $70.60/barrel. OPEC just reported that the global oversupply in oil has been virtually eliminated. Bonds are selling off as interest rates rise. The 5-year Treasury note yield is up around 2.91% and the 10-year is  trading at 3.07% for the first time since 2011. 

US retail sales decelerated a little bit in April but that was expected. On a year-over-year basis sales are up 4.7%, which is respectable. In fact, that’s near the high end of the range we’ve seen over the past 4 years. Additionally, retail sales for the two previous months were upwardly revised, so things are looking better than we previously thought. Consumer spending now looks to support a strong rebound in economic growth for the second quarter. 

Home Depot (HD) reported mixed first quarter results. Total revenue came in a bit shy of Wall Street expectations. Same-store-sales decelerated to 4.2% y/y growth, and it looks like the culprit was gardening. Excluding that category, same-store-sales were up 6.5%. Management said early spring sales have been slow and bad weather is partly to blame. The stock is down 1.6% at the moment. 

Economists at Goldman Sachs (GS) say rising federal deficit spending will lead to higher interest rates throughout the economy. They note that for the first time since WWII, the unemployment rate is falling at the same time that deficits are rising. In other words, the federal government is pushing fiscal stimulus that is unnecessary. Yes, tax reform and the proposed $1.3 trillion government spending bill are unnecessary and will “contribute to further overheating this year and next and tighter monetary policy in response.” The firm projects a 3.6% yield on the 10-year US Treasury note by the end of 2019. 

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