The major stock market averages opened up this morning after a beating yesterday. The Dow is currently up 55 pts and the SPX is up .23%. Most sectors are rebounding, led by energy (+.8%), tech (+.5%) and real estate (+.5%). European markets will close slightly higher and Asian markets were mostly down overnight. The dollar continues to strengthen as foreign markets soften up. One reason may be that China is devaluing its currency in order to make its exports more competitive overseas. Despite the return of volatility and uncertainty resulting from geopolitical risk, gold is still down 3% this year. WTI crude popped 1.8% to $69.30/barrel after the US State Dept. announced US companies can no longer import Iranian crude. Bonds are rising in price again as yields tick lower. The 5-year and 10-year Treasury yields are back down around 2.75% and 2.88%.
In yesterday’s session, investors registered their disgust with the Trump Administration’s continued trade protectionism threats. The VIX fear gauge jumped to 17 and the SPX ended the day down 1.3%. The tech sector fell 2.3%. The selling extended well beyond companies most vulnerable to global trade issues (i.e. industrials, materials). The volatility became an excuse for investors to lighten up on stocks (i.e. Netflix) that have run up. In a CNBC interview this morning, equity strategist Art Hogan said it best: “[Trade] is one of the policies that can certainly get economic, and it gets economic when companies don’t make decisions about…investing their capital and planning for their future. That’s our fear right now.” He said this negative effect on capital spending could end up impairing corporate earnings in the third and fourth quarters, and “earnings estimates may have to come down.”
The housing market isn’t slowing down despite the fact that mortgage rates are up around 4.4%. Yesterday we learned that new home sales rose to an annualized rate of 689,000 units. That’s the highest rate of single-family home sale transactions since November 2007. The supply of new homes on the market improved, and also the median home price fell 1.7%; those factors reportedly drove sales growth. Today, we learned that the Case-Shiller Home Price Index rose 6.4% in April from year-ago levels. That’s slightly lower than the prior month’s rate of growth, but it’s still near 3-year highs. We’d love to see some moderation in home price growth, but for the moment demand is outpacing supply.