June 28, 2018

Stocks meandered aimlessly at the open (Dow flat; SPX +.15%). Telecoms are up 1.5% today after taking an 12% beating year-to-date. Tech and financials are also up about .5%. On the other hand, energy, healthcare, industrials and materials are down modestly. The VIX Index is heading back up over 18, but VIX July futures are trading down around 17. So the options market is telling us volatility will calm over the next 30 days. European stock markets will close down about 1%, reversing yesterday’s gains. Asia was mixed overnight, but China’s Shanghai Composite Index is now down 21.7% from its January high. Commodities are mixed, with oil up over 1% but gold and copper are sagging. WTI crude oil is trading over $73.70/barrel and is up 9% so far this month. Bonds are trading slightly lower as rates tick up. The 5-year and 10-year Treasury note yields are at 2.72% and 2.84%, respectively. 

The US economy grew 2.0% in the first quarter of 2018 vs. 2.2% previously estimated. The revision to growth was blamed on slightly lower consumer spending and business inventories. At the same time, the report’s inflation reading was revised higher, from 1.9% to 2.2%. That is a significant revision for inflation, which is near the top end of its 5-year range. So it’s interesting that the 10-year Treasury yield didn’t budge this morning in reaction to this report. As for economic growth, economists expect a sharp increase in the second quarter. The Atlanta Federal Reserve Bank’s “GDPNow” forecast calls for 4.45% growth.  

CVS Health (CVS), Rite-Aid (RAD) and Walgreen’s (WBA) are all down 8-10% this morning after Amazon (AMZN) announced the acquisition of PillPack, an online pharmacy. The pharmacy benefit managers (i.e. Cardinal Health & AmerisourceBergen) are down around 6%. The entire pharmaceutical supply chain is quaking with fear. Also today, Amazon announced a pilot program to lower the cost of delivering its packages. It sounds like Amazon is vertically integrating—that is, taking control of last-mile delivery. But since it’s costly to buy trucks and hire people, Amazon plans to create its own network of small delivery businesses owned by “entrepreneurs.” The headlines make it sound more fancy, but the initiative looks a little like a mashup of Uber & the fast food franchise model. Delivery companies United Parcel Service (UPS) and Federal Express (FDX) are down over 2% today.  

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