July 23, 2018

Stocks are mixed in today’s trading session (Dow -14 pts; SPX +.16%). The financial sector is up over 1% on a positive move in the yield curve. Tech and healthcare sectors are also modestly higher, but most everything else is flat or down. The VIX Index is up modestly to trade around 13.5 and VIX August futures are down around 14.2. So the VIX isn’t predicting any increase in market volatility over the next 30-60 days. The Bloomberg Commodity Index is up .25% this morning, but is still down nearly 5% so far this year. WTI crude is back up around $68.60/barrel and has been trending upward over the last 12 months. But copper, gold and many agricultural commodities are down on the year. Bonds are selling off a bit today as yields head higher. The 5-year Treasury yield is back up to 2.81% and the 10-year yield is up around 2.95%. 

We’re now well into second quarter earnings season and thus far S&P 500 companies are tracking to roughly 20% year-over-year earnings growth. About 90 of those companies have reported, 92% of which exceeded Wall Street analysts’ profit expectations. Those are great numbers, but unfortunately, they don’t matter. What really matters this time is forward guidance—that is, third and fourth quarter expectations set by CEOs. It’s too early to get a good read on that, but CNBC points out today that Wall Street forecasts for the third quarter are actually coming down a bit. “The lack of more upward enthusiasm is feeding a popular narrative in the market this year, namely that US companies are reaching peak earnings and may not have much left in the tank.” That’s one of two primary concerns for investors at the moment—the other being the potential for a trade war. 

Existing home sales fell .6% in June from prior month levels, to an annualized rate of 5.38 million transactions. Headlines will point out that the annualized rate of existing home sales peaked out last November and has been trending lower since then. The Nat’l Assn. of Realtors (NAR) blames deteriorating sales momentum on a shortage of homes for sale, as well as a lack of affordability. Home prices are still rising at a 5% clip, compared with wages rising at roughly 3%. 

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