September 10, 2018

The major stock market averages are mixed today (Dow -42 pts; SPX flat; Nasdaq flat). Transports (+1.5%), retailers (+.4%) and semiconductors (+.8%) are faring the best. Healthcare and gold miners are down on the day, as are emerging markets. The banks are roughly flat. The VIX Index is back down around 14 after hitting 15 last Friday. European stock markets closed in the green but most of Asia was down overnight. China’s market continues to falter, now down 23% on the year, after yet another threat by President Trump to escalate the trade war. Most commodities are lower on the day. WTI crude oil is trading at $67.57/barrel after having touched $70 a week ago. Gold is now down 8% this year & copper is off over 20%. Bonds are falling in price (rising in yield) today. The 5-year Treasury Note yield is back up around 2.82%, a one-month high. The 10-year yield is up around 2.94%, inching closer to 3%. 

The iShares Emerging Markets ETF (EEM) is down about 11% so far this year. Of course, we know that US dollar strength (+3% in 2018) tends to tamp down asset prices in the emerging world. And the dollar is likely to continue moving higher as long as the stability and growth of our economy outpaces the rest of the world. Last Friday’s jobs report gave fresh evidence of economic strength, as well as gradually accelerating inflation. And that likely means more Federal Reserve rate hikes in the future, which feeds right back into dollar strength.    

Late last week, semiconductor maker Broadcom (AVGO) reported quarterly results that surprised Wall Street. Sales were up 13% from year-ago levels and profit growth shot up over 20%. The company managed to grow free cashflow by over 50% y/y. Management’s outlook for this quarter’s sales is slightly higher than analysts’ were projecting. Equally as important, management didn’t cite the emerging trade war as a challenge to the business in the near term. So following a 30% decline earlier this year, the stock is up about 17% so far this month. 

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