September 20, 2018

The major stock market averages gapped up again at the open. The Dow is currently up 240 pts and the SPX is up .68%. Ten of eleven sectors are in the green, led by tech (+1%), materials (+1%) and consumer staples (+1%). Only energy is stalling. The VIX Index just fell back under 12 despite the fact that we’ve had no good news on the trade war front. European stock markets are poised to close up nearly 1%. Asia was mixed overnight. The dollar is falling against a basket of foreign currencies and that’s allowing emerging markets equities to continue yesterday’s rally. Commodities are mixed today. WTI crude oil is unchanged at $70.95/barrel. Copper and gold are also flat on the session. Bonds are mixed after a 3-week selloff. The 5-year Treasury yield ticked up to 2.95% today. The 10-year yield is unchanged at 3.06%. Junk bonds have been performing better than Treasuries or investment grade corporates all year, and today is no exception.

Samsung Electronics plans to cut production of memory semiconductors because chip prices are falling. Samsung is the world’s leading producer of NAND and DRAM chips, which go into just about every kind of consumer electronics device. Apparently, demand is expected to slow and yet inventories are building up in the supply chain. We’ve seen weakness in semiconductor stocks lately. Over the past six months, the Philadelphia Semiconductor Index (SOX) is flat vs. the S&P 500 Index +8.8%. Micron (MU), another memory chip maker, is down 30% from its May peak.

We got a raft of economic data today. The Index of US Leading Indicators (LEI) rose .4% in August from prior month levels. Economists were expecting a larger .5% gain. But I’d point out that LEI is 6.4% higher than it was a year ago, and that growth rate is at the top end of the 5-year range. So I don’t view this as a disappointment. Existing home sales were unchanged in August from prior month levels. The total volume of existing home sales held steady at 5.34 million units, which is back down to levels last seen in mid-2016. Economists were expecting a stronger tally. The absolute level of activity in the housing market is healthy, but clearly momentum is fading somewhat. Initial filings for unemployment insurance dipped last week to a level not seen since 1969. And the total number of those collecting unemployment insurance dropped to 1.65 million, a level not seen since the early 1970s. The labor market is very tight.

Disney’s (DIS) new ESPN+ streaming service just achieved 1 million paid subscribers. The 5-month-old service costs $5/month is significantly different from the cable version of ESPN, offering Little League and an expanded lineup of college sports. This is considered a positive first step for Disney as it shifts away from cable media and toward streaming services. The stock is flat so far this year.

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