September 25, 2018

Stocks opened mixed this morning. The Dow is currently up 27 pts and the SPX is flat. The Nasdaq is up .2%. Biotechs and energy-related stocks are leading the way. REITs are bouncing back from yesterday’s rout. On the other hand, a back-up in interest rates is causing the utilities sector to fall 1%. European stock markets are poised to close modestly higher today, but most of Asia was down overnight. China’s Shanghai Composite Index has recovered a bit over the last week, but remains 20% lower than where it began the year. Pretty much alone in the world, China is experiencing its own bear market. Most of the commodity complex is trading higher. WTI crude oil is up modestly to trade at $72.29/barrel. Copper is up about 7% so far this month after having taken a beating in June/July. Copper tends to trade with the Chinese stock market.

Bonds are trading slightly lower today. The 5-year Treasury yield ticked up to 2.98% and the 10-year yield is up around 3.10% for the first time since May. Both rates are the at top end of their trading range this year. The yield curve is still pretty flat but hasn’t yet inverted. That is, the difference between the 2-year and 10-year Treasury yields is hovering around .25%. A month ago, that gap had fallen to .19%. Stock market bulls would like to see that gap widen out a bit more.

Everyone would like to know why US stocks are shrugging off the emerging trade war with China. This morning on CNBC Art Hogan (an equity strategist) said, “If we didn’t have a 3% GDP growth rate…the market would have a much larger reaction.” In other words, there is just too much strength in the economy to panic and run for the exits.

US home price growth has finally begun to slow. The S&P Case-Shiller Home Price Index for the 20 largest metro areas rose 5.9% from year-ago levels in July. Earlier this year, home prices are rising at a nearly 7% clip. Home prices have been steadily accelerating, resulting in lower affordability levels. At the same time, mortgage rates has risen. So over the last few months we’ve seen a bit of a slowdown in home sales. Of course, a very strong job market is supporting housing demand. But home prices can’t outpace wage growth forever.

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