The major stock market averages opened roughly unchanged this morning (Dow & SPX flat). The materials sector is leading the way (+1.4) on higher commodity prices and optimism over a potential US-China trade deal. Semiconductors and gold miners are up 1%+, energy stocks are up over .5%, and banks are up .3%. The healthcare sector is lower after CVS Health (CVS) reported quarterly results. REITs are down nearly 1% in early trading. Commodities are trading higher today. Copper and iron ore—which tend to move on China’s economic outlook—are up 12% and 26%, respectively, so far this year. WTI crude oil is back up to nearly $57/barrel. Bonds are mostly lower in price, higher in yield today. The 10-year Treasury yield is up slightly to 2.65%.

The Federal Reserve will release minutes from its Jan. 29-30 policy meeting today. As usual, the investment community will obsessively scrutinize every word in an effort to discern the future path of interest rate policy. Interviewed by Reuters, New York Federal Reserve Bank President John Williams said he is comfortable with the current level of rates, and thinks rate hikes will only be necessary if the economy inflects upward. He also says the Fed could soon reduce the rate of balance sheet roll-off. In other words, Mr. Williams is rather dovish.

CVS Health (CVS) reported fourth quarter results that modestly beat Wall Street forecasts. Revenue rose 12% from year-ago levels, and earnings-per-share rose 11%. Unfortunately, this is as far as the good news went. Management surprised investors by slashing its 2019 profit outlook due to mismanagement of the 2015 acquisition of Omnicare (OCR). CVS says it will write-down the value of that asset by $2.2bil. Omnicare provides pharmaceuticals to nursing homes, a large number of which have apparently gone bankrupt over the last several years. Omnicare is now worth about half of what CVS paid for it. No one figured on this skeleton in the closet, and it immediately made shareholders wonder how well the 2018 acquisition of Aetna (AET) is going. More and more, it seems CVS is between a rock and a hard place. Politicians are continually attacking pharmacy benefit managers, and the company is facing wage cost pressures. The stock is down 7% this morning, which is a pretty tame reaction considering the gravity of the announcement. That tells us that all the risk has been priced-in.

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