Stocks opened lower today but are clawing back (Dow -63 pts; SPX -.16%). The energy sector is leading to the downside (-1.6%), along with biotechs (-1.4%). Defensives—utilities, consumer staples—are faring better. The VIX Index, down under 15, is suggesting low volatility over the next 30 days, despite the US-China trade deadline in March. The dollar is a bit stronger today and commodities are trading mostly lower. WTI crude oil is down around $56.80/barrel. Copper and iron ore are also in the red. The flavor of the day is clearly risk-off. However, the bond market is down as well. Long-term Treasury bonds, which usually trade inverse to stocks, are down nearly 1% today. The 10-year Treasury note yield shot up to 2.69%.

The Federal Reserve released its January meeting minutes, revealing that they’re incrementally dovish. Most FOMC members agreed on ending automatic balance sheet runoff sometime this year. As a reminder, after the Financial Crisis the Fed began buying huge amounts of bonds to keep interest rates low and stimulate the economy. As part of its strategy to gradually end stimulus and reduce its bloated balance sheet, the Fed is now allowing $50bil of bonds to simply mature each month without reinvesting. Recently, however, investors have been critical of this policy, saying that runoff is akin to stealth interest rate hikes, and the economy might not be able to handle it. The Fed seems to agree. As for interest rate hikes, the FOMC seems comfortable pausing until the economy improves or risks (i.e. trade war) diminish.

Fourth quarter earnings season is largely complete. According to Bloomberg, 420 of the S&P 500 companies have reported results, achieving an aggregate 6.3% sales growth and 11% earnings-per-share growth. About 59% of those companies beat Wall Street sales forecasts, and about 71% beat earnings expectations. So we can close the books on 2018, when Corporate America posted stratospheric 23% earnings growth. Unfortunately, growth is now expected to slow to between 2.5% and 5% this year. Key to whether the stock can continue to move higher this year is the question of earnings growth.

US business investment—or “capital spending”—improved a bit in December, and that should give investors a little sigh of relief. New orders for capital good (excluding defense equipment & aircraft) accelerated to 6.4% y/y growth. This is not at all the impression you will get from reading headlines this morning. CNBC’s take is that corporate capital spending has been weak since the summer. Bloomberg’s take is that while December’s number were better, don’t expect it to last. And it is true that capex growth has decelerated over the past year as trade war concerns and the reality of slowing global economic growth crept in. It is also true that tax reform didn’t provide a semi-permanent boost to capex, as might have been hoped. But I’ll point out that 6.4% growth is pretty healthy. Remember, capex didn’t really grow at all from 2013 through 2016.

The US Index of Leading Indicators—a key forward-looking gauge on the economy—fell more than expected in January. The index, which improved quite a bit over the last couple of year, has flattened out since last fall. The last time that happened was during the economic slowdown in 2015 & early 2016. The major news outlets aren’t saying much about this today, but investors are watching it carefully.

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