WALL STREET MORE OPTIMISTIC

Stocks opened mixed. The Dow is currently down 30 pts but the SPX is flat. Utilities, real estate, and communications services sectors are down somewhere between .6% and .9%. On the other hand, financial and energy sectors are up over 1%. The VIX Index jumped up to 13.5 today—still considered pretty low. Remember, the fear gauge spiked above 35 last December during the bear market correction. Investor fear, as measured by options trading activity, is near a 5-month low. Commodities are trading slightly higher today. WTI crude oil rose to $59/barrel, the highest level in 4 months. Oil has now retraced 50% of its massive plunge during the last quarter of 2018. An OPEC committee recommended deferring a decision on whether to extend current production cuts. Those cuts are what allowed oil to begin recovering in January. Bonds are mixed today, with Treasuries up slightly and corporate bonds a bit lower. The 10-year Treasury yield is hovering around 2.60%, the lowest level since January 3rd.

The Federal Reserve will hold its monthly policy meeting tomorrow and Wednesday. Investors definitely don’t expect an interest rate hike, but they will scrutinize every word of the accompanying press release for clues about any change in monetary policy. Most market participants believe we’ll see just one rate hike this year. Money manager and CNBC Contributor Sarat Sethi believes the Fed doesn’t want to raise short-term rates because they are hesitant to invert the yield curve. Indeed, the difference between the 2-year and 10-year Treasury yield is only 14 basis points (or .14%). Every professional investor knows that when short rates are higher than long rates, there’s a good chance of economic recession within 12 months.

A host of big-name investment research shops are getting more constructive on the stock market. Credit Suisse’s Jonathan Golub increased his 2019 price target on the S&P 500 Index to 3,025. That’s about 7% higher than current levels. Mr. Golub notes some positive trends including: “Less hawkish comments from the Fed, declining inflation and recession fears, and the potential for a resolution to China trade issues are the primary forces driving volatility and spreads lower, and stocks higher.” Goldman Sachs published a report asserting that the worst of the global economic weakness is now behind us. Specifically, the firm sees signs that Eurozone growth has stabilized. Graham Secker of Morgan Stanley agrees, saying that investor sentiment is overly negative and European growth is set to surprise to the upside.


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