The major stock market averages fell at the open but quickly pared losses. The Dow is currently up 33 points and the SPX is up .17%. Nine of eleven market sectors are higher in early trading, led by materials (+1%) and consumer staples (+.6%). But energy and tech sectors are down sharply. WTI crude oil plunged 4% to trade around $62.40/barrel after President Trump complained to OPEC that oil prices are too high. That’s the problem with oil—it really is the purview of traders, not investors. Price fluctuations are driven more by headlines and politics than by actual supply and demand. You get far more volatility than is warranted. Copper is down today along with China’s stock market after the Chinese government signaled less economic stimulus going forward. Bonds are faring well today as yields dip. The 10-year Treasury yield has fallen back to 2.50% from 2.60% a week ago.

Funny that bond yields are falling even as a much better than expected GDP report was released. First quarter US economic growth surprised with a 3.2% print vs. 2.3% expected. The massive gap was driven by trade: US exports rose 3.7% and imports fell 3.7%. In addition, businesses continued to invest in product inventories. Personal spending, a huge part of US economic growth, rose 1.2% vs. 1.0% expected. The report’s inflation gauge was pretty tame at 1.3%. Unfortunately, investors aren’t impressed by the report, seeing the strong growth as a one-off. Trade has been distorted by trade tariffs and the threat of trade tariffs. And as I’ve noted recently in this blog, no one wants to see economic growth driven by inventory build because that typically gets reversed in the subsequent quarter. In addition, slowing inflation doesn’t suggest stronger growth. And that’s why the bond market firmed up after the report was released.

Intel (INTC) reported mixed first quarter results this morning and the stock is down 10%. Revenue fell flat from year-ago levels and earnings-per-share grew a mere 2%. Nonetheless, earnings were a bit better than Wall Street was expecting. Unfortunately, management is taking a more cautious view of the business environment for the immediate future. CEO Bob Swan said demand for data and the need for data storage is still very strong around the world. But two temporary issues are apparent. First, Intel doesn’t have enough manufacturing capacity to supply current demand, and that should be fixed in the second half of the year. Second, Mr. Swan noted “lumpy buying patterns” for semiconductors, and said this is a “digestion period” after strong inventory builds in the recent past. Wall Street analysts are wondering whether slower economic growth in China is partly to blame. The result is that Intel’s revenue will likely be flat to down this year.

Chevron (CVX) reported a mixed quarter as well. Revenue fell short of Wall Street projections, but earnings-per-share surprised to the upside on better cost control. The downstream business (i.e. refining) was weak, but the exploration business improved with higher oil prices. The CEO noted “solid” global economic growth and said he doesn’t see signs of weakening oil demand. He projects oil production growth of 4-7% this year for the company. To be fair, investors don’t care as much about the quarterly results as they do about the Anadarko (APC) acquisition. Management is confident the deal will still close, even though Occidental (OXY) just entered a higher bid.

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