Stocks opened pretty flat this morning, waiting for the flood of earnings announcements scheduled this week. Today, the Dow is flat and the SPX is up .2%. The financial sector jumped 1.3% in early trading in reaction to rising interest rates (see below). The communications services sector is up .6% on a pop in telecom stocks. On the other hand, utilities and REITs—which are sensitive to interest rates—are down .5% to .7% today. Commodities are trading mostly lower. Copper plunged more than 5%--a big move for one day. We’ve heard that Chinese authorities are pulling back on economic stimulus, believing they’ve succeeded in stabilizing their economy. WTI crude oil is flat at $63.30/barrel. Bonds are selling off, especially at the long end. The 10-year US Treasury yield backed up to 2.53%. But the big news on the interest rate front is a surprise steepening of the yield curve. You may recall I’ve flagged the flat yield curve as a potential problem for the market and economy. The difference between short-term and long-term interest rates has been very small, suggesting slowing economic growth. Specifically, the difference between the 2-year and 10-year Treasury yields has been in the range of just .10% to .20% for about five months now. But late last week the gap started to widen, breaking out of that range. This could be good news and it bears watching.
I should probably point out that the SPX achieved a record all-time closing high on Friday. Stocks have generally performed very well this year, but that doesn’t mean volatility is a thing of the past. CNBC’s Sarah Eisen said it best: “You better be in the right stocks this earnings season. Because if you’re not, you get punished really hard.” It’s not out of the ordinary for a stock to plunge 10% (i.e. Intel) when management issues weak earnings guidance.
March’s Personal Income & Spending report is modestly encouraging, revealing a bump in consumer spending. On a month-over-month basis, consumer spending jumped a better than expected .9%. On a year-over-year basis spending has improved to a 3% growth rate (from 2% in December). So things on the demand side are moving in the right direction, suggesting consumers are bouncing back from a rough winter. Results weren’t great, however, on the income side. Personal Incomes posted a weak month, rising only .1% from prior month levels. But this seems to be due to a drop in the farming sector (which Bloomberg described as “fallout from the trade war”). Stripping that out, incomes rose 4.2% from year-ago levels—a decent rate of growth. Finally, core retail price inflation (“core PCE”) was pretty weak, rising only 1.6% from year-ago levels. So inflation is still very tame and should keep the Federal Reserve on the sidelines.