"TINA" is back

Stocks opened mixed this morning (Dow +40 pts; SPX flat). Utilities (-.8%) and real estate (-1%) are getting hit because interest rates are up in early trading. On the other hand technology, energy and industrial sectors are in the green. Bonds are trading a bit lower as yields tick higher. The 10-year Treasury yield is hovering around 2.04%. That number alone makes one think back to the acronym TINA (There Is No Alternative to investing in stocks). Bonds just don’t offer high enough yields to do anything other than (barely) keep up with inflation. And with the Federal Reserve hinting at possibly cutting interest rates later this month, there’s even less implied value in the bond market. And that’s one reason why the stock market is grinding slowly higher despite the trade war and slowing economic growth.

Second quarter earnings season is in full swing. I want to relay a comment from Touchstone Investments’ Crit Thomas: “The market’s had a big run—a lot of it is just based on the Fed and giving us visibility in terms of taking the recession in 2020 off the table. Earnings are soft, but they’re certainly not falling off the cliff.” There’s another reason why the stock market is edging higher—the perception that the Fed can stave off the next recession if it starts cutting rates now.

The big banks have reported second quarter results, and the takeaway is that while portions of commercial banking are somewhat weak, the US consumer is very strong. The CFO of US Bancorp (USB) said, "I think consumer spending continues to be strong, GDP is holding up OK, unemployment is just fine." He expects loans will continue to grow.

Microsoft (MSFT) reported second quarter results yesterday afternoon, beating both revenue and profit forecasts by a wide margin. Total revenue climbed 12% from year-ago levels, and all of the company’s divisions posted strong growth. The fast-growing cloud software segment now represents 1/3 of Microsoft’s sales. In addition, commercial customers seem to be choosing longer term contracts. The stock is up 1.9% this morning to an all-time high. So if there is any complaint among Wall Street analysts who cover MSFT, it is that the stock has run too far, too fast this year.

Blackrock’s (BLK) sales and earnings came in slightly shy of Wall Street estimates, but investors are it shrugging off. Why? BLK is one of the largest investment/asset management companies in the world, and the stock usually trades on asset flows. On that front, the company is doing well, having attracted $151bil in new assets during the quarter. BLK is taking market share from competitors by lowering its fees. One would think that the extreme volatility and uncertainty in the stock & bond markets over the last year would affect the company very negatively. But CEO Larry Fink said, “The trend going into the second half is very positive. Things we can control…were exceptional.” The stock is up .9% today.


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