Stocks opened modestly higher today (Dow +51 pts; SPX flat). The materials sector (+1.3) is leading the way, along with financials (+1%) and industrials (+.8%). On the other hand, defensive sectors like utilities and consumer staples are down. The immediate reason is better than expected economic data (see below). The VIX Index fear gauge fell to 13.6 and stock markets around the world rallied today. Commodities are mixed. WTI crude oil is flat around $55/barrel. Copper surged 2%. Gold is down about .6%. Bonds are selling off hard today after enjoying a huge rally from the end of February to the end of August. The 10-year Treasury yield has backed up to 1.88% from 1.50% this month.

Both the Trump Administration and China’s Ministry of Commerce are making conciliatory noises on trade. China says it will exempt US agricultural goods from additional tariffs for one year. This comes in response to the Trump Administration’s decision to delay increasing tariffs on $250 billion worth of Chinese imports from October 1st to October 15th. Yesterday, President Trump said he would consider an “interim” trade deal though he prefers a more comprehensive, permanent arrangement. Both sides are softening a bit ahead of upcoming trade negotiations.

By the way, a recent survey of corporate chief financial officers by CNBC indicates business leaders do not expect an end to the trade war anytime soon. Thirty-five percent of CFOs cite trade policy as the largest risk facing their businesses. About 65% said trade policy is a clear negative for their businesses, with about half saying input costs are rising. Surprisingly, however, only about 10% said their companies have delayed or scrapped growth projects because of the trade war.

US retail sales came in much stronger than expected in August, rising .4% from prior month levels. On a year-over-year basis, retail sales accelerated to 4.1% growth. Autos and online buying led the way. Additionally, the University of Michigan’s Consumer Sentiment Index jumped back to 92.0 from a multi-year low of 89.8 in the prior month. These reports prove the US consumer is alive and well, and should silence some of the rampant recession talk.

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