wage inflation

BAD NEWS IS GOOD NEWS

Stocks surged higher today in spite of a weak jobs report. The Dow is currently up 299 points and the SPX is up 1.1%. The best performing sectors are tech (+2%), consumer discretionary (+1.5%) and communications services (+1.4%). Financials is the lone sector in the red—bank stocks are down on lower interest rates. The VIX Index is up slightly to trade around 16. European stock markets closed up about 1% and Most of Asia was higher overnight. Commodities are mixed. WTI crude oil rebounded to $54/barrel after taking a massive beating over the last six weeks. The bond market is rejoicing this morning on falling interest rates. Treasuries are up across the board, and even junk bonds are rallying. The 10-year Treasury yield dipped to 2.09% and is now at levels last seen in September 2017.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

POST FED MEETING HANGOVER

Stocks opened lower this morning (Dow -104 pts; SPX -.58%). There is a bit of pouting among traders in the wake of yesterday’s Fed meeting (see below). Interest rates are rising, and that means bank stocks are up and utilities & real estate are down. Commodities are mostly lower in early trading. Copper has lost about 5% over the last two days. WTI crude oil tumbled more than 3% today to trade around $61.30/barrel. US oil stockpiles are at a two-year high while the volume of US production is at record levels. Bonds are falling in price as a result of the Fed meeting. The 10-year Treasury yield snapped back to 2.55%. Apparently, some traders had positioned with the expectation that the Fed would discuss cutting interest rates in the near future. That seems terribly misguided but appears to have been the case.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

DOUBLING DOWN ON A DOVISH FED

The major stock market averages are mixed in early trading (Dow -70 pts; SPX +.5%; Nasdaq +.6%). Gold miners, healthcare, and energy exploration stocks are all up about .7% to 1.2%%. On the other hand, airline and aerospace names are trading lower, paced by Boeing (BA) down 6.7% after the Ethiopian Airlines jet crashed. Retailers and consumer staples names are flat to down at the moment. The US dollar is weaker today after a softer inflation report (see below), and not surprisingly, commodities are trading higher. WTI crude oil is back up around $57.22/barrel. Copper is up .5% today and 12% on the year, reflecting optimism over a potential trade deal. Copper is sort of a commodity trader’s referendum on the Chinese economy, since China accounts for half of global copper demand. Bonds are mostly higher today as yields tick lower. The 10-year Treasury yield fell to 2.63%, the lowest in the past 6 weeks.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

STOCKS SAGGING ON SPURIOUS JOBS REPORT

STOCKS SAGGING ON SPURIOUS JOBS REPORT

Stocks gapped down at the open after a disappointing jobs report (see below). The Dow is currently off 148 pts and the SPX is down .77%. The Nasdaq has now been down for five straight sessions. The worst-performing groups include energy (-2.4%), transports (-1%), and healthcare (-.8%). In fact, transports have been down 11 consecutive sessions. Asian markets started the downshift last night. After a massive recovery rally this year, the Shanghai Composite Index fell 4% in the overnight session. As I’ve mentioned, all of this is to expected. We need some consolidation after a sharp rally in stocks. Commodities are also in the red today, led by oil. WTI crude collapsed back to $55/barrel today for no good reason. Bonds are mixed in early trading. Junk bonds are down about .3% today. Long-term Treasuries are up slightly. The 10-year Treasury yield has fallen back to the bottom of its six-week trading range at 2.64%.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

CROSSCURRENTS GIVE THE FED PAUSE

CROSSCURRENTS GIVE THE FED PAUSE

Stocks opened lower today, but quickly recovered. The Dow and SPX are currently flat. Financials, energy and tech sectors are in the green but most everything else is slightly lower. Copper, iron ore and oil are strong today. WTI crude oil is back up around $55.75/barrel. Copper is now up something like 13% on the year, and that’s usually a sign of economic strength overseas. Strangely, bonds are trading mostly higher as well. Long-term Treasury bonds are up about .2% and junk bonds are up nearly that much. The 10-year Treasury yield fell back to 2.65%. Since the beginning of February, interest rates have been treading water with very little volatility.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

RISING INFLATION SAYS RECESSION NOT IMMINENT

RISING INFLATION SAYS RECESSION NOT IMMINENT

Stocks gapped up at the open this morning, but quickly faded. The Dow is currently up 70 pts and the S&P 500 (SPX) is up .2%. Gains are broad-based, led by energy, semiconductors and transports. Defensive sectors like utilities aren’t really participating. The VIX Index has stabilized below 16 over the last week. Foreign stock markets are acting better—especially China—and that suggests some expectation for resolution of trade concerns. Traders are excited about the fact that the SPX closed above its 200-day moving average for the first time in over two months. The index is now only about 6.5% below its all-time high reached 13 months ago. So risk assets are acting better this year. The Bloomberg Commodity Index (BCOM) is up 4.5% so far in 2019. WTI crude oil is back up over $54/barrel. Iron ore and copper are also climbing. I’ll point out that while falling commodity prices were seen as a very scary sign of falling economic growth in 2018, very few are seeing the commodity recovery as a sign global economic improvement.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

A LITTLE HELP FROM THE JOB MARKET

A LITTLE HELP FROM THE JOB MARKET

A LITTLE HELP FROM THE JOB MARKET

The major stock market averages opened modestly higher today following the monthly jobs report (see below). The Dow is currently up 148 pts and the SPX is up .4%. The energy sector is up nearly 2% on continued gains in oil prices. Transports, banks, and semiconductors are also in the green. On the other hand, retailers, gold miners and utilities are down in early trading. Commodities are moving higher as well. WTI crude oil is back up around $55/barrel. Copper is up .3% and iron is up more than 3%. Bonds are falling back, giving up yesterday’s gains. The 5-year and 10-year Treasury yields are hovering around 2.51% and 2.69%. By the way, Treasury yields have been hovering around 1-year lows this month, a condition that usually reflects a softening economic outlook and a more dovish Federal Reserve. But on days when we get some encouraging economic news—like today’s jobs report—yields tend to jump.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

January 4, 2019

January 4, 2019

The stock market gapped up at the open after an encouraging jobs report (see below). The Dow and SPX are currently up 650 pts and 3%, respectively. Tech—hated by traders yesterday—is the best-performing sector, up over 3.5%. The materials sector is up 3% in early trading. Transports—again, hated yesterday—are up over 3% as well. The VIX Index is back down to 22.7, exactly even with VIX January futures. Traders are wondering why, when the market is now routinely moving more than 2% per day, the VIX isn’t well into the 30s. It may no longer be an accurate reflection of market volatility. European markets will close up over 2% in today’s session. The Chinese stock market has stabilized over the last several days, so that’s good news. After the release of the jobs report this morning, the dollar strengthened and bonds sold off. Opposite of the recent trend, Treasury bonds fell in price but junk bonds rose. The 10-year Treasury Note yield climbed back to 2.66%, surging 10 basis points from yesterday’s level. Bond yields provide different signals depending on the economic & market situation. At this moment, rising yields will signal some relief that perhaps the economic outlook isn’t as dire as the bears think.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

December 7, 2018

December 7, 2018

Stocks headed lower again today (Dow -550 pts; SPX -2%). Ten of 11 major market sectors are down, led by tech (-3.1%). Utilities is the only bright spot +.6%). The VIX Index is back up to 24. WTI crude oil shot up toward $52.60/barrel after OPEC agreed to cut back oil production targets. Globally, oil is temporary over-supplied due to geopolitical events and government manipulation. Crude tumbled from roughly $76/barrel to $50/barrel in just 2 ½ months. Bears are taking this as a sign of an economic slowdown.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

October 4, 2018

October 4, 2018

Stocks sank at the open on Fed/interest rate fears. The Dow is currently down 255 pts and the SPX is down .9%. Bank—and strangely enough utilities—are just about the only groups posing gains in early trading. Consumer discretionary, healthcare, technology and telecommunications sectors are all down more than 1%. The VIX Index is back up around 13.3, as you might expect. European stock markets are down between .8% and 1.2% in today’s session. Most of Asia was down overnight with the notable exception of China, which saw gains of about 1%. The dollar is flat on the day and commodities are mostly lower. Bonds are also selling off as yields rise. The 10-year Treasury yield just climbed to 3.20% for the first time in seven years. And since short-term yields aren’t up as much, the yield curve is the steepest it has been in two months.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

September 13, 2018

September 13, 2018

Stocks opened higher today (Dow +142 pts; SPX +.5%). The tech sector (+1%) is leading the way, with semiconductor stocks up 2%. Remember, they’ll run with any optimism over the trade war with China. Consumer staples and financial sectors are down slightly in early trading. European markets will close mixed but China’s exchanges were up about 1% overnight. The dollar is a bit weaker today (and so far this month), probably in reaction to trade optimism as well as the CPI report (see below). WTI crude oil is down 2% to trade around $68.75/barrel. Bonds are trading up as interest rates fall back. The 5-year and 10-year Treasury yields are currently at 2.86% and 2.95%, respectively.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

September 11, 2018

September 11, 2018

Stocks gapped lower at the open but quickly turned around. The Dow is currently up 136 pts and the SPX is up .46%. Energy, tech and telecom are the best-performing sectors, up 1% in early trading. Apple (AAPL) stock is up 1.9% in front of its new product event tomorrow. European stock markets closed about flat and most of Asia was modestly lower overnight. Despite the fact that China’s government is directing traders to buy stocks hand-over-fist, the Shanghai Composite Index is still down 20% in local currency terms this year. Most commodities are lower today, save oil. WTI crude oil prices are up 2% to $69/barrel. Bonds are trading slightly lower on the day. The 5-year Treasury yield is up around 2.87% and the 10-year yield is up to 2.97%. Rates want to move higher.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

July 6, 2018

Stocks opened higher this morning as the jobs report and trade tariffs dueled for traders’ attention. The Dow is currently up 120 pts and the SPX is up .8%. Indeed, this is a traders’ market with low volume, lots of back-and-forth, but no real trend. At the moment, all eleven market sectors are in the green, led by healthcare (+1.3%). Biotechs are rallying on the back of a positive clinical trial for Biogen’s new Alzheimer drug. European markets are poised to close slightly higher on the session and Asian markets were (surprise, surprise) higher overnight. The VIX Index is back town to 13.6 and VIX July futures are trading down around 14.8. Oil is rising again; WTI crude is up around $73.60/barrel. The Bloomberg Commodity Index is up .3% today but still down on the year. Copper continues to struggle on fears that the emerging trade war could dent China’s economy. Bonds are trading higher in price—lower in yield—despite a positive jobs report. The 5-year and 10-year Treasury yields are hovering around 2.73% and 2.83%, respectively. So as an investor, you get only 10 more basis points in yield for locking up your money over an additional 5 years. The yield curve continues to flatten, and the Federal Reserve is increasingly squeezed between that fact and the fact of strong economic growth. Bloomberg Economics now believes the flat yield curve will convince the Fed to pause rate hikes. 


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

June 12, 2018

Stocks opened modestly higher this morning (Dow flat; SPX +.2%). Most sectors are in the green, led by utilities, consumer discretionary and technology. Asian markets were up in the overnight session following the US/North Korean summit in Singapore (see below). The VIX Index is a bit lower, trading at 12.5. The dollar is unchanged today and oil is up .4% to trade around $66.40/barrel. Bonds are mixed in early trading. Treasuries are down a bit, while corporates and especially junk bonds are trading higher. The SPDR High Yield Bond ETF (JNK) has not done well this year, but over the past two weeks has begun to recover. The 5-year and 10-year Treasury yields are currently up around 2.81% and 2.96%, respectively. Don’t miss the fact that those yields are essentially right on top of one another. The yield curve is still flattening; the difference between the 2-year and 10-year yields is just 43 basis points. The reason is that the Fed is raising short-term interest rates at a faster pace than inflation expectations are pushing up long-term rates.  

Last night marked the first ever meeting between sitting heads of state of the US and North Korea. The result was without much detail but the two sides did agree to reestablish diplomatic relations. President Trump and Kim Jong Un signed a document pledging security guarantees to North Korea in exchange for that government’s commitment to full denuclearization of the Korean peninsula. Afterward, Mr. Trump said Kim had promised to halt nuclear testing, which if true, is significant. The president said there will be more meetings to come. Strangely enough, Mr. Trump said in a press conference that he believes Kim will abide by the agreement. If true, he may be the only one with that sentiment.  

The Consumer Price Index (CPI) accelerated to 2.8% y/y growth in May. For some context, CPI is now at the high end of its range over the past six years. Economists generally expected retail price inflation to rise; the trend has been gradually higher over the past year. A big part of the reason is that oil/gasoline prices are rising. We know that commodity price inflation is climbing faster than wages. The Labor Department says real wages—adjusted for inflation—are flat with year-ago levels. This report is not a cause for alarm because the absolute level of inflation is still fairly low. But we do want to see some wage inflation to prop up consumer spending. 

CNBC released results from its most recent survey of professional investors. Respondents now expect the SPX to end the year 2% higher than current levels. Economic growth (GDP) is expected to remain pretty strong. Interest rates will continue to march higher--the 10-year Treasury yield should end the year around 3.23%. Investors still expect either 3 or 4 Fed rate hikes this year. And crucially, 62% believe the Fed will continue raising rates until it chokes off economic growth.
 


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

May 4, 2018

Stocks opened slightly lower but immediately spiked in early trading. The Dow is currently up 290 pts and the SPX is up 1%. All eleven major market sectors are in the green, led by tech (+1.5%), materials (+1.4%) and consumer staples (+1.3%). Price action suggests this is pretty clear risk-on trading session. The exception is staples (considered more risk-off defensive) which is just too cheap after falling more than 13% this year. The VIX Index is down around 15. Gold is down. The dollar is stronger and yet oil is sharply higher ($67/barrel). Again, risk-on. But since this is Friday and we could get news from the US trade delegation China this weekend, don’t expect today’s gains to hold. Bonds are mostly unchanged, strangely enough. The 5-year Treasury yield is hovering around 2.79%. The 10-year’s yield is 2.95%.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

April 27, 2018

Stocks gapped up at the open but quickly faded. The Dow is currently flat and the SPX is up .2%. Traders are pumping up the defensive sectors—utilities, consumer staples, real estate, telecom—because interest rates are falling back. Oil is trading flat around $68/barrel but energy stocks are down about 1% in early trading. The exception is Chevron (CVX), which reported a pretty good quarter. Bonds are rising in price, down in yield today. The 5-year Treasury yield fell back to 2.80% and the 10-year yield declined to 2.95%. 


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

April 9, 2018 Special Update

Up One Day, Down The Next

Last Friday’s jobs report was supposed to be the big event of the week. It was supposed to either send the all clear signal or upset the apple cart; to confirm or deny a spike in wage inflation; to let us rest easy about labor market strength or perhaps reveal a slowdown in hiring momentum. Alas, it never delivered the excitement traders were looking for. 

Not that Friday’s trading session lacked excitement. The Dow fell 572 points and the S&P 500 fell 2.2%, capping a week of extraordinarily large rollercoaster swings. In fact, Vanguard’s Jack Bogle said that with the possible exception of the 1987 crash, he’s never seen such volatility as characterizes this stock market. 

The jobs report and its standard set of figures on payrolls, unemployment, and wage growth turned out OK. Inflation isn’t spiking. The labor market isn’t over-heating. New payroll growth decelerated, but that was largely due to weather-related issues. Other metrics like average workweek were on track. Just as with other recent economic data, there’s nothing in the report to cause an unhinging of the stock market. Nothing to explain the spike in volatility. 

What hit the market on Friday was the perfect storm of words, not data. President Trump is again engaged in a war of words with the Chinese. Thursday evening, Mr. Trump asked the US Trade Representative to consider additional trade tariffs on $100bil worth of Chinese imports. In response, China’s Commerce Ministry issued a statement that it is ready to fight a trade war. “The Chinese side will follow suit to the end and at any cost, and will firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people.” On Friday morning, Mr. Trump Tweeted that the World Trade Organization (WTO) is giving an unfair trade advantage to China due to its classification of that country as “developing.” But while the war of words progressed, neither side moved closer to face-to-face negotiations. 

And there are signals that this issue isn’t going away soon. US Treasury Secretary Mnuchin said in a CNBC interview that while the Trump Administration doesn’t want a trade war, “there is the potential” for one. He is “cautiously optimistic” that both sides will reach a solution. In a radio interview, the president said, “I’m not saying there won’t be a little pain, but the market has gone up 40%, 42% so we might lose a little bit of it. But we’re going to have a much stronger country when we’re finished.” 

Also thrown into the mix on Friday was congressional testimony by the new Federal Reserve Chair Jerome Powell. He noted strong economic momentum in the US. “Given that the current pace of growth is above trend, my view is that we need to continue on the path of raising interest rates.” Mr. Powell’s message was a positive one, as expected. But considering the day’s events, investors were not in the mood to hear about further monetary tightening. The Dow took another leg down as he spoke. Mr. Powell tried to steer clear of trade tariff concerns, but when asked he said it’s “really too early” to estimate any economic impact. 

In that reply, Mr. Powell showed wisdom. We don’t yet know whether Mr. Trump’s sound bites constitute a new durable policy or simple rhetoric used as a negotiating tactic. We also don’t have a clue about the timeline for tariffs. Mr. Mnuchin said they “will take some period of time to go into effect. There will be public comment, while we’re in the period before the tariffs go on. We’ll continue to have discussions.” Besides, words change from day to day. Over the weekend, Mr. Trump eased his tone, Tweeting “President Xi and I will always be friends, no matter what happens with our dispute on trade.” Hence, the stock market bump this morning. 

The culprit for market volatility is clear. Words, in speeches, interviews and Tweets, made traders shoot first and ask questions later. That immediate re-pricing of investment risk may prove to be unwarranted, however. Aside of positive economic momentum, corporate earnings are expected to be very strong this year. Core business trends are largely positive and by one estimate $800bil in economic benefit will come from tax reform. US companies will begin reporting first quarter results this week, and we very much hope that investors and traders pay more attention to those reports than to presidential Tweets. As Bloomberg posits, “Markets Want to Rally—If Politicians Will Let Them.”
 


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

April 6, 2018

tocks gapped down this morning on trade war tensions (not the jobs report). The Dow is currently down 364 pts and the SPX is down 1.17%. The defensive sectors—utilities, consumer staples, real estate—are not surprisingly faring better than cyclicals, but just about everything is in the red. The VIX Index is up a bit to trade just under 20. VIX April futures are around the same level. So the options market doesn’t seem to expect a full-blown trade war. European stock markets are poised to close slightly lower and Asia was mixed overnight. The dollar and most commodities are down a bit today. WTI crude oil is trading down around $62.70/barrel, continuing in the $59-$66 range. Gold is up about .4% this morning (and 2% on the year). Bonds are trading higher as yields dip. The 5-year and 10-year Treasury yields are hovering around 2.6% and 2.79%.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

March 9, 2018

The major stock market averages gapped up at the open (Dow +267 pts; SPX +1%) after an encouraging jobs report. The cyclicals are alive and well today—materials, energy, industrials, tech and financials are all up over 1%. Utilities and telecom sectors are in the red. The VIX Index is back down around 15.5. Commodities are broadly higher, except gold. WTI crude oil is back up over $61/barrel. Bonds are trading mostly lower. The yields on the 5- and 10-year Treasury bonds are back up to 2.67% and 2.91%.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.

March 7, 2018

Stocks opened lower today. The Dow is currently down 170 pts and the SPX is down .47%. The dip is not surprising considering Gary Cohn’s resignation as the president’s chief economic advisor yesterday. Most of America couldn’t care less, but the investor class is clearly worried. At the moment, most sectors are trading lower led by energy, industrials and consumer discretionary. REITs and telecoms are trading modestly higher. By the way, year-to-date if you’ve not invested in consumer discretionary, financials and info tech sectors, you likely haven’t made money. Despite the return of volatility, cyclical sectors are performing well. Today, the VIX Index is up slightly to trade around 18.5. Commodities are mostly lower with WTI crude oil down around $62.10/barrel. Oil has traded in the range of $59-$66 this year. Bonds are mostly unchanged. The 5-year and 10-year Treasury yields are holding at 2.64% and 2.87%, respectively.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.