Mike’s Morning Brief: A fast-break rundown of what’s going on.
Market opens in the red again after President Trump had a very clear and emphatic speech last night from South Korea. He has been President exactly 1-year. The Stock Market has risen the most in any new President’s first year. He knows it too. President Trump left South Korea and landed in China for a meeting with President Xi. The critical Asian tour continues. Stocks saw their first decline in a number of days yesterday, though the DOW, meaningless as it is as a benchmark, squeaked out a slight gain. More importantly, the small-cap Russell 2K was down over 1% yesterday and has been weak the last couple of days. This suggests trouble around the tax-plan. The Tech heavy NAS was down too and is showing some signs of cracking. Earnings have been solid overall, but the companies that missed have seen their stocks clobbered. The broad-based rally has thinned quite a bit. Retailers are at multi-year lows, while the DOW, S&P, and NAS are at fresh new highs. Also, a concern is interest rates. They’re moving lower. It is happening on the back-end, specifically in the 30-year and 10-year Treasury yields. But they aren’t budging on the front-end, which means the yield curve is flattening. That’s not a good sign. Financials are feeling some pain. The yield curve inverts when a recession is on the horizon. There’s no such evidence of recession anywhere now, but it’s worth paying attention to. The Bond Market is the smartest money there is. Democrats scored some victories last night, with important wins in Virginia and New Jersey. Oil prices have seen a big move higher of late. It’s driven by increased demand overseas while supplies continue to shrink. The corruption scandal in Saudi Arabia is playing a role too. WTI hit $57 this week, the highest level in 2.5 years. That is an important development. Energy stocks have had a big run of late after getting crushed earlier in the year. Gold prices are higher in early trading, suggesting caution too. We expect the zero volatility to pick up quite a bit. Call buying on the VIX has picked up this week, something we haven’t seen in a while. November and December are normally the strongest 2 months of the year for stocks. But 2017 has been anything but normal.
Have a great morning,