May 11, 2018.

It was a confluence of factors yesterday that sent all major indexes higher: inflation numbers came out just right – and tech stocks rallied! It was a winning combination for the market. If prices rise too quickly, then the Fed needs to hike rates; if prices rise too slowly, or even worse, fall, the market could be at risk of a recession. And the numbers we got yesterday to an economy that’s strong but not too strong, growing, but not growing too fast. With the fear of the Fed upping the pace of its hikes neutralized, the market broke out like a running back with the whole field at his back. April’s consumer price index climbed 0.2% in April; the core CPI (which factors out food and energy) was up 0.1%. Barron’s, the financial paper, called it a “Dow dream.”

In other economic news, early May jobless claims, i.e. the number of people applying for first-time U.S. unemployment benefits, came out to 211 thousand for the second week in a row, placing the reading near a 49-year low.

Economic Diary: James Bullard of the St. Louis Fed will be speaking at 8:30. Then, be primed for import and export prices at 8:30. Consumer sentiment numbers will be released at 10:00, with the critical Baker-Hughes Rig Count report coming out at 13:00. The rig count is critical because of the recent spike in the price of crude; it will be vital for traders to see how quickly American drillers are responding to the uptick in the price of crude by ramping up production.

Market Summary: The Dow Jones climbed 0.80%, the S&P 500 recording nice gains of 0.94%. The tech-leaning NASDAQ saw an uptick of 0.89%. The broad rally on the Dow accorded it its biggest winning streak since February, the blue chip index now up 6 days in a row. On the S&P 500, all of the major sectors closed up; 4 were up over 1%. The NASDAQ recorded its 5th straight winning day. Lastly, the Russell 2000 traded up 0.5%, the small-cap index now just 1% shy on an all-time record. The all-important VIX index, the market’s fear gauge, slipped for a 6th straight session. The VIX is now at the levels recorded on the S&P 500 and the Dow before it plunged into correction territory. The low levels on the VIX point to increased investor confidence, ironically, despite all of the geopolitical mayhem, the Middle East going up in flames yesterday with Israel and Iran locking horns with missile fire.

As for how the market’s faring, Robert W. Baird investment strategist, William Delwiche, noted, “Any way you look at it, a gain of 125 S&P 500 points over the course of a week is pretty good. We’ve seen a drop in volatility and momentum has improved of late.” He likewise accentuated the outperformance of the tech sector, its recent gains doubling those of any other S&P 500 sector. “Because this handful of stocks are continuing to lead, it will be hard to get the kind of market breadth that you’d like to see signal a more positive backdrop. I’d like to see broader participation, and more trading volume on positive days. Until we get that, then I’m not sure that the consolidation phase has ended.”

One of the stocks at center-stage yesterday was Apple (AAPL). Buffett seems to have certainly done the trick! The stock rose to a record high yesterday, up 1.4% on the day; the company has now traded higher on 9 consecutive days. Facebook (FB) also saw nice gains, climbing 1.6%.

Another big winner was CenturyLink (CTL). It was the biggest winner on the S&P 500, rising 7.5% to $19.40. The telecom company is up 16% on the year. Yesterday, it released better than forecasted earnings numbers. AMC Entertainment Holdings (AMC) surged 2.5%, top and bottom line numbers trouncing the Street’s forecasts.

On the downside, the parent company of Victoria’s Secret, L Brands (LB) took a beating. Reporting disappointing full-year guidance, the company toppled 7.2% to $31.68. L Brands has plunged 47% year-to-date. Roku (ROKU) was another loser, dropping 1.7% even though its earnings beat forecasts and Q2 guidance came out better than expected.

As for oil futures, they rebounded from earlier weakness, closing modestly up. West Texas Intermediate crude was up 22 cents, or 0.3%. It closed at $71.36 a barrel.

One sector in which you should expect movement today is the health sector. Trump is expected to make a landmark speech today about his plan to lower pharmaceutical prices after having presented a policy blueprint yesterday. The speech could create waves in many subsectors of the health sector. The sector, as a whole, has underperformed the market, down 1% this year. The speech was originally supposed to be made earlier in the year; the premonition leading up to it has weighed on the sector. We’ll have to see what rhetoric Trump uses today because earlier, as president-elect, Trump arrogated that drug makers were “getting away with murder.” All-in-all, the healthcare constitutes 13.6% of the S&P 500.

Trump, though, has failed on a number of key policy fronts since being elected due to not receiving backing from his own party. He failed to repeal Obamacare, and the wall he kept boasting about on the Mexican border has proven far from a reality. Whether today proves more than a PR stunt waits to be seen but it is key to recall that there’s often a large chasm to bridge between Trump’s rhetoric and actual, policy decisions. As Height Capital Markets analyst Andrea Harris put it, “The president never shies away from fiery rhetoric, and we expect that in his speech he will finger manufacturers, pharmacy benefit managers (PBMs), insurers, hospitals, and foreign countries as responsible for high drug costs,” adding that though “material headline risk” is expected, her expectation is that the White House “will not implement the most material policies that Trump will suggest in the speech in the next two years, if ever.”



Daily change


Friday’s Hot Stocks: YELP, DBX, NVDA, NWSA, SYMC

Have a great trading day!