Stocks surged at the open after two down days. The Dow an SPX are currently up 123 pts & .8%, respectively. The major averages are close to unchanged year-to-date, so the quarter could go either way (up or down) based on what happens in the next few trading sessions. This morning, several sectors are up more than 1%: discretion, healthcare, tech and materials. Commodities are broadly higher after China’s Premier Li Keqiang posted a statement on the government website that seemed (obliquely) to support monetary stimulus in case economic growth slows further. So copper is up about 1.6% on the day; WTI crude is up about $1 to $101/barrel. Rates aren’t moving around very much; the 5- and 10-year Treasury yields are up modestly to 1.72% and 2.70%, respectively.
According to Bloomberg, “the air is coming out of the balloon” of some high-flying tech stocks. Over the last year, names such as Facebook, TripAdvisor, Netflix, Tesla, and Amazon screamed higher regardless of fundamentals like sales & earnings growth, cashflow, etc. Consequently, the P/E ratios on these stocks don’t make sense. Tesla is trading at 135 times expected 2014 earnings, and Amazon is trading at 175 times. Even with the recent pullback, Twitter is trading at over 2000 times expected earnings. Valuation levels are “approaching the Internet bubble,” and it looks like traders are beginning to sell. Over the last month, the Global X Social Media ETF is down nearly 12%, Tesla is off 12%, and Netflix is off 18%. Over the last week, I’ve highlighted the fact that short term interest rates are beginning to move up. If that trend continues, it will certainly put a dent in demand for these trading stocks, which are often purchased on margin.
Personal Incomes rose .3% in February, as expected, matching the prior month gain. Personal Spending also rose .3% in the month after a downwardly revised .2% gain in January. This is a pretty healthy report, leading me to believe the consumer is recovering from some winter weakness. About 70% of the US economy is driven by consumer spending. The PCE Deflator, a gauge of inflation on consumer goods, rose .9% y/y in February, and that’s considered very low. The Fed will start paying more attention once inflation accelerates to around 2%/yr.
University of Michigan Consumer Confidence edged down to 80.0 vs. 81.6 in the prior month. Economists anticipated a reading of 80.5, but nobody’s really disappointed. The bottom didn’t drop out over the winter months, and we’re roughly even with year-ago levels. By the way, 80 is considered a “moderate level” by Barron’s.
MikesMarketUpdate 