Spinoffs Lose Their Luster

Companies are finding it more difficult to extract value by spinning off businesses, according to a new analysis from Citi’s investment banking group. The study examined returns for the parent company from announcement to deal completion and returns for the spinoff two years after the transaction closed. Spinoffs underperformed their industry sectors by 5 percent on average between 2011 and 2015.

They used to do much better than that. The underperformance of 5 percent in recent years compares with an average overperformance of 30 percent between 2001 and 2005, and 19 percent between 2006 and 2010.

Despite the negative trend, spinoffs remain popular. Companies completed $121.5 billion such deals globally, according to Dealogic. For the year as of May 17, companies have announced $34.9 billion in spin-offs, 27 percent ahead of last year’s pace.

A Spike in the Fear Index

The CBOE Volatility Index posted its biggest daily jump yesterday since the day following Britain’s vote to exit from the European Union, which upset markets around the world last June. The VIX measures expectations for market swings in the S&P 500 index 30 days in the future.

The so-called Fear Index was up about 46 percent on the day. That is its biggest daily move since June 24. when the index jumped 49.3 percent. The S&P Index lost nearly 2 percent on the day.

Still, the level for the so-called fear gauge remains low compared with its long-term average of 20. This one-day climb comes just a week after the fear gauge registered its lowest close since 1993.

Industrial Output: The Latest Good News

U.S. industrial output rose sharply in April, the latest evidence that economic growth is picking up following a lackluster start to the year. Manufacturing output, the biggest component of industrial production, posted its strongest gain since early in 2014, pushing the Fed’s manufacturing index to a new post-recession high.

Industrial production—a measure of output at factories, mines and utilities—jumped 1.0 percent from a month earlier. That might not sound like much, but it was the largest gain in more than three years.

The strong showing follows a string of upbeat April indicators, including the unemployment rate falling to its lowest level since 2007, solid consumer spending gains at online sellers, restaurants and other retailers, and existing-home sales climbing at their fastest pace in a decade.

The Slow Road to 2400

The S&P 500 finished above 2400 for the first time ever yesterday, crossing a barrier that had proven elusive for months. This wasn't the first time it reached 2400, but it was the first time it had closed there.

The benchmark index first topped 2400 in intraday trading more than two months ago, on March 1, but dropped back below that level before the session ended. In the last few trading days, the index held just below 2400 on a closing basis.

The slow rise is a measure of how calm the stock market has been lately. The S&P 500 rose just 0.48 percent on Monday, its 14th straight session without an absolute move of 0.50 percent or more. That matches a streak last seen in 1995.

The Retail Split

We talked last week about the problems that department store stocks have been having this quarter. It's not about dropping retail sales: A Commerce Department report on Friday showed a seasonally adjusted 0.4 percent jump in retail sales in April, as well as revisions higher to prior data.

But the data also showed a growing divide: sales among nonstore retailers, which includes online shopping, jumped 1.4 percent, while department-store sales had a much smaller increase of 0.2 percent. Nonstore sales are up nearly 12 percent over the past 12 months, while department store sales were down 3.7 percent.

So the news has been good for online retailers; Amazon’s shares climbed 0.6 percent Friday morning. But Nordstrom sank 8.2 percent, Dick’s dropped 6.6 percent, and J.C. Penney fell 7.6 percent. All are down more than 10 percent on the year, and J.C. Penney has fallen more than 40 percent.

Department Store Woes

There's one little segment of the economy that continues to show sign of trouble: Department stores. Big retailers have begun to report results for the first quarter, and the news is not pretty.

Macy’s reported Thursday a worse-than-expected drop in revenue during the first quarter as same-store sales marked a particularly large slide. Kohl’s said same-store sales fell more than expected. Nordstrom reported that same-store sales slipped 0.8 percent versus a year ago.

Macy's promptly sank 15 percent. Nordstrom dropped 8 percent, and Kohl's fell 6.4 percent. The three stocks were the worst performers in the S&P 500 for the session. The SPDR S&P Retail exchange-traded funds fell 2.4 percent on the day.

In the Black

Here's some good news: The federal government ran its second highest monthly surplus on record this April. In its monthly budget report, the Treasury Department said yesterday that the surplus for April totaled $182.4 billion, the second largest surplus after a record $189.8 billion surplus set in April 2001.

Wait a minute, you're thinking: Don't most people pay their taxes in April? Yes they do.The government generally runs surpluses in April, and this year's was inflated because of a deadline change that allowed corporations until April to make their final tax payments for last year.

Through the first seven months of the current budget year, which ends in September, the federal government is running a deficit of $344.4 billion. That's still down 2.4 percent from the same period a year ago.