Market Update: January 23, 2017

© AP Photo/Francois Mori

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  • Stocks move lower to begin busy earnings week. U.S. equities are slightly lower in early trading, starting off a busy week for earnings and President Trump’s first official week in office. The S&P edged down slightly last week, with both healthcare and financials posting losses of at least 1.5%; consumer staples was the only notable outperformer, climbing 2.1%. Stocks finished mixed overnight in Asia; Japan’s Nikkei (-1.3%) dropped sharply amid a strengthening yen, while the Shanghai Composite (+0.4%) and Hang Seng (+0.1%) rose.  European markets are modestly lower in afternoon trading as the U.K.’s FTSE (-0.5%) is leading the way lower on the heels of a multi-week rally that included 15 consecutive higher closes. Finally, the yield on the 10-year Treasury note is down slightly to 2.46%, WTI crude oil ($52.42/barrel) is up 1.5% following encouraging comments on supply from Saudi Arabia’s energy minister, and COMEX gold ($1211/oz.) is higher by 0.5%.

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  • Good start to earnings season for financials but little Q4 upside. With 62 S&P 500 companies having reported results thus far, earnings (65%) and revenue (44%) beat rates are both slightly disappointing relative to recent trends based on Thomson data (other sources have different numbers). As a result, the growth rate at 6.3% is only marginally higher than estimates at quarter end (6.1%). At the sector level, financials upside has been offset by shortfalls in energy and consumer discretionary companies. Guidance has generally been good, as S&P 500 estimates for 2017 have held steady on energy increases, which-although it’s early in the season-is a positive development given the historical pattern of reductions in estimates. This week (January 23-27) is a busy one with 70 S&P 500 companies reporting.

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  • GDP, Fed quiet period, PMIs on tap this week. The Federal Reserve Bank will honor its unofficial “quiet period” ahead of next week’s FOMC meeting, but market participants will have plenty to digest this week nonetheless, especially on the political front. President Trump’s cabinet appointees continue their confirmation process in the U.S. Senate, and the U.K.’s Supreme Court is expected to make a key ruling on Brexit on Tuesday, January 24. On the data front, Q4 gross domestic product (GDP) reports in the U.S. and U.K. are likely to get top billing from the media, but the manufacturing PMIs for January 2017 in the U.S., U.K., Eurozone, and Japan are more forward looking and more important.
  • Fed NowCasts tracking to 2.5% with first estimate of Q4 GDP coming at the end of the week. The Atlanta Federal Reserve (Fed) and New York Fed are now both producing NowCasts, regularly updated data-driven models that provide forecasts of the quarter’s GDP starting months before the actual release. Taking the average of the two NowCast models, GDP for the fourth quarter of 2017 is tracking to a solid 2.5%, helped by a pickup in business spending. NowCasts have been no more (or less) accurate than consensus forecasts, but can provide valuable added insight on how GDP expectations are evolving.

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Monday

  • ECB’s Draghi Speaks in Torino
  • Japan: Nikkei’s Mfg. PMI

Tuesday

  • Markit Mfg. PMI (Jan)
  • CBO Releases its Economic and Budget Outlook for 2017-2027
  • Eurozone: Markit Mfg. PMI (Jan)
  • UK Supreme Court Rules on Brexit/Article 50

Wednesday

  • Germany: Ifo (Jan)

Thursday

  • New Home Sales (Dec)
  • Leading Indicators (Dec)
  • UK: GDP (Q4)
  • Japan: CPI (Dec)

Friday

  • GDP (Q4)
  • Durable Goods Orders and Shipments (Dec)
  • Eurozone: Money Supply and Bank Lending (Dec)

 

 

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples. This research material has been prepared by LPL Financial LLC.

 

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