- Markets sell off ahead of Fed meeting, corporate earnings. Stocks are down across the globe as investors await key central bank meetings this week and another string of high profile corporate earnings. The S&P 500 drifted 0.1% lower in an unremarkable session Friday; gains in healthcare (+0.8%) and telecom (+0.7%) were offset by losses in energy (-0.9%) and real estate (-0.9%). Many markets were closed Monday in Asia to mark the Lunar New Year, although Japan’s Nikkei Composite slid 0.5% as investors sought safety in the yen following President Trump’s executive order on immigration. In Europe, both bonds and stocks are lower in afternoon trading following German inflation data, which came in at the highest level in more than three years. Meanwhile, WTI crude oil ($52.76/barrel) is lower, COMEX gold ($1192/oz.) is up modestly, and the yield on the 10-year Treasury is down a basis point to 2.48%.
- Little upside in Q4 numbers but there are bright spots. With 169 S&P 500 companies (about 34% of the index) having reported results for the fourth quarter of 2016, year-over-year earnings growth is tracking to a 6.8% increase. Although that pace is better than the 4.3% pace in the prior quarter, the modest upside to prior (January 1, 2017) estimates is disappointing. Financials and technology results are among the bright spots, while we are encouraged by the increase–albeit modest–in overall S&P 500 estimates for the second half of 2017 that at least partly reflect policy upside and the oil rebound. This week is one of the biggest of the season with 109 S&P 500 companies slated to report fourth quarter results.
- Still value in value? Despite its strong 2016, there may still be some value in value. While value (based on the Russell 1000 Value Index) has lagged its growth counterpart so far in 2017, we see several reasons to like value stocks, including accelerating economic and profit growth and the better outlook for financials. But we believe the growth side has enough going for it, including a positive outlook for the technology sector and attractive relative valuations, that we suggest investors generally maintain balance across the styles.
- Very busy week ahead. Several times a year, the global economic and event calendar jams up with a dozen or so high-profile events, and this is one of those weeks. The Federal Reserve Bank, the Bank of Japan, and the Bank of England all meet, and while none is expected to change policy, it’s the first meeting of the year for each. On the political front, the U.K. Parliament will vote on whether to authorize Prime Minister Theresa May to move forward with Brexit, and later in the week, the leaders of the European Union will meet to discuss what’s next. India will release its budget for 2017-2018, and China’s markets are closed for the Lunar New Year. This week is an extremely busy week for data with January data on Institute for Supply Management (ISM), vehicle sales, and the January employment report. Overseas data include GDP reports in the Eurozone, India, Mexico, and Indonesia.
- More small ranges. We’ve been talking about the slow action lately and last week was no different. In fact, the daily range for the S&P 500 on Friday was only 0.32%–which is in the bottom 1% of all daily ranges since 1970. Incredibly, Thursday was actually a smaller range. Even though the S&P 500 was down the last two days of the week, it was one of the 18 smallest two-day losing streaks (down 0.16%) since 2000. Lastly, the S&P 500 has now gone 29 consecutive days without a 1% intraday move, the longest such streak since late 1995.
- Dow 30,000? Barron’s had a cover over the weekend titled “Next Stop Dow 30,000” and as you might expect, it caused quite a stir. Many noted this cover could be a bearish signal, as the well-known ‘magazine cover indicator’ is used as a contrarian indicator. Once something is so universally agreed upon and it makes the cover of a magazine, the trend very well could be closer to the end than the beginning. The classic example of this is the “Death of Equities” BusinessWeek cover that came out near the 1982 low in equities. Turning to the Barron’s article, what is important to note is the forecast of 30,000 by 2025 – which comes out to about a 5% annual gain, well in line with the long-term average for the Dow. So maybe this cover isn’t quite as outlandish as it might appear at first blush.
- Chinese Lunar New Year; Chinese Markets Closed All Week
- Germany: CPI (Jan)
- Employment Cost Index (Q4)
- Chicago Area PMI (Jan)
- Eurozone: GDP (Q4)
- Eurozone: CPI (Jan)
- Germany: Unemployment Change (Jan)
- UK Parliament Begins Debate on Article 50 (Brexit)
- Japan: Bank of Japan Meeting (No Change Expected)
- China: Official Mfg. PMI (Jan)
- China: Official Non-Mfg. PMI (Jan)
- India: GDP (2016)
- ADP Employment (Jan)
- ISM Mfg. (Jan)
- Vehicle Sales (Jan)
- FOMC Statement
- UK Parliament Expected to Vote on Authorizing Article 50 (Brexit)
- India: 2017-18 Budget Speech
- UK: Bank of England Meeting (No Change Expected)
- China: Caixin Mfg. PMI (Jan)
- Employment Report (Jan)
- ISM Non-Mfg. (Jan)
- Evans* (Dove)
- EU Leaders Meet in Malta
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.