Market Update: February 6, 2017

MarketUpdate_header

  • Stocks tick lower to begin quiet week. The S&P 500 is modestly lower in early trading, kicking off a week with little upcoming in the way of economic data and policy; earnings will likely take center stage. The S&P logged a 0.7% gain on Friday following the monthly jobs report, though stocks ended last week little changed despite a barrage of bellwether earnings reports. The S&P climbed 0.1% on the week on the back of a 2.4% gain in the healthcare sector. Asian indexes closed mostly higher overnight; the Hang Seng (+1.0%) outperformed the broader region despite a weak Caixin Services PMI report. European stocks are mostly lower in afternoon trading; Italy’s MIB (-1.6%) leads the way lower while the STOXX Europe 600 is down 0.4%. Finally, the yield on the 10-year Treasury note is down to 2.44%, WTI crude oil ($53.65/barrel) is lower by 0.3%, and COMEX gold ($1228/oz.) is rising 0.6%.

MacroView_header

  • Earnings pace picked up over the past week. S&P 500 estimates for the fourth quarter jumped 1.2% over the past week and are now tracking to an 8% year-over-year increase, 1.8% above initial estimates on January 1, 2017 (Thomson Reuters estimates). The latest improvement was driven largely by the energy sector, which had gotten off to a difficult start and now may produce its first earnings gain in more than two years. Financials and technology, the fastest earnings growers for the quarter, also saw earnings tick up over the past week. Guidance has been relatively good as 2017 S&P 500 estimates have fallen just 0.7% during earnings season, better than average (they typically drop 2-3%) and a positive sign, although only about 55% of S&P 500 companies have reported thus far. This week is another busy one for earnings with 89 S&P 500 companies slated to report.

020617_earningsdashboard-01

  •  Weekly gains again. After a 0.7% jump on Friday, the S&P 500 managed to squeak out a 0.1% gain for the week – the first back-to-back weekly win since Thanksgiving. The S&P 500 just missed out on a new all-time closing high Friday, but it did set a new weekly all-time high. Continuing a recent trend, equity prices gapped at the open, then did very little the rest of the day. In fact, the S&P 500 has now gone 34 consecutive days without a 1% daily range – tying the all-time record from 1995. It has now been 79 consecutive days without a 1% close lower for the S&P 500, the longest stretch in more than 20 years.
  • China continues its post-holiday bad news drip. More Caixin (mid-sized and smaller companies) data were released overnight. Composite PMI (both services and manufacturing) were down as manufacturing disappointed last week, while services fell this week to 53.1 from 53.4 in the prior month. However, the numbers still suggest expansion in the economy, just at a slower pace. This is the eleventh consecutive month of expansion. Asian markets (save Australia) had a positive session overnight and the Chinese yuan strengthened slightly.
  • European data shows continued expansion. European data released this morning show economic expansion, though not all numbers were rosy. German factory orders grew at 5.2% for the month, much better than expected. Retail PMIs also showed expansion (above 50) for most, but these numbers were weaker than expected in Germany and region wide. Of the major countries in Europe, Italy remains the weak link, with retail PMI below 50 since the end of 2015 and weaker than expected this month. Markets are weaker across the board this morning in Europe.
  • Quiet week ahead. Last week (January 30-February 3) was an unusually busy one for economic data and policy. This week (February 6-10) is not. While China will begin to report its January 2017 data set, there are few if any potentially market moving data reports on tap in the U.S., Europe, or Japan. There are a handful of Fed speakers, ECB president Mario Draghi will deliver a speech, and central banks in emerging markets will be busy as Mexico is expected to raise rates and India is expected to cut. The U.K. parliament will continue to debate and then vote this week on whether to trigger Article 50 and officially start the process of leaving the EU.
  • NAFTA. This week we’ll take a look at the politics behind NAFTA-the North American Free Trade Agreement-and its impact on U.S. trade, employment, and wages-as the Trump Administration continues to make changes to U.S. trade policy.
  • A technical look at things. Long-term technicals continue to look very promising, with multiple U.S. equity indexes breaking out to new all-time highs. This type of market breadth bodes well for a possible continuation of the equity bull market. One potential worry is seasonality, as the month of February is historically weak. Digging in more, in the calendar year following a presidential election, February is the worst month on average. One other near-term worry is overall market sentiment is rather optimistic. From a contrarian point of view, this could be a potential warning sign.

MonitoringWeek_header

Monday

  • Harker (Hawk)
  • ECB’s Draghi speaks in Brussels

Wednesday

  • UK: House of Commons to Vote on Article 50
  • India: Reserve Bank of India Meeting (Rate Cut Expected)

Thursday

  • Mexico: Central Bank Meeting (Rate Hike Expected)
  • China: Money Supply and New Loan Growth (Jan)
  • China: Imports and Exports (Jan)

Saturday

  • Fischer (Dove)

 

 

 

 

 

 

 

 

 

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.

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s