Market Update: May 1, 2017


  • Stocks head higher to begin week. U.S. stocks are modestly higher in early trading, following news that Congress reached an agreement late Sunday to fund the government through September 30; pending approval by Friday, the deal will avoid a government shutdown. The major averages all closed lower on Friday, though the S&P 500 still managed a 1.5% gain for the week. Earnings dominated last week’s headlines, as the S&P’s advance was led by more than 2% weekly gains in the technology, healthcare and consumer discretionary sectors. Overnight, nearly all major markets in Asia and Europe were closed for holidays; Japan’s Nikkei was the exception, closing up 0.6% after Purchasing Mangers’ Index (PMI) data came in near expectations. Meanwhile, the yield on the 10-year Treasury is up slightly to 2.30%, COMEX gold ($12669/oz.) is flat, and WTI crude oil is dropping more than 1% to below $49/barrel.


  • Another busy week of earnings on tap. A very strong earnings season continues this week with 127 more S&P 500 companies slated to report results. With about two-thirds of companies having reported, S&P 500 earnings for the first quarter of 2017 are now tracking to a 13.6% year-over-year increase, well above the 10.2% increase reflected in consensus estimates as of April 1. The upside surprise has been about more than just easy comparisons in energy, with broad-based strength across several key sectors, including financials, healthcare, industrials, and technology. The 77% earnings beat rate thus far, should it hold, would be the best since 2010.


  • Company guidance has been more upbeat than usual. Forward estimates for the S&P 500 have only fallen 0.2% since earnings season begin, reflecting generally optimistic guidance from corporate America (average earnings season declines are 2-3%). We see little potential for policy upside in calendar 2017 (though there is a fair amount in 2018), suggesting most of the resilience in earnings estimates reflects recent firming in the business environment.
  • Employment report highlights a busy week. The first week of the month always includes some key economic data, highlighted by Friday’s Employment Situation report. Usually, any Federal Reserve (Fed) policy meeting would be the week’s highlight, but this week’s meeting, concluding Wednesday, will not receive as much attention, with expectations near zero for a rate hike and no new projections accompanying the release of the policy statement. We’ll also get a read on U.S. business activity, with April manufacturing and non-manufacturing PMI from the Institute for Supply Management released on Monday and Wednesday, respectively. Internationally, we’ll get March Eurozone unemployment on Tuesday, Eurozone first quarter 2017 gross domestic product (GDP) on Wednesday, and preliminary Eurozone PMI data on Thursday.
  • Congress reaches deal to fund the government. As expected, after an initial one-week extension, House and Senate negotiators reached a deal to fund the government through September. A vote is expected later this week, possibly as early as Wednesday. Although few saw material risk of a shutdown, clearing this hurdle does help pave the way for other initiatives. Tax reform is the top priority but Republican policymakers continue to try to craft an agreement to repeal and replace ObamaCare, where the path to compromise remains extremely difficult.
  • Almost all markets in Europe and Asia are closed today for the May 1 holiday. Japan is the major exception to the general state. One data point was released, Chinese manufacturing PMI was 51.2, lower than the March figure of 51.8 and also lower than expectations. Lower prices for commodities is largely the culprit, not a drop in demand. Still, it does highlight the sensitivity of the Chinese economy to “Old Industrial China.” After generally good economic reports in Q1 2017, the Chinese government has announced a series of crackdowns on excessive leverage in the real estate and financial markets.
  • Reflecting on Nasdaq 6000. The Nasdaq Composite hit 6000 last week, more than 17 years (or 6250-plus days) after first reaching 5000 back in March of 2000. During the dotcom boom in the late 1990s, moves from 3000 to 4000 and 4000 to 5000 were quick at 56 and 71 days, before the long and winding road to 6000 over the course of nearly two decades. Although this milestone has sparked more bubble talk in the media, we believe stocks are far from bubble territory, and the Nasdaq stands on a much stronger foundation today than it did in the days leading up to the dotcom crash.
  • Welcome to May. May is a busy month with multiple events that could move global markets. From the Fed meeting, to Presidential election in France, to the kickoff of what has historically been the worst six months of the year for equities; this is a big month.



  • Personal Consumption Expediture Core & Deflator (Mar)
  • ISM Mfg. PMI (Apr)
  • BOJ: Minutes of March 15-16 Meeting
  • China: Caixin Mfg. PMI (Apr)


  • Eurozone: Unemployment Rate (Mar)


  • ISM Non-Mfg. PMI (Apr)
  • FOMC Rate Decision (May 3)
  • Eurozone: GDP (Q1)


  • Eurozone: Markit PMI (Apr)
  • Eurozone: Retail Sales (Mar)


  • Change in Nonfarm, Private & Mfg. Payrolls (Apr)
  • Unemployment Rate (Apr)
  • Labor Force Participation & Underemployment Rates (Apr)





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. 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. This research material has been prepared by LPL Financial LLC.

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