Market Update: July 3, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Stocks end first half with down week. Nasdaq lost ~2% on tech weakness, Dow -0.2%, S&P 500 Index -0.6%; Russell 2000 ended flat. Market weakness partly attributed to hawkish global central bank comments, which pushed yield on 10-year Treasuries up 15 basis points (0.15% to 2.30%), pressured the dollar. Favorable bank stress test results boosted financials, renewed focus on reflation trade into banks, energy.
  • Oil bounce continued, WTI crude oil +7%, bringing session winning streak to seven and price back above $46/bbl. Friday brought first weekly drop in rig count since January.
  • Strong first half despite recent choppiness. Nasdaq rallied 14%, its best first half since 2009, S&P 500 (+8%) produced its best first half since 2013 (Dow matched S&P’s first half gain).

Overnight & This Morning

  • S&P 500 higher by ~0.3%, following gains in Europe. Quiet session likely with early holiday close (1 p.m. ET).
  • Solid gains in Europe overnight– Euro Stoxx 50 +0.9%, German DAX 0.6%, France CAC 40 +1.0%. Solid purchasing managers’ survey data (June Markit PMI 57.4).
  • Asian markets closed mostly higher, but with minimal gains.
  • Crude oil up 0.4%, poised for eighth straight gain.
  • Treasuries little changed. 10-year yield at 2.29%. Early bond market close at 2 p.m. ET.
  • Japanese Tankan survey of business conditions suggested Japanese economy may have increased in the second quarter, manufacturing activity is at multi-year highs.
  • China’s Caixin manufacturing PMI, generally considered more reliable than official Chinese PMI, exceeded expectations with a 50.4 reading in June, up from 49.6 in May.
  • Today’s economic calendar includes key ISM manufacturing index, construction spending.

MacroView_header

Key Insights

  • Several key data points this week, despite the holiday-shortened week. Today brings the important Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI), followed by minutes from the June 13-14 Federal Reserve (Fed) policy meeting on Wednesday and Friday’s employment report. Key overseas data includes services PMI surveys in Europe, China’s manufacturing PMI, and the Japanese Tankan sentiment survey (see below). Market participants will scrutinize this week’s data for clues as to the path of the Fed’s rate hike and balance sheet normalization timetables. Views are diverging again, though not as dramatically as in late 2015/early 2016.

Macro Notes

  • The first six months in the books. It was a solid start to the year, with the S&P 500 up 8.2%, the best start to a year since 2013. Yet, this year is going down in history as one of the least volatile starts to a year ever. For instance, the largest pullback has been only 2.8%–which is the second smallest first-half of the year pullback ever. Also, only four days have closed up or down 1% or more–the last time that happened was in 1972. Today, we will take a closer look at the first half of the year and what it could mean for the second half of the year.

MonitoringWeek_header

Monday

  • Markit Mfg. PMI (Jun)
  • ISM Mfg. (Jun)
  • Construction Spending (May)
  • Italy: Markit Italy Mfg. PMI (Jun)
  • France: Markit France Mfg. PMI (Jun)
  • Germany: Markit Germany Mfg. PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. PMI (Jun)
  • UK: Markit UK Mfg. PMI (Jun)
  • Eurozone: Unemployment Rate (May)
  • Russia: GDP (Q1)
  • Japan: Vehicle Sales (Jun)

Tuesday

  • Happy July 4th Holiday!
  • Japan: Nikkei Japan Services PMI (Jun)
  • China: Caixin China Services PMI (Jun)

Wednesday

  • Factory Orders (May)
  • Durable Goods Orders (May)
  • Capital Goods Shipments and Orders (May)
  • FOMC Meeting Minutes for Jun 14
  • Italy: Markit Italy Services PMI (Jun)
  • France: Markit France Services PMI (Jun)
  • Germany: Markit Germany Services PMI (Jun)
  • Eurozone: Markit Eurozone Services PMI (Jun)
  • UK: Markit UK Services PMI (Jun)
  • Eurozone: Retail Sales (May)

Thursday

  • ADP Employment (Jun)
  • Initial Jobless Claims (Jul 1)
  • Trade Balance (May)
  • Germany: Factory Orders (May)
  • ECB: Account of the Monetary Policy Meeting
  • Mexico: Central Bank Monetary Policy Minutes
  • Japan: Labor Cash Earnings (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Jun)
  • Unemployment Rate (Jun)
  • Average Hourly Earnings (Jun)
  • Average Weekly Hours (Jun)
  • Labor Force Participation & Underemployment Rates(Jun)
  • Germany: Industrial Production (May)
  • France: Industrial Production (May)
  • Italy: Retail Sales (May)
  • UK: Industrial Production (May)
  • UK: Trade Balance (May)

 

 

 

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. 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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