Market Update: June 26, 2017

MarketUpdate_header

Last Week’s Market Activity

  • After closing once again at record levels last Monday, the Dow and the S&P 500 Index battled a wave of sector rotation for the balance of the week, finishing higher by the slightest of margins.
  • It was the 2nd consecutive weekly gain for the S&P 500, as increases in healthcare (+3.7%) and technology (+2.3%) offset weakness in the energy (-2.9%), financials (-1.8%), and utilities (-1.8%) sectors.  Positive news on drug development and potential changes to the Affordable Care Act drove healthcare higher, while continued weakness in WTI crude oil ($43.00; -4.0% for the week) pressured the energy sector.
  • The yield on the 10-year Treasury fell to 2.14%, its second lowest close of 2017, pressuring the U.S. dollar, which edged down -0.2% on Friday.

Overnight & This Morning

  • Asian stocks rose for a third day, led by technology companies.  The MSCI Asia Pacific Index rose +2.0% and equity markets in China and Hong Kong had gains approaching 1.0%. In Japan, The Nikkei managed to climb despite a report from the Bank of International Settlements warning of dollar denominated risk on bank balance sheets.
  • European stocks rebounded from three weeks of losses. German business confidence hit a record in June, but Italy had to bail out two banks totaling $19 billion.
  • Commodities – WTI crude oil rose, trimming its biggest monthly decline in one year. Gold extended its decline to the lowest level in almost six weeks.
  • U.S. stock futures are up slightly as the dollar climbed and Treasury yields jumped after several Federal Reserve officials suggested further rate increases.

MacroView_header

Key Insights

  • Mixed signals. The financial markets are sending mixed signals, trading within a tight range in an extended expansion. The debate now centers on if the U.S. economy can continue to exhibit growth in output and profits (signal from stocks) or it may slip into a recession (signal from Treasuries). Our view is that though the growth rate in manufacturing may have peaked, we expect Purchasing Manager Indexes (PMI) to remain in expansion territory. While auto sales may be down ~5.0% from last year, the rise in household formation suggests pent up demand remains in the housing market. Finally, with solid employment levels and improving wages, consumption is well-positioned to support growth and any clarity on regulation, infrastructure, and tax plans could provide an additional boost.
  • Brexit. Friday marked the 1st anniversary of the controversial Brexit vote, which called for the U.K. to leave the European Union (EU).  To mark the occasion, the pound sterling rose +0.2% to $1.27, paring its weekly decline, and the FTSE 100 Index fell -0.2% on Friday. While the U.K. is the largest importer of the EU countries, the FTSE 100 is largely comprised of exporters, with 2/3rds of its revenue generated overseas.  This helps explain why the approximately 15.0% drop in the pound sterling was accompanied by a rise of a similar magnitude (+17.0%) in the FTSE 100 over the past year.

Macro Notes

  • Technicals continue to look strong. One of the strongest aspects of this equity bull market has been that the technicals have and continue to support higher prices. This week we take a closer look at the global bull market and why broad participation suggests it still has legs.
  • 41 weeks and counting. The S&P 500 has now gone 41 straight weeks without closing lower by 2% or more, but that’s not even the most surprising point.

MonitoringWeek_header

Monday

  • Durable Goods Orders (May)
  • Chicago Fed National Activity Report (May)
  • Cap Goods Shipments and Orders (May)
  • Dallas Fed Mfg. Report (Jun)
  • ECB: Draghi
  • BOE: Carney
  • BOJ: Kuroda

Tuesday

  • Conference Board Consumer Confidence (Jun)
  • Richmond Fed Mfg. Report (Jun)
  • Italy: Mfg. & Consumer Confidence

Wednesday

  • Advance Report on Goods Trade Balance (May)
  • Wholesale Inventories (May)
  • Pending Home Sales (May)
  • France: Consumer Confidence (Jun)
  • Eurozone: Money Supply (May)
  • Itally: PPI & CPI (Jun)
  • Bank of Canada: Poloz
  • Japan: Retail Sales (May)

Thursday

  • GDP (Q1)
  • Germany: CPI (Jun)
  • Eurozone: Consumer Confidence (Jun)
  • BOJ: Harada
  • Japan: National CPI (May)
  • Japan: Industrial Production (May)
  • China: Mfg. & Non-Mfg. PMI (Jun)

Friday

  • Personal Income (May)
  • Consumer Spending (May)
  • Chicago PMI (May)
  • Core Inflation (May)
  • UK: GDP (Q1)
  • France: CPI (Jun)
  • Germany: Unemployment Change (Jun)
  • Eurozone: CPI (Jun)
  • Canada: GDP (Apr)
  • Japan: Vehicle Production (May)
  • Japan: Housing Starts (May)
  • Japan: Construction Orders (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.

Market Update: May 30, 2017

MarketUpdate_header

Last Week’s Market Activity

  • S&P 500 Index and the Nasdaq closed at new record highs last Friday; seventh consecutive gain for S&P 500 and 20th record close year to date.
  • The combination of positive sentiment and low volatility suggests stocks may continue to absorb challenging headlines.  Investors weathered potential risks from last week’s news, including: fallout from Comey firing, growing investigation into Administration/Russia ties, White House’s 2018 budget proposal, terrorist bombing in Manchester, Moody’s China debt downgrade, CBO’s score for AHCA, and minutes from last Federal Open Market Committee (FOMC) meeting suggesting higher interest rates ahead.
  • Markets also handled disappointing economic reports, specifically weakness in new home sales, durable goods orders; instead focusing on longer-term trends such as positive global data (Germany, Japan), upward revision to U.S. gross domestic product (GDP) in the 1st quarter.
  • Orders for durable goods fell in April, but good news in the details. Drop (-0.7%) in orders bested expectations (-1.0%) and March revision was strong (details below).
  • Orders ex-transportation showed a similar pattern. Nondefense capital goods shipments ex-air, a proxy for business spending, fell slightly (-0.1%) but better than forecast, following four consecutive monthly gains.
  • For the week, stocks rose +1.5% to +2.0%, powered higher by the unusual combination of utilities and technology sectors, each up >2.0%.  Investors likely hedging their bets, counting on growth prospects of technology, but not necessarily buying into Fed’s rate outlook as “bond proxy” utilities sector rose.
  • Weakness in energy (-2.0%) as markets appeared to have already priced in extension to OPEC production cuts, but investors wanted deeper cuts and pushed WTI crude oil down by >1.5% last week (after rising for three weeks) to ~$49.00/bbl.
  • Action in U.S. Treasury market also points toward less Fed activity after expected June hike, with 10-Year Treasury yield hovering in the 2.25% range, on track for fourth straight monthly gain.
  • U.S. dollar firmed slightly (+0.1%) on the heels of solid GDP revision.
  • Stocks in Europe basically flat Friday; euro & pound sterling weakened as Conservatives’ lead over Labour has narrowed considerably in recent weeks.
    Emerging markets stocks +2.0% on the week, maintaining year to date leadership globally.

Overnight & This Morning

  • Stocks in Asia little changed amid shortage of overseas leads.
  • Yen strengthened for a third day against the U.S. dollar (USD/JPY -0.3% to 110.9)
  • In Europe, shares down fractionally (Euro Stoxx 600 -0.1%); bank stocks, weakness in business & consumer confidence weighing
  • European Central Bank (ECB) Head Draghi was critical of U.S. trade proposals in speech to European Parliament yesterday.  He also reaffirmed commitment to maintaining ECB stimulus, placing pressure on the euro.
  • Euro down -0.1% to $1.11
  • Commodities – Mostly lower, led by weakness in precious metals and agriculture, with WTI oil holding below $50.00/bbl. COMEX gold (-0.2%) to $1265 and copper (-0.6%).
  • U.S. stock, Treasury yields down slightly in muted, post-holiday trading.
  • U.S. dollar weak vs. yen but stronger vs. euro and other major currencies
  • U.S. Personal Income and Spending for April met expectations after two consecutive shortfalls. Inflation metrics in this report are. Its preferred measure of price growth, the Core PCE deflator, key inflation metric for the Federal Reserve, at 1.7% from 1.6%.

MacroView_header

Key Insights

  • The trend for business spending/capital investment is improving.  After years of hoarding cash, paying yield, and buying back shares, the business cycle has returned with upward shifts in pricing and U.S. monetary policy.  Businesses can no longer simply attempt to maintain market share, but rather, they must grow market share as the recovery/expansion enters its ninth year.
  • While personal consumption is still the primary driver of U.S. economic growth, we believe the rate of growth in the coming quarters/years will be driven by capital investment, which is taking up a larger portion of GDP contribution (details below).
  • 1Q earnings per share (EPS) (+15% year over year) faced the easiest comparisons and we look for remainder of 2017 quarterly EPS gains to hover in the mid-high single digit range. These are smaller percentage gains than what we’ve become accustomed to these past couple of quarters, but still indicative of sustained, late cycle growth accompanied by still low interest rates and inflation (details below).
  • We recognize current trading range is of concern. Despite the flattening yield curve, which could partly be the result of global sovereign credit valuations, there appears to be little stress evident in the credit markets (details below).

Fixed Income Notes

  • Despite equity markets at/near record levels, bond market continues to hang in there.  Constant maturity 10-year Treasury note up four consecutive months, Barclays Aggregate (+2.0%) and Barclays High Yield (+4.0%) providing positive returns year to date.
  • After 1.35% low last June, 10-year Treasury yield surged to 2.65% in late February/early March of this year. Since then, several factors have conspired to push yields lower, despite Fed’s plans to raise interest rates (see below). First, failure of the first vote on ACA repeal placed a great deal of uncertainty on likelihood of President Trump’s pro-growth policy agenda being fully enacted. Second, weak Q1 GDP enabled flattening of the yield curve. Third, some are projecting higher short-term borrowing costs will curb lending and growth, making it tougher for Fed to sustain 2.0% inflation target. Fourth (less sinister) reason has to do with relative valuation.  With Fed moving in a different direction from ECB and BOJ, those sovereign bonds trading at very expensive valuations, increasing attractiveness of U.S. government bonds.
  • This can be a blessing and a curse: curse is that a bid for U.S. Treasuries from global investors helps mask our spending profligacy. The blessing is global investors appear confident slow growth with low inflation likely to be sustained in U.S., without signs of excessive upside, or downside risks.
  • As a result, we continue to look for the U.S. benchmark Treasury yield to trade within the 2.25% to 2.75% range in the second half of 2017.
  • Corporate credit spreads (high yield & investment grade) remain narrow, credit default swaps (CDS) also held steady. If these critical market signposts (10-year Treasury yield, credit spreads, CDS) hold steady, financial markets likely to continue narrow trading range
  • Geopolitics may periodically cause near term uncertainty, but like equity markets, next catalyst likely move the bond market will be clarity on U.S. fiscal policy

Macro Notes

  • S&P 500 currently at another record level, 2415, but technicals suggest move to 2450-2475 within reach in coming months.
  • Bullish catalyst is necessary, could come in the form of: sustainable EPS growth, > expected GDP in Q2/Q3, less aggressive Fed in 2H17, corporate tax cuts, tax reform, global GDP etc.
  • Unfortunately, move of this magnitude highly dependent on fiscal policy changes, where uncertainty narrows trading ranges until clarity emerges.
  • Fundamentally, move toward this level can be justified, but anything above it would need more clarity on 2018 EPS increases, largely due to combination of repatriation tax holiday/reduction in corporate tax rate.
  • Assuming $130.00 in S&P 500 operating EPS this year, stocks currently trading ~18.5x calendar 2017; a move >2450 would take market price-to-earnings ratio (P/E) >19x.
  • Tax reform may be too big to achieve in current political environment, but corporate tax cuts still possible; if implemented, 2018 EPS could be >$140.00, which would bring target ranges for index 2500 to 2550 in 12 to 18 months
  • U.S. Q1 Real GDP revised higher from +0.7% to +1.2%, helped by a more positive picture of business investment, which had already posted a strong quarter, and a slightly better picture of consumer spending. The improvement alleviates some concerns of Q1 weakness and increases the likelihood of a Fed rate hike in June. Looking at Q2 GDP, prospects are for much stronger growth, and could be in the +3.0%, as pent up demand in cap-ex, housing, and an inventory rebuild from Q1 weakness propels GDP higher.
  • Though components of the durable goods report (airlines, transportation) can be volatile, the trend over the past year for orders (business investment) is still up approximately +5.0% year over year, despite last month’s weakness
  • A host of European economic data was released overnight, generally showing that the economic recovery continues, but at a somewhat slower pace than expected. The highlighted number was German inflation, running at 1.4%, below forecast and previous readings of 2%, which is also the ECB target rate. This data reduces some pressure on the ECB to alter its current monetary policy.
  • Politics continue to foil plans for European certainty. Just three weeks ago, the election of a Conservative government in the U.K. was seen as both a certainty and a boost for Prime Minister Theresa May. In the past few weeks, a Conservative victory, while still likely according to the polls, is now less certain. The British pound has also weakened, not coincidentally. In addition, there have been renewed calls for an early election, as soon as September 2017, as opposed to the 2018 election now expected. An early election would likely focus directly on the EU and the euro.
  • Corporate Beige Book supports strong earnings outlook. Much like first quarter earnings results and management guidance, our measure of corporate sentiment based on our analysis of earnings conference call transcripts was better than we expected. We saw a sharp increase in strong and positive words over the prior quarter, with no change in weak and negative words. Wwe believe the positive tone from management teams supports a favorable earnings outlook in the quarters ahead.
  • New highs and no volatility, more of the same. The S&P 500 Index closed at another new high on Friday, making it seven consecutive higher closes. It hasn’t been up eight days in a row since July 2013 and the previous two seven day win streaks ended at seven days. It also gained 1.4% for the week, avoiding its first three week losing streak since before Brexit. Last, the incredible lack of volatility continued, as the S&P 500 Index traded in a range of only 0.19% on Friday, the smallest daily range since March 1996 and the smallest daily range while also closing at a new all-time high since August 1991.
  • June is a busy month for central banks. Summer is nearly here and historically that has meant lower volume, but potential market volatility. As we turn the calendar to June, the three big events this month are all from central banks: as the Fed, the ECB, and the BOJ all have meetings to decide interest rate policy. These events, along with a few others, could make for an eventful month in June.

MonitoringWeek_header

Monday

  • Memorial Day Holiday
  • Eurozone: Money Supply (Apr)
  • Japan: Jobless Rate (Apr)

Tuesday

  • PCE (Apr)
  • Conference Board Consumer Confidence (May)
  • France: GDP (Q1)
  • Germany: CPI (May)
  • Eurozone: Consumer Confidence (May)
  • Japan: Industrial Production (Apr)
  • China: Mfg. & Non-Mfg. PMI (May)

Wednesday

  • Chicago Area PMI (May)
  • Beige Book
  • France: CPI (May)
  • Germany: Unemployment Change (May)
  • Eurozone: Unemployment Rate (Apr)
  • Italy: CPI (May)
  • Eurozone: CPI (May)
  • India: GDP (Q1)
  • Canada: GDP (Mar)
  • Japan: Nikkei Japan Mfg. PMI (May)
  • China: Caixin China Mfg. PMI (May)
  • Japan: Capital Spending (Q1)

Thursday

  • ADP Employment (May)
  • Non-Farm Productivity (Q1)
  • Initial Jobless Claims (May 27)
  • Markit Mfg. PMI (May)
  • ISM (May)
  • Eurozone: Markit Eurozone Mfg. PMI (May)
  • Italy: GDP (Q1)
  • Brazil: GDP (Q1)
  • South Korea: GDP (Q1)
  • Canada: Markit Canada Mfg. PMI (May)
  • Japan: Vehicle Sales (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (May)
  • Unemployment Rate (May)
  • Trade Balance (Apr)
  • Eurozone: PPI (Apr)

 

 

 

 

 

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.

Market Update: April 3, 2017

MarketUpdate_header

  • Stocks search for direction to begin Q2. After closing out a solid first quarter amidst Brexit and Trump-trade uncertainties, equities are modestly lower in early trading. Friday’s session saw the S&P 500 (-0.2%) and the Dow (-0.3%) finish in the red, ending the quarter without enthusiasm despite an overall increase of 5.5% for the S&P. Rate-sensitive real estate (+0.5%)  and utilities (+0.3%) won the sector battle for the day as a number of Federal Reserve (Fed) presidents expressed interest in potentially reducing the Fed’s balance sheet; financials (-0.7%) was the worst performer. Overseas, the Hang Seng (+0.6%) and Nikkei (+0.4%) gained ground on strong regional Purchasing Managers’ Index (PMI) data; China’s Shanghai Composite was closed for a holiday. In Europe, the STOXX 600 Index (-0.2%) and most markets are lower. Meanwhile, WTI crude oil ($50.46/barrel) is down slightly, COMEX gold ($1253/oz.) is near flat, and the yield on the 10-year Treasury is down to 2.36%.

MacroView_header

  • Checking in on so-called Trump trades. Recent underperformance of small caps, financials, and industrials likely reflects some loss of confidence in the Trump agenda, although we believe small caps and financials may have enough going for them that the recent weakness may be a buying opportunity, even with a scaled-back policy path. Industrials, on the other hand, may need more help from the macroeconomic environment should policy disappoint.
  • Just missed five in a row. The S&P 500 lost 0.04% last month, after a late-day drop on Friday. This was the first monthly decline since October, just missing the first five month win streak since March-July 2016. It was still a great first quarter as the S&P 500 jumped 5.5%; the best return since Q4 2015 and the best Q1 since 2013. For the quarter, technology and consumer discretionary led, while telecom and energy lagged.
  • April is usually strong. Over the past 20 years, no month sports a higher monthly S&P 500 average than April at 2.0%. Going back to 1950[1], the average monthly return is 1.5%, with only the historically strong months of November and December better. Post-election years are also strong, up 1.6% on average. Lastly, after a big first quarter gain of 5% or more (like 2017), April actually does better at up 2.0% on average.
  • April is a big month. There are multiple potential market-moving events in April: the start of Q1 earnings season, elections in France, and a potential government shutdown head the list of things we are watching closely. To get ready for the big month, we will examine these events more closely.

MonitoringWeek_header

Monday

  • ISM (Mar)
  • Eurozone: Markit Mfg. PMI (Mar)
  • Eurozone: Eurostat PPI Industry Ex-Construction (Fed)

Tuesday

  • Eurozone: Eurostat Retail Sales Volume (Feb)

Wednesday

  • ISM Non-Mfg. (Mar)
  • Eurozone: Markit Services & Composite PMI

Thursday

  • Initial Jobless Claims (Apr)
  • Eurozone: Market Retail PMI (Mar)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Mar)
  • Unemployment Rate (Mar)
  • Average Hourly Earnings (March)

 

 

 

 

[1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

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.

Market Update: March 6, 2017

MarketUpdate_header

  • Equities move lower to begin week. U.S. stocks are moving lower in early trading, following their European counterparts on little news. The major averages all managed to squeak out slight gains on Friday; the S&P 500’s 0.1% gain was led by financials and healthcare, which both closed up 0.4%. Overnight in Asia, stocks finished mostly higher with the exception of Japan’s Nikkei (-0.5%) as the yen strengthened; the STOXX Europe 600 is lower by 0.5% in afternoon trading. Meanwhile, the yield on the 10-year Treasury is near flat at 2.48% as market-implied expectations of a Fed rate hike in March are near 86%, WTI crude oil ($53.25/barrel) is slightly lower, and COMEX gold ($1231/oz.) is climbing 0.4%.

MacroView_header

  • Brexit, EU summit, China forecasts, Fed “quiet period”, and February jobs report highlight week ahead. Other than the February employment report (due out this Friday, March 10)  it’s a relatively quiet week for U.S. economic data. It’s also the unofficial quiet period for the Federal Reserve ahead of the March 14-15 FOMC meeting. The overseas calendar is chock full of potentially market-moving events, including the EU leaders summit, a potential House of Lords vote on Brexit, the European Central Bank meeting, and a few key reports on China’s economy in February.
  • Beige Book. This week, we’ll examine the Fed’s latest Beige Book, looking for signs of any impact from the new Trump administration, an overheating labor market, rising wages, and inflation ahead of next week’s FOMC meeting.
  • Corporate sentiment improved again in our latest Corporate Beige Book. Sentiment improved among corporate executives based on our analysis of fourth quarter earnings conference call transcripts. Not surprisingly, policy was a popular topic, as corporate tax reform, infrastructure and regulation saw big jumps in the number of mentions. Currency and China also continued to garner a lot of attention, while energy and Brexit faded. The solid fourth quarter results coupled with improved sentiment from corporate executives support our expectation of mid-to-high single digit earnings growth for the S&P 500 in 2017.
  • The Chinese National People’s Congress began its annual meeting on Sunday. Nothing shocking has come out of the meeting so far, though little was expected. Official economic growth forecasts have been cut to 6.5%. The focus of the meeting has been on economic stability, including a reduction in monetary growth targets and efforts to reduce China’s bad debt problem. The most notable change in language related to calls for further currency liberalization. A more market-oriented currency policy suggests potential weakening of the yuan, which would run counter to China’s long-term political goals, as well as increase the likelihood of China being labeled a “currency manipulator” by the Trump administration.
  • Make that six in a row. The S&P 500 was up 0.7% for the second consecutive week, and managed to close at a new weekly all-time high. In the process, it closed higher for the sixth consecutive week for the first time since a six-week win streak off of the February 2016 lows. The last time it was up seven weeks in a row was late 2014. Here’s the catch, the S&P 500 was up only 4.9% the past six weeks – making this one of the weakest six-week win streaks ever. Given the historically small daily trading ranges recently, this shouldn’t come as a big surprise. You have to go back to late 2013 for the last time there was a smaller return during a six-week win streak.

MonitoringWeek_header

Monday

  • Kashkari (Dove)

 Tuesday

  • China: Imports and Exports (Feb)
  • Japan: Economy Watchers Survey

 Wednesday

  • ADP Employment (Feb)
  • China: CPI (Feb)

Thursday

  • Initial Claims (3/5)
  • Challenger Job Cut Announcements (Feb)
  • Household Net Worth and Flow of Funds (Q4)
  • European Union leaders Summit in Brussels Begins
  • Eurozone: European Central Bank Meeting (No Change Expected)

Friday

  • Employment Report (Feb)
  • European Union leaders Summit in Brussels Continues

 

 

 

 

 

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.

Market Update: December 19, 2016

MarketUpdate_header

  • Stocks edge up to begin quiet week. U.S. markets are slightly higher in early trading, kicking off what is likely to be a low-volume week on scattered data releases ahead of the holidays; though a speech by Federal Reserve Bank (Fed) Chair Janet Yellen this afternoon will garner attention. Friday’s session saw the S&P 500 (-0.2%) slip into negative territory for the week, as the heavily weighted technology (-0.8%) and financials (-0.9%) sectors lagged; rate-sensitive utilities and real estate both moved up more than 1%, despite only a 1 basis point (.01%) drop in the yield on the 10-year Treasury. Overnight, Asian markets were modestly lower, led down by the Hang Seng (-0.9%) after China stated it would take measures to control asset bubbles in 2017; major European indexes are near flat in afternoon trading, with the STOXX Europe 600 down 0.1%. Finally, WTI crude oil ($52.70/barrel) is slightly lower, COMEX gold ($1,141/oz.) is rising by 0.3%, and the yield on the 10-year note is down to 2.55%.

MacroView_header

  • 2016 calendar winding down. Although there are a few key events on tap this week (i.e., a speech by U.K. Prime Minister Teresa May on Brexit, the Bank of Japan’s final policy meeting of the year, and Vladimir Putin’s only press conference of 2016), the calendar is fairly quiet. Data on new and existing home sales, the service sector Purchasing Managers’ Index (PMI) and durable goods orders and shipments are the key U.S. data releases. Overseas, China’s property price indices (released over the weekend) and the German IFO reading for December (released overnight) were the only key events.
  • A look back. As the year comes to an end, we take a look back at some of our hits and misses of 2016. We certainly had some of both in a difficult year to forecast equity markets. First, the year got off to one of the worst starts ever as oil prices collapsed. Then it was the unexpected outcome to the Brexit vote, which stocks largely shrugged off, followed by Trump’s upset, which was followed by one of the strongest post-election stock market rallies in history-outcomes few predicted. Among the hits, our stock market forecast and our decision to largely stay on the sidelines with regard to international equity markets. Misses included favoring large caps and growth.
  • Can we count on Santa in 2016? Since 1950, the S&P 500 historically has been flat from December 1 through 15, then rallies nicely into year end. Last week, we took a look at this bullish time of year and the well-known Santa Claus Rally. But what happens during rare years like 2016, when the S&P 500 has already seen nice gains (2.9%) as of the mid-way point of the month? Going back to 1950¹, we found there were only seven other months that were up on December 15 at least 2.75%. The good news? The rest of the month the S&P 500 gained another 1.8% on average and was higher all seven times.

MonitoringWeek_header

Monday

  • Markit Services PMI (Dec)
  • Yellen (Dove)
  • Germany: Ifo (Dec)
  • UK: PM Teresa May Makes a Statement on Brexit

Tuesday

  • Japan: Bank of Japan Meeting (No Change Expected)

Wednesday

  • Existing Home Sales (Nov)

Thursday

  • Leading Indicators (Nov)
  • Durable Goods Orders and Shipments (Nov)
  • Russia: President Putin Holds His Annual Press Conference in Moscow

Friday

  • New Home Sales (Nov)

 

 

 

 

 

 

¹ The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

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.

Market Update: Monday, October 3, 2016

LPL Financial Research

MarketUpdate_header

  • Global markets assess oil rally and Brexit update. U.S. stocks are lower this morning after closing the third quarter on a positive note. The financial and energy sectors led Friday’s rally, boosted by reports that Deutsche Bank may have reached a settlement to reduce the $14 billion fine levied by the U.S. Department of Justice and that OPEC may be on track to reduce output; WTI crude oil sits at $48.20/barrel. The British pound is falling against other currencies after U.K. Prime Minister Theresa May promised a swift exit from the European Union; U.K. stocks are markedly higher though the rest of Europe is near flat in afternoon trade. Overnight, the Nikkei Index gained 0.9% while Hong Kong’s Hang Seng rose 1.2% on mixed Purchasing Managers’ Index (PMI) data; the Shanghai Composite is closed all week for a holiday. Meanwhile, COMEX gold ($1316/oz.) is modestly lower and weakness in Treasuries

View original post 1,219 more words