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: May 15, 2017

MarketUpdate_header

  • Overnight in Asia most indexes were up fractionally while Japan pulled back slightly. G-7 discussions focused on protectionist threats, which weighed on sentiment. North Korea also fired a new missile over the weekend, adding to tensions on the peninsula.
  • WTI crude oil prices are up ~3.0%, to $49.25/barrel, after energy ministers from Saudi Arabia and Russia agreed that extension to oil production cuts for an additional nine months, through March 2018, is needed.
  • European markets were mixed on either side of flat. Investors were positive on Christian Democrats state victory supporting Merkel’s hold on power, while oil move was also welcomed.
  • U.S. markets are moving higher, boosted by news on potential oil production cuts. Meanwhile, concerns over cyberattacks and Trump/Comey drama may dampen enthusiasm as trading progresses.

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Key Insights

  • The economy remains on track for Q2 gross domestic product (GDP) growth of 2.0% to 2.5% despite mixed inflation readings and retail sales below forecast.
  • The Consumer Price Index (CPI) rose +0.2% month over month and up from the drop of -0.3% in March, however both year over year CPI (+2.2%) and year over year core CPI (+1.9%) were below expectations, triggering the rally in safe havens last Friday.
  • Retail sales (+0.4%) were also below expectations, but up from the prior month. When considering the improvement in consumer sentiment, it is important to remember that this data point (retail sales) and the performance of retail stocks, should not be viewed as an indictment of the U.S. consumer. Rather than a changing consumer, it is a change in consumer buying habits, which is combining to alter not only retail sales figures, but also pricing measures. Consumers are spending: 1) more online, 2) on experiences over goods, and 3) comparison shopping using mobile technology. Consequently, it is very difficult for the department store model to continue charging premium, retail prices.
  • Considering the unemployment rate of 4.4%, wage growth of +2.5% year over year, riding confidence and delayed tax refunds, the near-term (Q2) and longer-term (2017) GDP trajectory appears favorable. Clarity on tax reform could take these numbers even higher.

Macro Notes

  • Excellent earnings season but bar will soon be raised. First quarter earnings season has been excellent by almost any measure. Results beat expectations by more than usual, the overall growth rate is very strong, and guidance has provided above-average support for analysts’ estimates for the balance of 2017. But at the risk of raining on the earnings parade, we would note that comparisons will get tougher as we anniversary the earnings recession trough of 2016, while the risk that the corporate tax reform timetable gets pushed into 2018 has increased. Market participants generally expect fiscal policy to begin to provide an earnings boost by year end, an expectation that has become increasingly tenuous.

 

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  • Chinese industrial production growth weaker than expected. Chinese industrial production growth came in at 6.5% vs. expectations of 7% and down from period month of 7.6%. On an absolute basis, the economy is still on track to meet its growth goals, though it looks like growth may have peaked for the year at the end of the first quarter. The government continues to crack down on excess leverage in the financial system; today’s numbers are unlikely to move them off that path.
  • Japan domestic demand, and prices, rise in April. We normally think of Japan as an export oriented economy, but domestic demand increased over 4% on a year-over-year basis, with the impact felt most strongly in demand for raw materials. Producer prices rose modestly last month against declining expectations and are running at 2.1% annually.
  • Bank of Japan. Just like the Federal Reserve (Fed) and the European Central Bank (ECB), the Bank of Japan (BOJ) is under some public pressure to outline how it intends to unwind both its zero-interest rate policy and the massive expansion of its balance sheet to 93% of the country’s GDP. Recent statements from BOJ Governor Kuroda suggests such policy announcements may be coming. The more good news that comes out of the Japanese economy, the more pressure the BOJ is under.
  • Win streak snapped, but lack of volatility remains. The S&P 500 snapped its 3-week win streak last week, with a modest 0.3% drop. One thing continued though and that was the incredibly small daily ranges and lack of overall volatility. On the week, the S&P 500 traded in less than a one-percent range (from high to low) for the second consecutive week ( only the third time since 1995). Additionally, the intraday range on Friday was 0.22% – the smallest daily range on a full day of trading in nearly three years.
  • Checking in on small caps. The lack of volatility isn’t just in the blue chips, as the Russell 2000 has traded in a range of only 6.8% over the past 20 weeks. That is the tightest 20-week range since at least 1990. After a big jump in the fourth-quarter, small caps have lagged large caps this year, as they continue to consolidate the late 2016 gains.

MonitoringWeek_header

Tuesday

  • Italy: GDP (Q1)
  • UK: CPI & PPI (Apr)
  • Eurozone: GDP (Q1)

Wednesday

  • Russia: GDP (Q1)
  • Japan: GDP (Q1)

Thursday

  • LEI (Apr)
  • ECB: Draghi

 

 

 

 

 

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: 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.

 

Market Update: December 5, 2016

MarketUpdate_header

  • Global stocks shake off Italy vote; oil moves higher. U.S. indexes are moving higher in early trading, boosted by resilience in European equities after Italians voted down the country’s constitutional referendum on Sunday; rising WTI crude oil prices are also lending support. This comes after the S&P 500 failed to hold early gains in Friday’s session, as strength in defensive stocks was not enough to overcome weakness in the heavily weighted financials and consumer discretionary sectors. Overseas, Asian markets finished mostly lower; the Shanghai Composite (-1.2%) and the Hang Seng (-0.2%) both declined, whereas Japan’s Nikkei (-0.8%) took a breather after reaching 11-month highs last week. Stocks in Europe recovered from early selling pressure following Sunday’s vote in Italy; the STOXX 600 is up 0.4% mid-afternoon. Elsewhere, oil ($51.88/barrel) is tracking near 12-month highs on optimism around last week’s Organization of the Petroleum Exporting Countries (OPEC) deal, COMEX gold ($1163/oz.) is off 1.24%, and Treasuries are falling as the yield on the 10-year note trades at 2.44%.

MacroView_header

  • Quiet week ahead for data as investors mull election results in Europe. As is typically the case in the week after the release of the U.S. monthly jobs report, released last Friday, December 2, 2016, this week’s U.S. economic calendar is relatively quiet, with today’s key release being the service sector Institute for Supply Management (ISM) reading for November. After a flurry of Federal Reserve Bank (Fed) speakers today, December 5, the unofficial “quiet period” for the Fed begins, ahead of the December 13-14, 2016 Federal Open Market Committee (FOMC) meeting. Overseas, China will begin to report its November data set this week, and the central banks of Canada, Australia, and India all meet. With the Italian referendum and the Austrian election in the rear-view mirror, the key event in Europe this week is the European Central Bank‘s policy meeting on Thursday, December 8.
  • European equity markets, and the euro itself, are positive after yesterday’s voting. As widely expected, the Italian people voted against a referendum that would restructure how the country’s Senate would be elected, leading to the resignation of Prime Minister Matteo Renzi. His resignation opens the door for the anti-European Five Star party to gain political strength, and perhaps even lead the next Italian government. Although this is potentially destabilizing, the markets had well priced in the outcome of this vote. At the same time, Austrian voters rejected an anti-European candidate from the far right as their president. Though the presidency in Austria is relatively weak, the election of a far-right candidate would have been seen as another threat to European political integration and the euro itself. This positive surprise has helped the markets (outside of Italian stocks) remain buoyant.
  • Beige Book recap. The themes in the November 2016 Beige Book are consistent with our view that the Fed will raise rates later this month. At +64, the November Beige Book 2016 reading is now back in the middle of the range it has been in since early 2012. Despite the elevated level of uncertainty surrounding the U.S. presidential election and the outlook for the global economy, optimism on Main Street still reigns.
  • Irrational Exuberance Part 2? Twenty years ago today, Fed President Alan Greenspan gave his now famous Irrational Exuberance speech regarding over-valuations in the equity markets. Today, we examine if we are in another state of irrational exuberance. One concern is valuations are indeed higher than historical norms, although they are by no means near the euphoric levels of the late 1990s. On the fundamental front, the economy continues to show growth consistent with mid cycle, not late cycle. Last, overall market sentiment is showing many more bulls than we saw a month ago, but it still isn’t near the levels of excitement seen at previous market peaks.
  • Santa tends to come late. We all know that December is historically a strong month or equities, with the S&P 500 up 1.6% on average since 1950[1]. Here’s the catch: nearly all the gains tend to happen the second half of the month. Since 1950 on average, the S&P 500 has been flat as of December 15, rallying strongly during the second half of the month. The past 20 years, the S&P 500 has actually been down 0.4% as of mid month, before finishing 1.3% higher on average.

[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.

MonitoringWeek_header

Monday

  • ISM Non Mfg. (Nov)
  • Dudley (Dove)
  • Evans (Dove)
  • Bullard (Hawk)

Tuesday

  • FOMC Quiet Period Begins

Wednesday

  • India: Reserve Bank of India Meeting (No Change Expected)
  • China: Imports and Exports (Nov)

Thursday

  • Flow of Funds (Q3)
  • Eurozone: European Central Bank Meeting (No Change Expected)
  • China: CPI (Nov)
  • Japan: Economy Watchers Survey (Nov)

Friday

  • Consumer Sentiment and Inflation Expectations (Dec)

 

 

 

 

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: November 28, 2016

MarketUpdate_header

  • Markets inch lower to begin data-heavy week. U.S. equities are pulling back modestly this morning as investors pause following a record-setting week for major indexes and ahead of a swath of economic data due out this week, including Friday’s non farm payrolls report. Volatility in WTI crude oil prices is also adding to caution amid doubts a deal will be reached at Wednesday’s OPEC meeting. As expected, Friday’s shortened session saw low volume, and the major averages all moved modestly higher (S&P 500 +0.5%); utilities (+1.4%) and telecom (+1.1%) outperformed, while only the energy sector (-0.4%) lost ground on the day, trading lower alongside a 3% drop in oil. Asian markets finished mostly positive overnight Monday, with the exception of the Nikkei (-0.1%) due to a strengthening yen. Italy’s MIB (-0.9%) is leading the retreat in European stocks ahead of Sunday’s constitutional referendum. Finally, oil is back in positive territory by over 2% ($47.15/barrel) after seeing sharp declines overnight, COMEX gold ($1186/oz.) has advanced 0.6% after touching nine-month lows on Friday, and the yield on the 10-year Treasury is down 2 basis points to 2.33%.

MacroView_header

  • Corporate Beige Book shows improved sentiment among corporate executives, based on the use of more strong words relative to weak ones in earnings conference calls during Q3 2016 earnings season. Talk of recession was virtually non-existent, election comments were minimal, and fewer mentions of currency suggested limited Brexit disruption and reflected a smaller currency drag on earnings. Meanwhile, oil and China continued to garner a lot attention. We believe Q3 results were strong enough to justify the improved tone from corporate executives and support our expectation for mid- to high-single-digit earnings growth in 2017.
  • Soft Black Friday shopping weekend reflects shifting retailer behavior, not consumer weakness. The National Retail Federation (NRF) said shoppers spent 3.5% less over the four-day Black Friday weekend than they did in 2015. The NRF said the decline in spending was a function of earlier promotions and longer-lived discounts. The trade group maintained its 3.6% growth forecast for holiday spending. Within these sales totals, online sales were very strong, rising 18% year over year on Thanksgiving and Black Friday, according to Adobe, and more people shopped online than in stores over the weekend.
  • OPEC deal in doubt? Headlines are all over the place regarding the likelihood of a deal. Comments out of Saudi Arabia suggesting the oil market would balance itself in 2017 even without a deal, coupled with Iran’s continued push for an exemption, suggested a deal was unlikely. On the flip side, Saudi Arabia’s comments are likely intended to increase negotiating leverage, while Iraq has stated its desire to cooperate with other OPEC members to reach an agreement. This one is tough to call, but our bias would be to buy on weakness in the absence of a deal should oil prices return to $40 a barrel or lower.
  • S&P 500 scores more new highs. The week of Thanksgiving tends to have a bullish bias and that played out this year, as the S&P 500 gained all four days of the week to close higher by 1.4%, the third straight higher weekly close. Interestingly, this was the third consecutive election year that the week of Thanksgiving was higher all four days. In the process, the S&P 500 closed at a new all-time high four consecutive days for the second time this year (it did it in July as well), but the index hasn’t closed at new highs five straight days since November 2014. Speaking of November, the S&P 500 is now up 4.1% for the month, the second best November return going back 14 years. As another way to show how strong the market has been, the S&P 500 hasn’t violated the previous day’s low for an amazing 14 consecutive days, which is the longest streak since 15 in a row in November 2004.
  • Small caps continue to soar. The Russell 2000 (RUT), a proxy for small caps, is up an incredible 15 days in a row. This now ties the streak of 15 in a row from February 1996 for the second-longest win streak ever. The record is 21 straight green days in 1988. Lastly, the RUT has made a new high nine straight days for the first time since September 1997 and the last time it made it to 10 in a row was May 1996.
  • Here comes December. The upcoming month is full of potential market-moving events. Historically, December is a strong month for the S&P 500; since 1950[1], no month sports a better average gain or is positive more often. Still, with the first Federal Reserve Bank (Fed) rate hike of the year likely coming in the middle of the month, the potential for a volatile month is much higher. Factoring in a highly anticipated OPEC meeting, the November employment report, elections in Austria and constitutional referendum in Italy, and a European Central Bank (ECB) meeting – you have all the ingredients for some big market moves in December. We will take a closer look at all of these events, along with the Santa Claus rally.

[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.

MonitoringWeek_header

Monday

  • ECB’s Draghi Speaks in Brussels
  • OECD releases 2017 Economic Outlook

Tuesday

  • GDP (Q3 – Revised)
  • Dudley (Dove)
  • Germany: CPI (Nov)

Wednesday

  • Personal Income and Spending (Oct)
  • Chicago Area PMI (Nov)
  • Beige Book
  • Mester (Hawk)
  • OPEC Meeting in Vienna
  • China: Official Mfg. PMI (Nov)
  • China: Official Non-Mfg. PMI (Nov)
  • China: Caixin Mfg. PMI (Nov)

Thursday

  • ISM Mfg. (Nov)
  • Vehicle Sales (Nov)
  • Mester (Hawk)

Friday

  • Employment Report (Nov)

 

 

 

 

 

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: November 21, 2016

© Provided by CNBC

MarketUpdate_header

  • Stocks higher to begin holiday-shortened week. Equity markets are modestly positive this morning after gaining for the second week in a row; though the S&P 500, Dow, and Nasdaq each fell 0.2% on Friday. The healthcare sector (-1.1%) underperformed, led lower by biotech, while no other sector moved by more than 0.5%. Overseas, both the Nikkei and the Shanghai Composite advanced 0.8% overnight, while European markets are ticking higher in afternoon trading. Elsewhere, last week’s strength in crude oil ($47.65/barrel) has carried over as the commodity is up another 2.8% ahead of next week’s official OPEC meeting in Vienna, COMEX gold ($1214/oz.) is up 0.4%, and the yield on the 10-year Treasury is a couple of basis points lower after finishing the week at 2.34%, its highest close in over a year.

MacroView_header

  • Final earnings push to the finish line. With just a couple dozen S&P 500 companies left to report Q3 2016 results, Thomson-tracked earnings for the index are tracking to a 4.2% year-over-year gain, representing a 5% upside surprise. Excluding the energy sector’s earnings declines, earnings on pace for a solid 7.5% year-over-year gain. As impressive as the Q3 upside has been, the minimal 0.8% drop in estimates since October 1 for the next four quarters, including a small increase over the past week, has been particularly noteworthy and we think bodes well for the next two or three quarters.

earnings-dashboard-11-21-16

  • Another weekly gain for the S&P 500. The S&P 500 gained 0.8% for the week last week, but what is more worthwhile is it did this after gaining more than 3% the week before. Incredibly, this is now 10 consecutive times that the week after a 3% gain was green. Leading the way again were small caps and mid caps, as both the Russell 2000 and S&P 400 Midcap indexes closed at new all-time highs on Friday. The Russell 2000 is now up 11 consecutive days for the longest winning streak since 12 in a row back in 2003.
  • Holiday shopping preview. Although the market’s attention has been squarely on the election for the past several weeks, we should not forget how important this time of year is for the U.S. economy. Consumers are in good shape, with low financial obligations, steady job and wage gains, and high consumer sentiment measures. This, along with retailers’ back-to-school shopping increases and the solid stock market performance in 2016, suggest the National Retail Federation’s 3.6% forecast for year-over-year holiday sales growth may be doable. We do not necessarily expect these sales gains to translate into outperformance for the consumer sectors, but we do not expect them to spook markets.
  • Housing, manufacturing, and the consumer in focus this week as investors await the OPEC meeting. While a high-level OPEC meeting is set for Monday and Tuesday this week, the official OPEC meeting in Vienna isn’t until November 30. Until then, investors will digest Black Friday sales figures, which have become much less important in recent years, along with data on home sales, durable goods orders, and the Markit Purchasing Managers’ Index (PMI) for manufacturing. The Federal Reserve Bank (Fed) will release the minutes of its November 1-2, 2016 meeting this week as well. Other than the key German IFO data for November, it’s a fairly quiet week for international events and data, aside from a speech by European Central Bank (ECB)President Mario Draghi early in the week.
  • Welcome to Thanksgiving week. Historically the week of Thanksgiving has had a slight bullish bias, as do most trading days around major holidays. Over the past 20 years, the average return during the week of Thanksgiving for the S&P 500 has been 0.8%, positive 65% of the time (13 out of 20). Looking at the day-by-day performance, Monday has the best average return, up 0.5%, although Wednesday has been higher more often, 70% of the time. Surprisingly, the best Thanksgiving week over that timespan was 2008, when all four days were green and the S&P gained 12.0%. The worst? All four days in 2011 were red and the index fell 4.7%.

MonitoringWeek_header

Monday

  • OPEC Meeting in Vienna
  • ECB’s Draghi Speaks in Strasbourg

Tuesday

  • OPEC Meeting in Vienna

Wednesday

  • Durable Goods Orders and Shipments (Oct)
  • Markit Mfg. PMI (Nov)
  • FOMC Minutes
  • Eurozone: Markit Mfg. PMI (Nov)
  • Japan: Nikkei Mfg. PMI (Nov)

Thursday

  • Germany: Ifo

Friday

  • Advance Report on Goods Trade Balance (Oct)

 

 

 

 

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: November 14, 2016

© Provided by CNBC

MarketUpdate_header

  • Stocks near flat as bond yields continue to rise. U.S. markets are little changed in early trading, though the bond market continues to make waves as the yield on the 10-year Note (2.25%) is up another 10 basis points from Friday’s close. Last week saw the S&P 500 post its largest weekly gain in more than two years (+3.8%) with the heavily-weighted financial sector leading the way, up 11.4%; rate-sensitive utilities, consumer staples, telecom, and real estate all closed lower on the week. Asian markets were mixed overnight; Japan’s Nikkei (+1.7%) climbed following a better than expected Q3 gross domestic product (GDP) release, while the Hang Seng lost 1.4%. European markets are mostly higher in the afternoon session, though they have pulled back from earlier levels alongside a drop in oil, which is down 1.2% to $42.90/barrel as supply concerns weigh on the price. Finally, COMEX gold ($1211/oz.) continues to sell off and the dollar index (+1.0%) has carried over last week’s momentum, approaching two-year highs.

MacroView_header

  • Earnings recession ending with a bang. Corporate America is delivering a strong end to earnings recession, with the S&P 500 tracking to a 4.1% year-over-year earnings increase (approximately 7.4% excluding the energy sector). The 71% beat rate has led to a roughly 5% upside surprise to prior (October 1, 2016) estimates. S&P 500 earnings estimates for the next four quarters, which dipped just 0.1% over the past week, have continued to hold up well during earnings season, losing slightly more than 1%. Look for more from us on earnings in the upcoming weeks in our Corporate Beige Book and Outlook 2017.

earnings-season-dashboard

  • What a week. Last week was historic on many levels. Among the highlights: the S&P 500 gained 3.8% for its best week since October 2014, the Dow gained 5.4% for its best week since December 2011, bonds were hit very hard as the 10-year yield spiked 21% (the most ever, using reliable data going back 50 years), the CBOE Volatility Index (VIX) had its third-largest weekly drop ever (down 37%), biotech had its best week in seven years, small caps gained more than 10%, microcaps did even better by adding 12%, and financials tacked on 11% – their best week since May 2009. We are not surprised that stocks recovered from the initial post-election selloff; but rather how swiftly. There were several factors behind the sharp turnaround, including the certainty of the outcome, optimism regarding a peaceful transition, anticipation of market-friendly policies, and negative investor sentiment heading into the election.
  • Post-election standouts include financials, healthcare and industrials. The outlooks for financials, healthcare, and industrials appear to have brightened meaningfully and energy and small caps may get a boost. The near-term may continue to be volatile for emerging markets, though we maintain our positive intermediate-to-long-term view on that asset class amid attractive valuations, earnings stabilization, and expected moderation of Trump’s views on foreign trade. Look for more on potential election impacts in our Outlook 2017, due out later this month.
  • Japanese GDP upside surprise. Japanese Q3 economic growth was much higher than expected, increasing 2.2% on an annualized basis, compared to expectations of a 0.8% increase. Trade was the surprising variable, with exports higher and imports lower than expected. While this is good news for the economy overall, data from key sectors like business and consumer spending were largely consistent with expectations. That data, combined with measures of inflation also released, suggest that internal Japanese demand remains relatively weak, despite the better GDP headline.
  • Chinese economic data was slightly weaker than expected, and flat over previous releases. China released industrial production and retail sales overnight. Industrial production grew at 6.1% year over year, slightly less than the 6.2% increase expected. Consumer spending increased 10% year over year, a good gain on an absolute basis, but still below the 10.7% expected. Overall, the data from China continue to show stabilization in the economy, but there is much work to do as the government attempts to guide the economy from an industrial and export orientation toward a more consumer-oriented consumer economy.
  • Key data on inflation, housing, manufacturing, and the consumer along with Fed Chair Yellen in the week ahead. Late last week, Federal Reserve Bank (Fed) Chair Janet Yellen added a last minute appearance before the Joint Economic Committee of Congress for November 17, and that appearance is the key to this week’s calendar. Data on inflation, housing, manufacturing, and consumer spending will also draw plenty of attention. In addition to Yellen, there are more than a dozen other Fed speakers on the docket this week, presumably preparing markets for a December rate hike. Overseas, key data on GDP (Japan) and industrial production and retail sales (China) were released over the weekend, while later in the week a key speech from European Central Bank (ECB) President Draghi and data on GDP (Eurozone), ZEW (Germany) and CPI (UK) are on tap.

MonitoringWeek_header

Monday

  • Kaplan (Hawk)
  • Lacker (Hawk)

Tuesday

  • Retail Sales (Oct)
  • Empire State Manufacturing Report (Nov)
  • Fischer (Hawk)
  • Germany: ZEW (Nov)
  • Eurozone: GDP (Q3)

Wednesday

  • NAHB Housing Market Index (Nov)
  • Bullard (Hawk)

Thursday

  • Housing Starts and Building Permits (Oct)
  • Yellen (Dove)
  • Mexico: Central Bank Meeting (Rate hike expected)
  • China: Property Prices (Oct)

Friday

  • Leading Indicators (Oct)
  • George (Hawk)
  • ECB’s Draghio speaks in Frankfurt
  • APEC Leaders Summit in Peru

 

 

 

 

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.

Weekly Advisor Analysis: March 15, 2016

Global stocks were mixed for the week, largely driven by the European Central Bank’s (ECB) move to cut rates further into negative territory. All our major domestic indices posted positive returns with the S&P 500 and the Dow Jones Industrial Average both up over 100 basis points at 1.09 percent and 1.19 percent, respectively. The tech-heavy NASDAQ Composite was up 0.65 percent. European stocks seesawed in response to the ECB with the STOXX Europe 600 Index closing the week up less than 1 percent despite significant up and down days. Asian stocks were down slightly with Japan’s Nikkei 225 Average Index down 0.45 percent and China’s Shanghai Composite Index down 2.22 percent.

Oil

Oil had a volatile week as a number of factors were impacting investor sentiment. OPEC’s possible production agreement, global oversupply, and shifts in seasonal production all influenced the price. The market continues to focus on the Organization of the Petroleum Exporting Countries (OPEC) and whether or not they can come to an agreement with other non-OPEC members to cap production and drive up prices. While there is a lot of talk among the member states, it doesn’t appear there will be consensus anytime soon. Indeed, Saudi Arabia has publicly stated it will maintain production at current levels for at least the next five years. These are hardly the words of a country that is willing to cooperate and lower its oil production. In addition, the oil market will likely also suffer from seasonal oversupply as we enter the spring and summer months. Refineries typically ramp up production in spring to keep up with the seasonal demand shift as the summer months tend to have the highest demand for oil and gasoline products. We continue to believe oil prices will remain lower for longer because, as prices move into the $40-$45 per barrel range, more producers will be profitable and ramp up production. This will ultimately increase supply and likely depress prices again, assuming demand stays the same or it does not outpace the growth in supply. In fact, our analysts don’t see oil past $60 per barrel until closer to 2020.

WWA

European Central Bank

In what was largely anticipated by the markets, the European Central Bank (ECB) nudged its key interest rate further negative last Thursday in an attempt to lower rates and buoy the European markets. However, the scope of the move was greater than many analysts had expected. The rate was lowered to -0.40 percent, from -0.30 percent, and the ECB expanded its asset-purchase program from $60 billion to $80 billion euros a month which includes corporate bonds. Global equities were generally up in response initially but turned down later in the day when the ECB president, Mario Draghi, said he did not anticipate the need to reduce rates further. Global markets appeared to shrug those comments off and finished Friday firmly in positive territory. While many investors have grown accustomed to central banks maintaining a negative interest rate policy (NIRP), the phenomenon is still very new to the financial markets. Because of this, little is known about the market’s reaction to even lower negative rates or prolonged periods of NIRPs. Going into 2016, the Eurozone, Switzerland, Sweden, and Denmark all had negative interest rates maintained by their respective central banks. Japan jumped into the fray after cutting its key rate below zero in January, but the Japanese equity markets suffered a bout of selling on the news. The Bank for International Settlements, a Switzerland-based conglomerate of central banks, is warning the markets the efficacy of negative interest rate policies could be diminishing. Indeed, they point to the market’s reaction to Japan’s negative interest rates that saw large flows into sovereign government bonds despite many of them trading at negative rates. However, we would note there were other global events that overshadowed Japan’s policy shift and drove investors to seek relative safety in the form of those high-quality government bonds.

WWAA

Short-Term Yields Rise

Interest rates can be a useful bellwether when measuring the risk appetite for investors. Generally, higher interest rates indicate investors are more willing to take on market risk, primarily through equities and non-fixed income investments. In contrast, lower interest rates signal the market is taking a more cautious approach as investors move into bonds. This dynamic is driven by the relationship between bond prices and interest rates. As investors sell bonds and buy stocks, the prices on those bonds fall and the interest rates go up. The opposite happens when they move back into bonds: yields will fall as the prices go up with demand. According to the data, short-term yields on two-year Treasury bonds jumped to their highest mark since the first week of January as investors started moving into equities. This was primarily in reaction to the ECB’s policy actions and stronger-than-expected U.S. economic data. While this doesn’t guarantee a permanent shift in investor sentiment, it is an indication the markets are willing to wade a little deeper into the equity markets and take on some more risk.

Fun Story of the Week

Have you ever wondered why buttons for men’s shirts are on the right but on the left for women? There are some interesting theories as to why there is a difference and it serves as an everyday reminder of the history of clothing, tradition, and warfare. Yes, warfare. For men, having the buttons on the right can be traced directly to military dress. Men often wore swords and, being the majority of people are right-handed, that meant the sword and scabbard were worn on the left. One of the more prominent theories is, when sword fighting, men would typically reach across their body to grab the sword on their left while unbuttoning the jacket with the left hand to allow for more flexibility. This, of course, doesn’t explain why women’s buttons are on the other side. There are a few theories that attempt to explain the difference and one such theory has to do with horse riding. Women who rode horses did so sidesaddle, facing the left side of the horse. By putting buttons on the left side, it helped reduce the breeze that would flow into the shirt as they rode along. Another theory, and perhaps a more reasonable one, posits that, when clothing was becoming standardized, many women did not, in fact, dress themselves. While it may be hard to believe today, buttons were once very expensive and were a favorite of the wealthy. So, when women wore elaborately buttoned clothing, having the buttons on the left side made it easier for the servants to help them get dressed.

Weekly Market Commentary: March 14, 2016

Provided by geralt/Pixabay
Provided by geralt/Pixabay

Stim-u-late mar-kets! Come on! It’s monetary easing.*

The European Central Bank (ECB) was singing a tune that invigorated financial markets last week. The Wall Street Journal explained:

“The fresh measures included cuts to all three of the ECB’s main interest rates, €20 billion a month of additional bond purchases atop the ECB’s current €60 billion ($67 billion) program, and an expansion of its quantitative easing program to highly rated corporate bonds – all more aggressive steps than analysts had anticipated. The central bank also announced a series of ultracheap four-year loans to banks, some of which could be paid to borrow from the ECB.”

Most national indices in Europe gained ground last week. The Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB), which measures the performance of the 40 most-traded stocks on the Italian national stock exchange, was up almost 4 percent. Spain’s Indice Bursatil Español Index (IBEX 35), which is comprised of the most liquid stocks trading on the Spanish continuous market, gained more than 3 percent. Major markets in the United States moved higher, as well.

Of course, the harmony provided by global oil markets proved pleasing to investors, too. An International Energy Agency (IEA) report suggested more equitable supply and demand balances could mean oil prices have bottomed out.

Barron’s offered a word of caution, “Investors shouldn’t get too comfortable when it seems that oil moves and central-bank maneuvers are the main reason stocks go up or down, not earnings and economic growth.”

*Set to the tune of Kool and the Gang’s ‘Celebration.’ You know, “Cel-e-brate good times! Come on! It’s a celebration.”

Data as of 3/11/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.1% -1.1% -0.9% 9.1% 9.2% 4.7%
Dow Jones Global ex-U.S. 1.1 -2.5 -9.6 -2.3 -1.6 1.3
10-year Treasury Note (Yield Only) 2.0 NA 2.1 2.1 3.4 4.8
Gold (per ounce) -1.0 19.1 10.0 -7.1 -2.2 8.8
Bloomberg Commodity Index 2.0 1.8 -19.6 -16.5 -13.3 -6.8
DJ Equity All REIT Total Return Index 1.7 1.7 4.7 9.0 11.0 6.4

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Fourth Quarter, a Look Back…

ECB Announces Monthly Rate Decision
Photographer: Hannelore Foerster/Bloomberg

The Federal Reserve pulled the trigger. At the December Federal Open Market Committee meeting, the Fed finally acted, tightening monetary policy by raising the funds rate from 0.25 percent to 0.50 percent. It’s important to remember the Fed doesn’t actually set interest rates. It takes actions designed to influence financial behaviors. The Fed has given rates a push, it remains to be seen whether its efforts will bear fruit.

The European Central Bank (ECB) acted, too. Although, its monetary policy moved in a different direction, offering additional stimulus measures to support European economies. Investors were enthusiastic when the ECB announced its intentions; however, markets were underwhelmed when the economic measures delivered were less stimulative than many had expected.

China’s currency gained status. The International Monetary Fund decided to add the Chinese yuan (a.k.a. the renminbi) to its Special Drawing Rights basket, effective October 1, 2016. After the renminbi is added, the U.S. dollar will comprise 42 percent of the basket, the euro will be 31 percent, the renminbi will be 11 percent, the Japanese yen will be 8 percent, and the British pound will also be 8 percent.

Congress tweaked Social Security. The Bipartisan Budget Act of 2015 (BBA) averted a U.S. default and deferred further discussion of U.S. debt and spending levels until after 2016’s presidential and congressional elections. It also did away with two popular social security claiming strategies. The restricted application strategy was discontinued at the end of 2015, and file and suspend strategies will be unavailable after May 1, 2016.

Medicare premiums go up, but not for everyone. The BBA also limited increases in Medicare premiums. About 14 percent of Medicare beneficiaries will pay higher premiums in 2016. The new premium will be $121.80, up from $104.90 in 2015. Original proposals suggested the premium amount increase to $159.30.