Market Update: July 3, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

MacroView_header

Key Insights

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

Macro Notes

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

MonitoringWeek_header

Monday

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

Tuesday

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

Wednesday

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

Thursday

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

Friday

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

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

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: June 19, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Stocks little changed Friday. Intra-market moves were in focus, particularly ~3% difference between energy (+1.7%) and consumer staples (-1.0%)
  • Consumer staples slide. Grocers weighed after Amazon-Whole Foods acquisition proposal announced.
  • European markets rose on news that Greece would receive next tranche of aid, ebbing political risk. MSCI EAFE +1.1% Friday.
  • Treasuries yields down to 2.16% after housing starts, building permits, consumer sentiment miss estimates.
  • Mixed week for broad averages. Dow (+0.5%), S&P 500 (+0.1%), Russell 2000 (-1.0%). Industrials (+1.7%) topped sector rankings, technology (-1.1%) fell most.

Overnight & This Morning

  • U.S. following Europe higher on market-friendly outcome French election, which strengthened Macron’s mandate for economic reforms.
  • WTI crude oil ($45.11/bbl.) holding Friday’s gains after -2.4% last week.
  • European markets applaud French election outcome. European Stoxx 600 Index +0.9% midday, led by Paris’ CAC (+1.2%); Brexit talks underway in Brussels.
  • Asian markets also higher. MSCI Asia Pacific Index+0.6%, China up on pending MSCI decision (expected Tuesday) to include country’s shares in its global indexes. Nikkei +0.6%, Hang Seng +1.2%, Shanghai Composite +0.7%.
  • Treasuries down, 10-year yield up slightly to 2.18%

MacroView_header

Key Insights

  • Our 2017 S&P 500 Index forecast is not a bearish call. Some have raised the question, why own stocks here if the S&P 500 is already at our year-end target return for the year of 6-9%? First, we expect cyclical sectors and smaller cap stocks to fare better than the S&P 500 in the second half; second, we believe dips will provide opportunities for gains; and third, fiscal policy is a wildcard that could potentially push stocks ahead of our forecast.
  • Earnings estimates have stayed resilient. Estimates have held firm over the past month and still reflect near 10% earnings growth over the next 12 months. We expect earnings gains to support stocks in the second half of the year. Policy has the potential to drive additional earnings gains in 2018 that may begin to be priced in during late 2017, offering upside potential to our forecast.

Macro Notes

  • Beware the ides of June? As we’ve noted before, the second half of June tends to see some seasonal equity weakness. Breaking it down further, last week was option expiration for the month of June and the week after this event (this week) has historically been very weak. In fact, going back 14 years this week has been higher only once for the S&P 500, and that was in 2013. Going back to 2000, this week has been higher only three times, making it the least likely week of the year to be higher.

MonitoringWeek_header

Tuesday

  • Germany: PPI (May)
  • BOJ: Minutes of Apr 26-27 Meeting
  • China: Conference Board China LEI (May)

Wednesday

  • Existing Home Sales (May)
  • BOJ: Kuroda & Iwata
  • Japan: All Industry Activity (Apr)
  • Japan: Machine Tool Orders (May)

 Thursday

  • LEI (May)
  • Eurozone: Consumer Confidence (Jun)
  • Japan: Nikkei Japan Mfg. PMI (Jun)

 Friday

  • Markit Mfg. & Services PMI (Jun)
  • New Home Sales (May)
  • France: GDP (Q1)
  • France: Markit France Mfg. & Services PMI (Jun)
  • Germany: Markit Germany Mfg. Services PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. & Services PMI (Jun)
  • Russia: GDP (Q1)
  • Canada: CPI (May)

 

 

 

 

 

Important Disclosure: 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: June 12, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Nasdaq tumbled 1.8% Friday, its biggest one-day drop since June 2016. Tech weakness, attributed to crowded investor positioning, outsized 2017 gains, and cautious sell side commentary, powered substantial value outperformance relative to growth. Dow, Russell 2000 gained (0.4%), while S&P 500 ended flat.
  • Energy (+2.5%) led Friday’s market action, followed by financials (+1.9%);both benefited from tech outflows.
  • Treasuries fell modestly, helping banks (10-year Treasury yield ended at 2.20%).
  • Dollar and WTI crude oil up, COMEX gold down.Dollar rise dragged gold down 0.6% to >$1270. Oil gained 0.4% to ~$46/bbl, boosting the energy sector attempted recovery from inventory-driven losses earlier in the week. Copper rose for the third straight session.
  • Muted reaction to U.K. election as pound sold off (which eroded U.K. returns for U.S. investors) but U.K. stocks in local currency generally shrugged off surprise election result.
  • Mixed week. Friday’s rotation was evident in weekly performance with Dow (+0.3%), Russell 2000 (+1.2%) faring well, S&P 500 down slightly (-0.3%), Nasdaq down sharply (-1.6%). Despite the week’s big political stories, broadest equity market averages didn’t move much.

Overnight & This Morning

  • S&P 500 down as Friday’s technology sell-off carries over into morning trading.
  • Technology weakness weighed on Asian markets:Nikkei slipped 0.5%, Shanghai Composite lost 0.6%, Hang Sang fell 1.24%. Spillover into Europe as well. Core European markets down nearly 1% in midday trading.
  • Treasuries unchanged, dollar is lower vs. euro and yen; Gold is little changed.
  • Oil rebound (+1.6%) follows Friday’s gains as the commodity struggles to maintain support in the mid $40s.
  • More European election results. French President Macron’s party set for a big parliamentary majority following Sunday’s first-round vote. Regional Italian elections saw anti-euro 5-Star Movement underperform. In the U.K. we’re watching the formation of political alliances to determine potential Brexit/trade impact.
  • Trump administration’s focus this week to be on apprenticeships, jobs following last week’s infrastructure push.
  • Financial regulation also making headlines as Dodd-Frank revamp accelerates and parts of the DOL’s Fiduciary Rule go into effect. Look for easing of regulatory burden on smaller financial institutions, positive for regional banks.

MacroView_header

Key Insights

  • Reflation rotation? Friday’s sharp moves (technology down and financials, energy and small caps up) appeared to be rotation from areas that have been working to those that haven’t given the broad averages did not move much. Technology was a source of funds for energy, financials, and small cap purchases, areas that tend to benefit from stronger economic growth, higher interest rates and inflation. We still favor the technology sector and, for those currently underweight the sector, we would view further weakness as a potential opportunity to add exposure.
  • We expect a rate hike on Wednesday and will be watching closely for clues about the Federal Reserve’s (Fed) rate path for the rest of 2017. Market participants will scrutinize the Fed statement and press conference for any changes to economic growth or inflation outlooks, and any additional details regarding balance sheet normalization. We remain on the fence about whether we get another hike in 2017 after the presumed move this week but, regardless, we see modest additional return potential for both stocks and bonds over the balance of the year.
  • Market warning to Fed? The fact that markets are pricing in a flatter trajectory of rate hikes moving forward, and that even relatively short-term two-year Treasury yields are flat compared to levels seen in the aftermath of the Fed’s March meeting, may be the market’s way of warning the Fed that, with inflation expectations broadly contained, being too aggressive with rate hikes in the near term may harm growth.

Macro Notes

  • Big drop for tech. Technology dragged the Nasdaq down 1.8% for its third worst day of the year and its worst week year to date (-1.5%). What made this big drop unique was it came the day after setting a new all-time high. Other than a 2.6% drop in May, you have to go back to March 2000 the last time there was a larger drop from an all-time high for the Nasdaq.
  • When does the June swoon happen? We noted at the start of the month that June has historically been a weak month for equities and over the past 10 years only January has been worse for the S&P 500 Index. Taking a closer look at the monthly performance though shows it is usually the second half of June that tends to see most of the weakness. With the Fed and Bank of Japan on tap for meetings this week, could it be time for some volatility?

MonitoringWeek_header

Monday

  • Monthly Budget Statement (May)
  • Japan: Machine Orders (Apr)

Tuesday

  • PPI (May)
  • UK: CPI & PPI (May)
  • UK: Retail Price Index (May)
  • Germany: ZEW Survey (June)
  • China: Industrial Production

Wednesday

  • CPI (May)
  • Retail Sales (May)
  • FOMC Rate Decision (June 14)
  • Yellen Press Conference
  • Germany: CPI (May)
  • Eurozone: Industrial Production (Apr)
  • UK: Jobless Claims (May)
  • UK: Unemployment Rate (Apr)
  • New Zealand: GDP (Q1)
  • Japan: Industrial Production and Capacity Utilization (Apr)

Thursday

  • Empire State Mfg. Report (June)
  • Philadelphia Fed Mfg. Report (June)
  • Industrial Production and Capacity Utilization (May)
  • US Treasury International and Capacity Utilization (May)
  • US Foreign Net Transactions (Apr)
  • BOJ: Policy Balance Rate and 10-Yr Yield Target
  • Bank of England: Bank Rate Decision

Friday

  • Housing Starts (May)
  • Building Permits (May)
  • Eurozone: New Car Registration (May)
  • Eurozone: CPI (May)
  • Russia: GDP (Q1)
  • Bank of Russia: Key Rate Decision
  • China: New Loan Growth and Money Supply (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: June 5, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Solid Friday and holiday-shortened week for stocks… and more record highs. S&P 500 gained +0.36% on Friday, +0.96% for the week to end at a record high (2439.07). Nasdaq led major averages Friday (+0.94%) and for the week (+1.54%). Small caps beat mid and large (Russell indexes).
  • Tech drove Friday’s gains, led by semis and software. Financials hit by lower rates and yield curve flattening post jobs miss. Energy was the biggest decliner on falling oil prices.
  • Weaker dollar helped COMEX gold Friday (+0.8%) but not WTI crude oil (-1.4%)
  • 10-year yield dipped 0.06% to 2.15%, lowest closing level of 2017 and lowest since just after the election
  • Friday miss on U.S. nonfarm payrolls unlikely to sway Fed next week (details below)
  • Defensive tilt to weekly performance. Telecom topped weekly sector rankings, followed by healthcare. Oil fell > 4%; 10-year Treasury yield dropped 0.10%.

Overnight & This Morning

  • Stocks in Asia mostly lower amid relatively light news
  • In Europe, shares down (Euro Stoxx 600 -0.2%), continuing Friday slide
  • Weak sentiment after more terrorist attacks in London over the weekend
  • Euro up 0.3% to $1.12
  • Commodities – Mostly lower, led by weakness in industrial metals and energy, with WTI oil near $47/bbl. COMEX gold (0.3%) adding to Friday’s gains at $1283, copper (-0.7%)
  • U.S. stock, Treasury yields up slightly.
  • U.S. dollar mixed vs major currencies

MacroView_header

Key Insights

  • Goldilocks environment. Steady but not booming job gains and inflation leveling off suggests economy is not too hot, not too cold. Wage gains are benign-average hourly earnings +2.5% YoY in Friday’s May jobs report. We’ve seen a mixed set of data recently: soft Q1 GDP, Q2 tracking near +3%, and earnings looking good. The Fed Beige Book cited most Fed districts continue to expand at a modest or moderate pace. Sounds like Goldilocks.
  • Any concern that the Fed may be behind the curve are misplaced, at least for now. The market is only pricing in a 44% chance of another rate hike in 2017 (after one in June), and just one hike in 2018.
  • An expensive stock market can stay expensive. The 17.7 times forward price-to-earnings (P/E) multiple, where it stood in early 2015, is more reasonable than the trailing PE (20.7) for the S&P 500 but is still at the high end of the historical range. We reiterate valuations are not good predictors of near-term stock market moves, an important message for clients.

Macro Notes

  • Jobs miss doesn’t mean Fed pause. The economy added 138K new jobs in May, well below consensus expectations of 185K, with additional downward revisions for March and April; unemployment rate edged lower to 4.3% from 4.4% on lower labor participation rate. The report may give the Fed some pause, but given the overall backdrop a June hike remains far more likely than not.
  • The China Caixin Manufacturing PMI index was below 50 when reported last week, but overnight the services PMI was 52.8, much better than last month’s 51.5. The overall composite number of 51.5 suggests a continued, but slowing, expansion in the Chinese economy. We expect the government to continue to try to reduce leverage in the economy, but not to engage in any major reforms until after the Communist Party meeting this fall.

MonitoringWeek_header

  • Politics and central banks highlight the week ahead. Politics and central banks highlight the coming week, with Thursday, June 8 of particular importance as it brings the U.K. general election, the European Central Bank (ECB) meeting, and testimony of former FBI Director James Comey. Data of note in the U.S. includes durable goods and Services Institute for Supply Management (ISM). Overseas, Eurozone and Japan Gross Domestic Product (GDP), and Chinese inflation and money supply data are due out.

Monday

  • Nonfarm Productivty (Q1)
  • Unit Labor Costs (Q1)
  • ISM Non-Mfg. Composite (May)
  • Factory Orders (Apr)
  • Durable Goods Orders (Apr)
  • Cap Goods Shipments & Orders (Apr)
  • UK: Markit/CIPS UK Services PMI

Tuesday

  • Eurozone: Markit Eurozone Services PMI (May)

Wednesday

  • Eurozone: GDP (Q1)
  • Japan: GDP (Q1)
  • Japan: Current Account Balance (Apr)
  • Japan: Trade Balance (Apr)

Thursday

  • Germany: Industrial Production (Apr)
  • UK: General Election, 2017
  • ECB: Draghi
  • Japan: Machine Tool Orders (May)
  • China: CPI & PPI (May)

Friday

  • Wholesale Sales & Inventories (Apr)
  • France: Industrial Production (Apr)
  • UK: Industrial Production (Apr)
  • UK: Trade Balance (Apr)
  • China: Money Supply and New Yuan Loans (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.

7 Personal Finance Tips From Warren Buffett

Warren Buffett is generally considered to be the best long-term investor of all time, so it’s no wonder many people like to listen closely to Buffett’s words of wisdom, in order to apply them to their own lives. With that in mind, here are seven of the best personal finance lessons I’ve learned from Warren Buffett over the years.

sitting-in-the-shade_large

1. “Someone’s sitting in the shade today because someone planted a tree a long time ago”

The lesson here is to be a forward thinker when it comes to personal finance, whether you’re talking about investing, saving, or spending. When you’re deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.

Similarly, few people get rich quick by investing, and most people who try end up going broke. The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time, and keep your focus on the long run.

money-growing_large

2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says. The point isn’t that Buffett only invests in stocks he’s going to buy and forget about — after all, Buffett’s company Berkshire Hathaway sells stocks regularly, and for a variety of reasons. Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages. That is, approach your investments with the long term in mind, but keep an eye on them to make sure your original reasons for buying still apply.

paying-cash_large

3. “Price is what you pay; value is what you get”

When you’re buying an investment (or anything else for that matter), the price you pay and the value you receive are often two very different things. In other words, you should buy a stock if you believe its share price is less than the intrinsic value of the business — not simply because you think the price is low.

For example, if a market correction hit tomorrow and a certain stock were to fall by 10% along with the overall market, would the business inherently be worth 10% less than it is today? Probably not. Similarly, if a stock rose rapidly, it wouldn’t necessarily mean that the value of the underlying business had risen as well. Be sure you consider value and price separately when making investing decisions.

money-in-a-bag_large

4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”

One of the reasons Berkshire Hathaway not only survives recessions and crashes, but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.” In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.

Granted, Berkshire Hathaway’s rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion. However, the same applies to your own financial health. If you have a decent stockpile of cash on the sidelines, you’ll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.

couple-planning-investments_large

5. “Risk comes from not knowing what you’re doing”

In Buffett’s mind, one of the best investments you can make is in yourself and the knowledge you have. This is why Buffett spends hours of every day reading, and has done so for most of his life. The better educated you are on a topic, whether it’s investing or anything else, the better equipped you’ll be to make wise decisions and avoid unnecessary risks. As Buffett’s partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”

stock-traders-looking-at-screens_large

6. Most people should avoid individual stocks

This may seem like strange advice coming from Warren Buffett, since he’s widely regarded as one of the best stock-pickers of all time.

However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds. The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.

To be clear, Buffett isn’t against buying individual stocks if you have the time, knowledge, and desire to do it right. He’s said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.

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7. Remember to give back

Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away. Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars’ worth of his Berkshire shares to benefit various charitable organizations.

Buffett once said, “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you’re not a member of the 1%, it’s still important to find ways to give back.

 

 

 

Written By: Matthew Frankel
Source: The Motley Fool

Market Update: May 22, 2017

MarketUpdate_header

Last Week’s Market Activity

  • After hitting a new record on Tuesday, the S&P 500 Index sold off -1.8% Wednesday on fears the growing controversies around the Trump Administration will cause a delay in the pro-growth policy agenda, including tax reform, deregulation and infrastructure spending.
  • Stocks stabilized on Thursday and Friday, recovering ~1.0%, but pared gains both days going into the close of trading.
  • For the week, major U.S. equity indexes fell ~-0.5% as investors’ focus switched from political headline risks to positive fundamentals supporting economic and profit growth.
  • Financials were the worst performing sector (-1.0%) on the week, followed by industrials (-0.3%); defensives and dividend paying sectors in favor, with real estate (+1.2%), consumer staples (+0.5%) and utilities (+0.5%) leading.
  • The yield on the 10-year Treasury held steady around 2.24%, while the U.S. dollar lost -1.6% for its worst week since July.
  • Despite expectations for a June rate hike, the market does not fear an aggressive stance by the Federal Reserve (Fed).
  • COMEX Gold was +2.0% on the week; copper also climbed 2.0% Friday.
  • WTI crude oil rose +2.0% to $50/barrel on Friday, +5.0% on the week in anticipation of further Organization of the Petroleum Exporting Countries (OPEC) production cuts at meeting in Vienna on 5/25.

Overnight & This Morning

  • Stocks in Asia were mostly positive as MSCI EMG had biggest climb (+0.90%) in two weeks, led by commodity producers.
  • North Korea fired another missile, yet Korean won moved higher on naming of new finance minister.
  • Japanese shares were boosted by weaker yen and exports rose for a 5th consecutive month in April, up 7.5% year over year.
  • Hong Kong’s Hang Seng closed at its highest level since July 2015.
  • Australian stocks rose despite S&P reducing credit ratings for many of their banks on concerns over property prices and potential rise in credit losses.
  • In Europe, shares were up ~0.2% with gains in real estate, energy and mining shares.
  • German bunds slipped to 0.38% on the 10-year and euro held around $1.11.
  • European Union ministers are meeting in Brussels to discuss Greek bailout and refine plans for Brexit negotiations.
  • In UK election, the Tory lead over Labour has narrowed considerably, from almost 20 points last month to just 10 points this morning.
  • Commodities – WTI crude oil +0.9% to $51.10/barrel; COMEX gold slipped to $1254/oz. while copper is higher by 0.20%.
  • Major U.S. indexes up slightly along with Treasury yields as investors judge recent selloff on political turmoil may have been excessive.

MacroView_header

Key Insights

  • U.S. fiscal policy needs to become primary growth driver for 2018. President Trump releases his administration’s budget plans Tuesday, including economic projections and spending plans for federal agencies and entitlement programs. Congressional Republicans must first agree on a budget if they want to achieve tax reform this year; intraparty fighting must cease if Republicans want to maintain majority after next year’s midterms. History is littered with examples of “wave” elections after one party assumes power. However, if Republicans see an expiration date on their majority; similar to Democrats in 2010 and Republicans in 2006, these developments may result in more legislation passing. We are likely to see an infrastructure plan in the coming weeks and the Senate appears to have progressed on tax reform plan, which doesn’t include BAT or removal of corporate interest deduction.
  • Despite paring losses Thursday and Friday, risk-off vibe still apparent with dollar weakness, yield curve flattening, VIX higher, and bank, small cap and transport stocks all underperforming. However, there is little stress evident in U.S. credit markets with credit default swaps, investment grade and high yield spreads all contained. The economy continues to benefit from pent up demand in capital expenditures, housing and an inventory rebuild from a Q1 drawdown.

Macro Notes

  • Unofficial last week of an excellent earnings season. With just 28 S&P 500 companies left to report results, S&P 500 earnings growth for the first quarter is tracking to a very strong +15.2% year-over-year increase, 5% above prior (4/1/17) estimates (thanks to a 75% beat rate), and +11.1% excluding energy. Technology jumped ahead of financials and materials last week into second place in the earnings growth rankings (energy is first), while industrials, energy and materials have produced the most upside to prior estimates. This week 19 S&P 500 companies are slated to report.

052217_earningsdashboard-01.png

  • Guidance may be the most impressive part of earnings season. We were very impressed that company outlooks were positive enough to keep estimates for the balance of 2017 firm, amidst heightened policy uncertainty and the slowdown in economic growth in the first quarter. Consumer discretionary, industrials, technology, financials and healthcare sectors have all seen consensus estimates for 2017 and 2018 rise, as has the S&P 500, over the past month; and consensus estimates reflect a solid 9% increase in earnings over the next four quarters versus the prior four.
  • This week, we try to help investors stay focused on fundamentals. Market participants became increasingly worried that the Trump administration’s agenda was in danger last week following the latest news surrounding the investigation into the Trump campaign’s ties to Russia. After its biggest one-day drop in nearly a year on Wednesday, the S&P 500 recovered nicely Thursday and Friday to end the week less than 1% off its all-time closing high. We don’t know what will happen with the Russia investigation, but we think we have a pretty good handle on the basic fundamentals of the economy and corporate profits, which look good right now, tend to drive stocks over time, and are where we think investors should be focused.
  • This week, we also take a look at inflation. With the unemployment rate unlikely to go much lower, Fed watchers are becoming increasingly focused on the other half of the Federal Reserve’s dual mandate, low and stable inflation. Despite disappointing gross domestic product (GDP) growth in the first quarter, consensus forecasts indicate expectations of better growth over the rest of the year, which would likely be accompanied by an uptick in inflation above the Fed’s 2% target. However, there are still many factors that limit the possibility of runaway inflation. Better growth would likely give us enough inflation for the Fed to follow through on raising rates twice more in 2017, but we don’t expect inflation to reach a level that would push the Fed to move faster.
  • What does the large drop on Wednesday mean? The S&P 500 Index fell 1.8% on Wednesday and has bounced back the past two days. Nonetheless, Wednesday was the worst one-day drop since September and given it happened within 0.5% of all-time highs, the question is: What does a large drop near all-time highs mean?

MonitoringWeek_header

  • This week’s domestic economic calendar includes data on preliminary purchasing manager surveys (manufacturing and services) from Markit, housing, trade, durable goods, and revised first quarter gross domestic product (GDP). The Fed will remain in focus with minutes from the May 3 Federal Open Market Committee (FOMC) meeting due out Wednesday (May 24) and several Fed speakers on the docket-a roughly even balance of hawks and doves. We believe the market is correctly pricing in a June 14 rate hike. Overseas economic calendars are busy with a series of data in Europe, including first quarter German and U.K. GDP, German business confidence, and Eurozone purchasing manager surveys; and in Japan (trade, manufacturing and inflation data). Political troubles in Brazil may continue to weigh on emerging market indexes.

 Monday

  • Chicago Fed National Activity Index (Apr)

 Tuesday

  • New Home Sales (Apr)
  • Richmond Fed Report (May)
  • Germany: GDP (Q1)
  • Germany: Ifo (May)
  • France: Mfg. Confidence (May)
  • BOJ: Kuroda
  • Japan: All Industry Activity Index (Mar)
  • Japan: Machine Tool Orders (Apr)
  • Japan: Nikkei Japan Mfg. PMI (May)

 Wednesday

  • Markit Mfg. PMI (May)
  • Markit Services PMI (May)
  • Existing Home Sales (Apr)
  • FOMC Meeting Minutes (May 3)
  • France: Markit Mfg. & Services PMI (May)
  • Germany: Markit Mfg. & Services PMI (May)
  • Eurozone: Markit Mfg. & Services PMI (May)
  • Canada: BOC Rate Decision (May 24)

 Thursday

  • Advance Goods Trade Balance (Apr)
  • Wholesale Inventories (Apr)
  • Initial Jobless Claims (May 20)
  • UK: GDP (Q1)
  • Italy: Industrial Orders & Sales (Mar)
  • Japan: CPI (Apr)
  • Japan: Tokyo CPI (May)

 Friday

  • GDP (Q1)
  • Personal Consumption (Q1)
  • Durable Goods Orders (Apr)
  • Capital Goods Shipments & Orders (Apr)
  • Italy: Business Confidence in the Mfg. Sector (May)
  • Italy: G7 Leaders Meet in Sicily

Saturday

  • BOJ: Kuroda

 

 

 

 

 

 

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 8, 2017

MarketUpdate_header

  • Stocks in Asia were mostly higher with Nikkei & South Korea’s KOSPI surging +2.0% on positive vibes carrying over from U.S. jobs growth and Emmanuel Macron victory. South Korea’s election tomorrow looks to end a nine-year run for the ruling conservative party, which has been caught up in scandal. Hang Seng +0.4% while the Shanghai Composite slipped 0.8% to the lowest levels in more than six months amid Beijing’s efforts to rein in financial leverage.
  • European stocks are holding steady after opening down slightly and two strong weekly gains that essentially priced in the Macron victory. The broader Euro Stoxx 600 is up ~+9.0% YTD. The euro slipped -0.5% to 1.09, but note that the common currency has climbed in five of the past six days and has been trading near its highest levels of the past six months.
  • U.S. markets are slightly lower after the S&P 500 and Nasdaq closed Friday at record levels. The dollar is up +0.3% after four consecutive weekly declines. The 10-year yield is higher at 2.37%. Oil is holding on to $46/barrel and COMEX gold is up 0.3% after dropping more than 3% last week.

MacroView_header

French Elections

  • Macron victory essentially eliminates fears of worst-case scenarios: wave of populist victories threatening viability of currency and European Union (EU).
  • First election without either of two leading parties in Fifth Republic.
  • Still plenty of challenges–Macron must form alliances with Socialists, the party he left, to offset alt-right anger, potential lack of cooperation heading into parliamentary elections in June.
  • Euro-Stoxx 600 +2.0% last week and flat/down today.
  • Euro (~1.09) down 50 basis points today but stronger vs. dollar and other currencies past month.
  • Eurozone gross domestic product (GDP) and inflation both approaching +2.0% annual growth and this vote suggests trajectory can be maintained, accelerated with economic reforms in France.
  • European Central Bank (ECB) must remain accommodative near term, though, because Italy is the next challenge.

 Oil Prices

  • WTI fell -0.6% last week to $46/barrel as increased shale production in U.S. offsets Organization of the Petroleum Exporting Countries (OPEC) production cuts. To be sure, the announcement in November helped drive oil to ~$55, yet the increased profitability for higher cost producers in North America was evidently too good to pass up.
  • We expect OPEC to extend their production cuts at the next meeting in Vienna on May 25. Wall Street consensus is still bullish, projecting a range of $50-55/barrel over the next twelve months.
  • Recent sell-off largely technical in nature over supply concerns. WTI broke through 200-day moving average and failed to hold the new low for the year ($45) and a key Fibonacci retracement level. Frenzied trading in Asian markets ensued on Thursday, yet oil volatility was at its highest level in six months and relative strength (RSI) indicates oversold position.
  • “It’s different this time” – the U.S., not Saudi Arabia, is now the world’s swing producer and although OPEC has largely held on production cuts, U.S. rig counts are up.
  • We remain neutral on the energy sector as supply-demand adjustments still point toward a range of $50-$55 for WTI as OPEC cuts likely persist.

Earnings

  • Strong earnings season got even better last week. S&P 500 earnings for the first quarter rose more than 1% over the past week and are now tracking to a 14.7% year-over-year increase, compared with the 10.2% increase reflected in consensus estimates on April 1 (Thomson Reuters data). Both the earnings growth and beat rates (75%) are the best in more than five years. Excluding the rebounding energy sector, earnings are still on pace to grow a solid 10.5% year over year. About 40 S&P 500 companies will report results this week as earnings season winds down.

 

050817_earningsdashboard-01

  • Companies have delivered mostly upbeat guidance. Forward estimates inched fractionally higher last week and are down just 0.2% since earnings season began. Although the timetable for policy, particularly corporate tax reform, has been pushed out, we still see potential policy upside in 2018. The relatively bright outlook is helping support elevated valuations at an S&P 500 price-to-earnings ratio of 17.5 times.

Sell in May

  • Time to go away? The well-known “Sell in May and go away” period is upon us. Although this is one of the most widely known investment clichés out there, since 1950[1], historically the next six months are indeed the worst six months of the year for the S&P 500. So should you sell and wait to buy in November? We take a closer look at this cliché and show why it doesn’t always work and might not work this year.

Winning Streak

  • Up three weeks in a row. On Friday, the S&P 500 closed at its first all-time high since March 1 and in the process rose for the third consecutive week. It was also the first green Friday for the S&P 500 in nearly two months (March 10). This was the second three-week win streak of the year, with the earlier streak making it all the way to six weeks in a row (ending in early March). There hasn’t been a year with two separate six-week win streaks since 2013.

MonitoringWeek_header

Monday

  • Eurozone: Sentix Investor Confidence (May)
  • China: Foreign Direct Investment (Apr)
  • China: Trade Balance (Apr)

Tuesday

  • NFIB Small Business Optimism (Apr)
  • Germany: Industrial Production (Mar)
  • BOJ: Summary of Opinions at Apr 26-27 Meeting
  • China: New Loan Growth & Money Supply
  • China: Consumer Price Index (CPI) & Producer Price Index (PPI) (Apr)

Wednesday

  • Monthly Budget Statement (Apr)
  • ECB: Draghi Speaks

Thursday

  • Initial Jobless Claims (May 6)
  • PPI (Apr)
  • Eurozone: European Commission Economic Forecasts
  • UK: Bank of England Rate & Inflation Report
  • ECB: Publishes Economic Bulletin

Friday

  • CPI (Apr)
  • Retail Sales (Apr)
  • Germany: GDP (Q1 Prelim.)
  • Germany: CPI & PPI (Apr)
  • Eurozone: Industrial Production (Mar)

 

 

 

[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.  

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 27, 2017

MarketUpdate_header

  • Equities slip after healthcare reform shelved. U.S. indexes are tracking global stocks lower this morning after Congress was unable to push through the American Health Care Act, casting some uncertainty over prospects for tax reform as well. On Friday, the S&P 500 (-0.1%) closed modestly lower, dragged down by materials (-0.9%) and energy (-0.5%); utilities (+0.4%) was the best performing sector. Overnight, Asian markets were led lower by Japan’s Nikkei (-1.4%) on yen strength; Hong Kong’s Hang Seng (-0.7%) and China’s Shanghai Composite (-0.1%) fared better. Stocks are also lower across the board in Europe, notably in Germany’s DAX (-0.9%) and Italy’s MIB (-0.9%). Elsewhere, the recent weakness in WTI crude oil ($47.21/barrel) continues, while the risk-off sentiment is boosting COMEX gold ($1262/oz.) and Treasuries, lowering the yield on the 10-year Note by five basis points (0.05%) to 2.35%.

MacroView_header

  • Our Final Four factors in today’s Weekly Market Commentary. With college basketball’s Final Four set, this week we share our “Final Four factors” for the stock market in 2017. We expect a hard-fought battle between these factors and market risks. But when the “tournament” is over on December 31, depending on the path of policy out of Washington, D.C., we expect the S&P 500 to be at or above current levels.
    1. Economic Growth – We continue to expect a modest pickup in economic growth in 2017 to near 2.5%, based on gross domestic product (GDP), supported by increasing business investment, steady consumer spending gains, and, later in the year, pro-growth fiscal policy to be enacted.
    2. Earnings – We expect high-single-digit S&P 500 earnings growth in 2017[1], supported by better U.S. economic growth, rebounding energy sector profits, a stable U.S. dollar, and resilient profit margins.
    3. Corporate Tax Reform – Corporate tax reform, which remains the centerpiece of the Trump economic agenda, is still likely to get done in the next year despite the failure to get the healthcare bill through the House last week. The Trump administration will immediately pivot to tax reform, though a comprehensive overhaul will be difficult to achieve.
    4. The Fed – We expect the Federal Reserve (Fed) to hike interest rates twice more in 2017 following the Federal Open Market Committee’s (FOMC) rate hike on March 15. We are encouraged by the Fed’s acknowledgement of the improved economic outlook and its stated plan to hike rates gradually.
  • Down seven in a row. The Dow closed lower on Friday for the seventh consecutive session. The last seven-day losing streak was ahead of the U.S. election, and it hasn’t been down eight in a row since August 2011. The S&P 500 meanwhile has closed lower six of the past seven days. Taking a closer look at the Dow’s seven-day losing streak, it has been green at some point each day. Also, the total loss during the streak is only 1.7%. To put this in perspective, since 1980, there have now been 20 seven-day losing streaks. The average drop during the previous 19 was 7.3% and the current drop of 1.74% ranks as the second smallest loss.

MonitoringWeek_header

 Monday

  • Evans (Dove)
  • Eurozone: M3 Money Supply (Feb)
  • China: PBOC’s Zhou Speech

Wednesday

  • Evans (Dove)

 Thursday

  • GDP (Revision) (Q4)
  • Eurozone: Industrial, Services & Consumer Confidence (Mar)
  • China: Mfg. & Non-Mfg. PMI (Mar)

 Friday

  • Personal Income (Feb)
  • Kashkari (Dove)

 

 

 

 

[1] We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.

 

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.