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%
- 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.
- 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.
- Germany: PPI (May)
- BOJ: Minutes of Apr 26-27 Meeting
- China: Conference Board China LEI (May)
- Existing Home Sales (May)
- BOJ: Kuroda & Iwata
- Japan: All Industry Activity (Apr)
- Japan: Machine Tool Orders (May)
- LEI (May)
- Eurozone: Consumer Confidence (Jun)
- Japan: Nikkei Japan Mfg. PMI (Jun)
- 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.