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: December 5, 2016

MarketUpdate_header

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

MacroView_header

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

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

MonitoringWeek_header

Monday

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

Tuesday

  • FOMC Quiet Period Begins

Wednesday

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

Thursday

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

Friday

  • Consumer Sentiment and Inflation Expectations (Dec)

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples. This research material has been prepared by LPL Financial LLC.

Market Update: November 28, 2016

MarketUpdate_header

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

MacroView_header

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

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

MonitoringWeek_header

Monday

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

Tuesday

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

Wednesday

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

Thursday

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

Friday

  • Employment Report (Nov)

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples. This research material has been prepared by LPL Financial LLC.