Market Update: July 3, 2017

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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.

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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: May 15, 2017

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

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Key Insights

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

Macro Notes

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

 

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

MonitoringWeek_header

Tuesday

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

Wednesday

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

Thursday

  • LEI (Apr)
  • ECB: Draghi

 

 

 

 

 

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

Market Update: February 13, 2017

© Spencer Platt/Getty Images

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  • U.S. indexes aim for fresh record highs on global strength. Domestic markets look to add to last week’s gains after the S&P 500 rose 0.4% Friday with all but one sector finishing in the green; materials (+0.9%), energy (+0.8%), and industrials (+0.8%) led the way while consumer staples (-0.1%) lost ground. Overseas, stocks in Asia began the week higher as traders evaluated Japanese GDP data and a generally positive outcome of the U.S.-Japan summit over the weekend; the Shanghai Composite (+0.6%) and Hang Seng (+0.6%) led major indexes in the region, while the Nikkei gained 0.4%. European markets are also moving up as the STOXX 600 is heading for its fifth consecutive gain. Elsewhere, the dollar touched a two-week high, WTI crude oil ($53.07/barrel) is pulling back after three days of gains, COMEX gold ($1227/oz.) is modestly lower, and the yield on 10-year Treasuries is up 3 basis points (0.03%) to 2.44%.

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  • Earnings update: strong growth, decent upside. With 71% of S&P 500 companies having reported, S&P 500 earnings are tracking to an 8.4% year-over-year increase, 2.3% above estimates on January 1, 2017 (Thomson Reuters data). Financials, materials, and technology have produced the most upside (all 3% or more) and financials the most growth (+20.8%), followed by technology at 10.9%. An earnings gain for all 11 S&P sectors remains possible with no sector down more than 1.5%. Revenue growth ticked up to 4.4%, led by consumer discretionary, healthcare and technology. This week is another busy one with 55 S&P 500 companies slated to report results.

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  • Supportive guidance. S&P 500 earnings estimates for 2017 are down by a below-average 1.1% since earnings season began (the average decline is 2.5%). Industrials, financials and energy estimates have held up best, with energy actually seeing estimates rise. We continue to expect mid- to high-single-digit earnings growth for the S&P 500 overall in 2017, and have seen nothing from corporate America during earnings season that would cause us to lose confidence in that forecast. The possibility exists that this forecast might prove too low given the potential for a policy boost later this year
  • Real estate by cycles. Evaluating real estate investments depends on three cycles: the economic cycle, the building cycle, and the interest rate cycle. We believe we are in a good spot in the economic cycle for attractive real estate returns, with steady job gains and an improving domestic economic growth outlook. The building cycle for real estate shows little sign of the type of overbuilding that has ended previous cycles. Finally, although we expect interest rates to rise, we expect increases to be modest and driven by improving economic growth and a gradual pickup in inflation, conditions historically favorable for real estate. Based on these metrics, our real estate outlook, including REITs, is favorable while a spike in interest rates remains a key risk.
  • Japan releases Q4 and 2016 gross domestic product (GDP) data overnight. The results were modestly disappointing as Q4 growth was 0.2% vs. an estimated 0.3%; for calendar year 2016, GDP growth was 1.0%, vs. consensus expectations of 1.1%. More telling than the narrow miss itself is the source of Japanese growth: mostly exports. Domestic consumption was flat for Q4 and represented about one half of the total economic growth in 2016. This may encourage Japanese authorities to weaken the yen further, though doing so may ire the Trump administration, which had previously labeled Japan’s trade surplus as unfair. Japanese stocks were stronger overnight, while the yen weakened 0.4%.
  • Busy calendar this week includes Yellen testimony. Fed Chair Yellen’s semiannual monetary policy testimony to Congress highlights this week’s very busy economic and event calendar. In addition to Yellen, a half dozen other Fed officials are on the docket as markets gauge whether or not the Fed will raise rates at its March 2017 meeting. The data due out this week on January CPI, retail sales, leading indicators, housing starts and industrial production, along with February reports on Empire State and Philadelphia Fed manufacturing and housing market sentiment, will weigh on the Fed’s decision. Overseas, Q4 GDP reports are due out in the Eurozone, Poland, and Malaysia, along with the always timely ZEW report (February) in Germany. There are no major central bank meetings this week.
  • Happy Anniversary. The S&P 500 hit last year’s low on February 11 and has since gained more than 26%. Over the past year we’ve seen a massive global stock market rally, with financials, energy, and materials leading in the U.S. A year ago there were calls to “sell everything” and many high-profile cuts of year-end equity targets.

MonitoringWeek_header

Sunday

  • Japan: GDP (Q4)

Monday

  • China: CPI (Jan)

Tuesday

  • NFIB Small Business Optimism Index (Jan)
  • Fed Chair Yellen’s Semiannual Monetary Policy Testimony to Congress-Senate
  • Kaplan (Hawk*)
  • Eurozone: GDP (Q4)
  • Germany: ZEW (Feb)

Wednesday

  • CPI (Jan)
  • Retail Sales (Jan)
  • NAHB Housing Market Index (Feb)
  • Fed Chair Yellen’s Semiannual Monetary Policy Testimony to Congress-House

Thursday

  • Housing Starts (Jan)
  • Philadelphia Fed Mfg. Report (Feb)
  • G-20 Foreign Ministers meeting
  • Eurozonee: Account of the 01/19/17 European Central Bank meeting released

Friday

  • Leading Indicators (Jan)

 

 

 

 

 

 

 

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: January 30, 2017

Provided by thetaxhaven/Flickr

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  • Markets sell off ahead of Fed meeting, corporate earnings. Stocks are down across the globe as investors await key central bank meetings this week and another string of high profile corporate earnings. The S&P 500 drifted 0.1% lower in an unremarkable session Friday; gains in healthcare (+0.8%) and telecom (+0.7%) were offset by losses in energy (-0.9%) and real estate (-0.9%). Many markets were closed Monday in Asia to mark the Lunar New Year, although Japan’s Nikkei Composite slid 0.5% as investors sought safety in the yen following President Trump’s executive order on immigration. In Europe, both bonds and stocks are lower in afternoon trading following German inflation data, which came in at the highest level in more than three years. Meanwhile, WTI crude oil ($52.76/barrel) is lower, COMEX gold ($1192/oz.) is up modestly, and the yield on the 10-year Treasury is down a basis point to 2.48%.

 

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  • Little upside in Q4 numbers but there are bright spots. With 169 S&P 500 companies (about 34% of the index) having reported results for the fourth quarter of 2016, year-over-year earnings growth is tracking to a 6.8% increase. Although that pace is better than the 4.3% pace in the prior quarter, the modest upside to prior (January 1, 2017) estimates is disappointing. Financials and technology results are among the bright spots, while we are encouraged by the increase–albeit modest–in overall S&P 500 estimates for the second half of 2017 that at least partly reflect policy upside and the oil rebound. This week is one of the biggest of the season with 109 S&P 500 companies slated to report fourth quarter results.

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  • Still value in value? Despite its strong 2016, there may still be some value in value. While value (based on the Russell 1000 Value Index) has lagged its growth counterpart so far in 2017, we see several reasons to like value stocks, including accelerating economic and profit growth and the better outlook for financials. But we believe the growth side has enough going for it, including a positive outlook for the technology sector and attractive relative valuations, that we suggest investors generally maintain balance across the styles.
  • Very busy week ahead. Several times a year, the global economic and event calendar jams up with a dozen or so high-profile events, and this is one of those weeks. The Federal Reserve Bank, the Bank of Japan, and the Bank of England all meet, and while none is expected to change policy, it’s the first meeting of the year for each. On the political front, the U.K. Parliament will vote on whether to authorize Prime Minister Theresa May to move forward with Brexit, and later in the week, the leaders of the European Union will meet to discuss what’s next. India will release its budget for 2017-2018, and China’s markets are closed for the Lunar New Year. This week is an extremely busy week for data with January data on Institute for Supply Management (ISM), vehicle sales, and the January employment report. Overseas data include GDP reports in the Eurozone, India, Mexico, and Indonesia.
  • More small ranges. We’ve been talking about the slow action lately and last week was no different. In fact, the daily range for the S&P 500 on Friday was only 0.32%–which is in the bottom 1% of all daily ranges since 1970. Incredibly, Thursday was actually a smaller range. Even though the S&P 500 was down the last two days of the week, it was one of the 18 smallest two-day losing streaks (down 0.16%) since 2000. Lastly, the S&P 500 has now gone 29 consecutive days without a 1% intraday move, the longest such streak since late 1995.
  • Dow 30,000? Barron’s had a cover over the weekend titled “Next Stop Dow 30,000” and as you might expect, it caused quite a stir. Many noted this cover could be a  bearish signal, as the well-known ‘magazine cover indicator’ is used as a contrarian indicator. Once something is so universally agreed upon and it makes the cover of a magazine, the trend very well could be closer to the end than the beginning. The classic example of this is the “Death of Equities” BusinessWeek cover that came out near the 1982 low in equities. Turning to the Barron’s article, what is important to note is the forecast of 30,000 by 2025 – which comes out to about a 5% annual gain, well in line with the long-term average for the Dow. So maybe this cover isn’t quite as outlandish as it might appear at first blush.

MonitoringWeek_header

Sunday

  • Chinese Lunar New Year; Chinese Markets Closed All Week

Monday

  • Germany: CPI (Jan)

Tuesday

  • Employment Cost Index (Q4)
  • Chicago Area PMI (Jan)
  • Eurozone: GDP (Q4)
  • Eurozone: CPI (Jan)
  • Germany: Unemployment Change (Jan)
  • UK Parliament Begins Debate on Article 50 (Brexit)
  • Japan: Bank of Japan Meeting (No Change Expected)
  • China: Official Mfg. PMI (Jan)
  • China: Official Non-Mfg. PMI (Jan)
  • India: GDP (2016)

Wednesday

  • ADP Employment (Jan)
  • ISM Mfg. (Jan)
  • Vehicle Sales (Jan)
  • FOMC Statement
  • UK Parliament Expected to Vote on Authorizing Article 50 (Brexit)
  • India: 2017-18 Budget Speech

Thursday

  • UK: Bank of England Meeting (No Change Expected)
  • China: Caixin Mfg. PMI (Jan)

Friday

  • Employment Report (Jan)
  • ISM Non-Mfg. (Jan)
  • Evans* (Dove)
  • EU Leaders Meet in Malta

 

 

 

 

 

 

 

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

 

 

 

 

 

Market Update: November 21, 2016

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

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

earnings-dashboard-11-21-16

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

MonitoringWeek_header

Monday

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

Tuesday

  • OPEC Meeting in Vienna

Wednesday

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

Thursday

  • Germany: Ifo

Friday

  • Advance Report on Goods Trade Balance (Oct)

 

 

 

 

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

Market Update: November 14, 2016

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MarketUpdate_header

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

MacroView_header

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

earnings-season-dashboard

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

MonitoringWeek_header

Monday

  • Kaplan (Hawk)
  • Lacker (Hawk)

Tuesday

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

Wednesday

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

Thursday

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

Friday

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

 

 

 

 

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

Weekly Advisor Analysis: March 15, 2016

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

Oil

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

WWA

European Central Bank

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

WWAA

Short-Term Yields Rise

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

Fun Story of the Week

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

Three Financial Facts of the Week: March 10, 2016

Japan
Wikimedia

Fact #1
Growth in “labor quality,” a measure of the skill set of the average worker, has declined in the last few years, according to a recent research note from J.P. Morgan Chase. In 2015, the growth in overall workforce skills contributed less than 0.1 percentage points to GDP growth, the smallest contribution of labor quality to growth since 1979.
Source: Wall Street Journal

Fact #2
Among industrialized economies, only the U.S. and Japan are growing at similar rates compared with their pre-financial crisis growth rate, after adjusting for changes in the working-age population, but both economies have still grown more slowly than expected.
Source: JobMarketMonitor.com

Fact #3
As tighter border controls are continuously put into place across Europe, the European Union could face up to 18 billion euros, or $19.6 billion, each year in lost business, steeper freight costs, and interruptions to supply chains, according to a recent report by the European Commission.
Source: New York Times

It’s That Time of the Year

Gloom
Pieter Bruegel the Elder/Wikimedia

No, not the holidays. It’s the time when investors begin to consider pundits’ forecasts for the coming year. Here are a few of those forecasts:

“Flat is the new up,” was the catch phrase for Goldman Sachs’ analysts last August, and their outlook doesn’t appear to have changed for the United States. In Outlook 2016, they predicted U.S. stocks will have limited upside next year and expressed concern that positive economic news may bring additional Fed tightening. Goldman expects global growth to stabilize during 2016 as emerging markets rebound, and Europe and Japan may experience improvement.

Jeremy Grantham of GMO, who is known for gloomy outlooks, is not concerned about the Federal Reserve raising rates, according to Financial Times (FT). FT quoted Grantham as saying, “We might have a wobbly few weeks…but I’m sure the Fed will stroke us like you wouldn’t believe and the markets will settle down, and most probably go to a new high.” Grantham expects the high to be followed by a low. He has been predicting global markets will experience a major decline in 2016 for a couple years, and he anticipates the downturn could be accompanied by global bankruptcies.

PWC’s Trendsetter Barometer offered a business outlook after surveying corporate executives. After the third quarter of 2015, it found, “U.S. economic fundamentals remain strong, but markets and executives like predictability, and that’s not what we’ve been getting lately… Trendsetter growth forecasts are down, so are plans for [capital expenditure] spending, hiring, and more. It doesn’t help that we’ve entered a contentious 2016 election season…”

The Economist had this advice for investors who are reviewing economic forecasts, “Economic forecasting is an art, not a science. Of course, we have to make some guess. The average citizen would be well advised, however, to treat all forecasts with a bucket (not just a pinch) of salt.”

Dr. Doom Calls Bubble, Adding to Gloomy Calls

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The Federal Reserve has inflated an asset bubble and that’s going to damp market returns, perma-bear Marc Faber, publisher of The Gloom, Boom & Doom Report, told CNBC Tuesday.

Faber’s remarks follow downbeat assessments from the likes of former Pimco co-chief executive Mohamed El-Erian and Nobel economics laureate Robert Shiller, who have recently spoken on the increasing odds of a US recession and frothiness in stock markets, respectively.

“Say you’re a young person and you’re just starting to work. So take me in the 1970s. In the U.S., with 20 hours of work, I could buy the S&P 500  (.INX). Now you need more than 90 hours of work to buy the S&P 500 if you’re young, with a medium income,” Faber told CNBC in an interview.

“The Fed has basically created with their colleagues in Japan and at the European Central Bank (ECB) and the Bank of England (BOE), they’ve created a colossal asset bubble. And the returns going forward will be disappointing.”

Global central banks have created easy liquidity in markets via zero interest rate policies, and sometimes negative-rate policies, as well as through asset purchases. That’s driven up prices across a range of assets.

Despite Wall Street’s gains Monday, Faber noted that the gains are not evenly spread among stocks.

“The composition of an index is that it’s usually capitalization weighted. So one stock that goes up vertically could theoretically drive up an index and 99 percent of the shares don’t make new highs,” Faber said. “We had a strong day on Wall Street, but on the New York Stock Exchange, out of more than 3,000 shares that are being traded, only less than a hundred made a 12-month new high. The advance is very narrow.”

He’s seeing the same action in the art and property markets.

“Some markets are still strong, but the bulk is no longer moving up so the advance of asset price inflation has been narrowing significantly,” Faber said.

But while Faber is known as Dr. Doom for his pessimistic outlook, this time he’s not entirely alone, with a chorus of other voices also growing concerned.

On Monday, economist El-Erian put the risk of a recession in the United States at 25 percent to 30 percent.

“The road we’re on is going to end. We cannot rely on central banks, and central banks cannot be the only game in town when it comes to policy,” El-Erian, who is the current chief economic advisor to Germany’s Allianz  (ALV-DE), parent of Pimco, told CNBC.

In September, Yale professor Shiller told CNBC that investor sentiment is looking similar to conditions just before the dot-com bubble popped in 2000, possibly signaling a bubble. Other analysts have called time on various asset classes, including property, high-yield bonds and technology stocks.

Written by Leslie Shaffer of CNBC 

(Source: CNBC)