Market Update: June 5, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

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Key Insights

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

Macro Notes

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

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

Monday

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

Tuesday

  • Eurozone: Markit Eurozone Services PMI (May)

Wednesday

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

Thursday

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

Friday

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

 

 

 

 

 

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

Market Update: May 22, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

MacroView_header

Key Insights

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

Macro Notes

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

052217_earningsdashboard-01.png

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

MonitoringWeek_header

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

 Monday

  • Chicago Fed National Activity Index (Apr)

 Tuesday

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

 Wednesday

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

 Thursday

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

 Friday

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

Saturday

  • BOJ: Kuroda

 

 

 

 

 

 

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

Market Update: April 24, 2017

MarketUpdate_header

  • U.S. up, Europe surging in wake of French vote. U.S. equities are tracking global markets higher this morning following yesterday’s first round of the French presidential elections in which Emmanuel Macron and Marine Le Pen finished in the top spots, triggering a run-off vote set for May 7. Friday’s session concluded with the major indexes posting modest losses ahead of the vote, as the S&P 500 (-0.3%) was led lower by the telecom (-1.6%) and financials (-0.9%) sectors, with only utilities (+0.5%) and industrials (+0.1%) finishing positive. Overseas, Asian indexes reacted positively to the French election as the Nikkei (+1.4%) and Hang Seng (+0.4%) gapped higher; the notable exception was the Shanghai Composite (-1.4%), which fell amidst a government crackdown on leverage. European indexes are spiking as the STOXX 600 (+1.8%) benefits from investors betting on the pro-E.U. candidate Macron; Frances’s CAC is up more than 4% to its highest level in nine years. Finally, the yield on the 10-year Treasury has jumped to 2.30%, WTI crude oil (-0.5%) is just below $50/barrel, and COMEX gold ($1271/oz.) has dropped 1.4%.

MacroView_header

  • Solid start to Q1 earnings season. With 95 S&P 500 companies having reported, Thomson-tracked S&P 500 earnings for first quarter 2017 point to an 11.2% year-over-year increase, compared with consensus estimates of +10.2% as of quarter end on April 1, 2017. The early upside has been driven largely by financials, which are tracking to a 19.0% year-over-year increase, more than 4% above quarter-end estimates. Industrials have also surprised to the upside thus far. Conversely, since earnings season began, first quarter earnings estimates have been cut for the consumer discretionary, energy, and telecom sectors, though it is probably too early to call any of these sectors “earnings season losers.” This week (4/24/17-4/28/17) is the busiest week of earnings season with 194 S&P 500 companies slated to report. All of the widely-held sectors are well represented on the earnings calendar, led by industrials.

4-24-17-earnings-dashboard

  • Leading indicators rise for seventh consecutive month. The Conference Board’s Leading Economic Index (LEI) pushed 0.4% higher in March, ahead of expectations but decelerating from a downwardly revised 0.5% increase in February. Eight of 10 indicators increased in March, led by contributions from the yield curve and strong new manufacturing orders survey data. The LEI has climbed 3.5% year over year, a rate that has historically been associated with low odds of a recession occurring within the next year.
  • The latest Beige Book suggests a steady economy with modest wage pressure. The Federal Reserve (Fed) released its April Beige Book last week ahead of the May 2-3, 2017 Federal Open Market Committee (FOMC) meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in April, its highest level since +84 in January 2016, indicating continued steady economic growth in early 2017 with some signs of potential acceleration. Words related to wage pressure have held steady over the last six months at levels above the 2015-2016 average, indicating the appearance of modest but still manageable wage pressure.
  • Important period for European markets. This week, we examine the importance of European market earnings, particularly in important sectors like energy and banking. Expectations remain high for earnings growth throughout 2017, which has kept us cautious on investing in European markets. Political risks also remain, but seem to be abating as we get past the first round of French Presidential elections.

MonitoringWeek_header

Monday

  • Germany: Ifo (Apr)

Tuesday

  • New Home Sales (Mar)

Wednesday

  • BOJ Outlook Report & Monetary Policy Statement
  • BOJ Interest Rate Decision

Thursday

  • Durable Goods Orders (Mar)
  • Eurozone: Consumer Confidence (Apr)
  • ECB Interest Rate Decision
  • Japan: CPI (Mar)

Friday

  • GDP (Q1)
  • UK: GDP (Q1)
  • Eurozone: CPI (Apr)

Saturday

  • EU Leaders Summit
  • China: Mfg. & Non-Mfg. PMI (Apr)

 

 

 

 

 

 

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: April 17, 2017

MarketUpdate_header

  • Stocks tick higher to begin week. U.S. equities are slightly higher this morning as earnings season ramps up this week with 63 S&P 500 components set to report. Markets moved lower the final three sessions of the last week’s shortened trading week, concluding with a 0.7% loss for the S&P 500 on Thursday which was led lower by energy (-1.9%) and financials (-1.7%). Asian indexes closed mixed overnight, with the Nikkei gaining 0.1%, while China’s Shanghai Composite slipped 0.7% as a request from the country’s top securities regulator to tighten controls overshadowed an upside surprise to Gross Domestic Product (GDP); European markets are closed for Easter Monday. Meanwhile COMEX gold ($1291/oz.) is near flat, WTI crude oil ($53.03/barrel) is dropping 0.3%, and the yield on the 10-year Note little changed at 2.23%.

MacroView_header

  • First big earnings week on tap. This week 16% of the S&P 500’s market cap will report first quarter 2017 results, highlighted by the financials and industrials sectors. Banks got the season off to a good start late last week, pushing the financials earnings growth rate to near 18% from an estimated 15.6% over the past week. Overall, Thomson-tracked consensus for S&P 500 earnings is calling for a 10.4% year-over-year increase in the quarter; a strong 76% earnings beat rate thus far has lifted overall earnings growth by 0.2% (though just 6% of the S&P 500’s market cap reported last week). Look for our earnings dashboard here on April 24.
  • Consumer prices fell in March. The consumer price index (CPI) fell 0.3% month over month in March, below consensus expectations for a flat reading. Core prices, excluding food and energy, slipped 0.1% month over month, the first sequential decline since January of 2010 and well below consensus estimates of +0.2%. The drop pushed the year-over-year changes in headline and core prices to 2.4% (down from 2.7% in February) and 2.0% (down from 2.2% in February), respectively. The drop in prices was broad based, driven by a combination of wireless phone services, apparel, autos, and housing. We continue to expect two more rate hikes from the Federal Reserve (Fed) in 2017, but the soft data in March may cause markets to at least partially discount the probability of a June hike, which is currently about a coin flip based on fed funds futures markets.
  • Retail sales fell for the second straight month. Following a downward revision to February, retail sales fell for the second straight month in March, slipping 0.2% (vs. consensus of -0.1%), though sales increased by a respectable 5.2% on a year-over-year basis. Core retail sales (excluding autos, gasoline, building materials and food services), rose 0.5% month over month, above expectations, after a downwardly revised 0.2% decline in February. Consumer spending clearly slowed in the first quarter after a strong finish to 2016, but weather, delayed tax refunds, and seasonal quirks in first quarter data in recent years suggest a rebound in the second quarter is likely. Still, first quarter gross domestic product, based on available data to date, is tracking to only about 1%.
  • Upside surprise to Chinese GDP. The Chinese government released its official Q1 GDP report overnight, up 6.9%, better than expectations which generally were in the 6.5%-6.7% range. Economic indicators were up across the board, including growth in Fixed Asset Investment (infrastructure and real estate spending), which is often heavily influenced by government policy, and retail sales. Consumer spending is key to the Chinese government, as it is trying to manage its economy away from infrastructure and heavy industry and toward consumer spending and the service sector.
  • Though many are skeptical regarding Chinese GDP growth figures, what may matter most is how China responds to them. Because the government is signaling that the economic situation is strong, it gives it room to be more aggressive on important issues, primarily the debt problem. Chinese shares were down slightly despite the positive data. Why? Perhaps because of the government’s signal that policy will shift away from supporting the economy (which officially no longer needs the support) and toward dealing with these longer term imbalances.
  • Checking in on technicals, sentiment, and uncertainty. This week we will take a look at market technicals, sentiment, and the ever increasing uncertainty. The good news is market breadth remains strong and globally we are seeing many major markets in uptrends as well. Still, sentiment is a mixed picture and the level of uncertainty remains high. All of this, coupled with the historically low level of market volatility during the first-quarter, makes the potential for higher volatility very likely.

MonitoringWeek_header

Monday

  • BOJ: Kuroda Speaks to Trust Companies Association

Wednesday

  • Beige Book
  • Eurozone: Trade Balance (Feb)
  • Eurozone: CPI (Mar)

Thursday

  • Initial Jobless Claims (Apr 15)
  • Conference Board US Leading Index (Mar)
  • Eurozone: Consumer Confidence (Apr)

Friday

  • Existing Home Sales (Mar)
  • Eurozone: Markit Mfg. & Services PMI (Apr)
  • CAD: CPI (Mar)
  • ECB: Current Account (Feb)

 

 

 

 

 

 

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: April 10, 2017

MarketUpdate_header

  • Stocks move higher to start week. U.S. equities are modestly higher this morning as investors look ahead to the start of first quarter earnings season, with several tier one banks set to report later this week. This after major indexes shook off a lackluster jobs report and pushed higher through midday, only to give back gains late in the session; the S&P 500 fell 0.1%. The telecom (+0.2%) and healthcare (+0.2%) sectors clung to modest gains, while financials (-0.3%) and energy (-0.4%) stocks were among the days’ laggards. Overseas, investors are focusing on political turmoil stemming from Syrian incidents amid light economic data; Asian markets were mixed overnight, with the Nikkei (+0.7%) advancing, and the Shanghai Composite (-0.5%) moving lower; while European indexes are near flat amid range-bound trading. Elsewhere, WTI crude oil ($52.80/barrel) continues to climb on regional turmoil in the middle east, COMEX gold ($1250/oz.) is lower, and Treasury yields are down slightly to 2.37% on the 10-year.

MacroView_header

  • Over the last month, the LPL Financial Current Conditions Index (CCI) fell 20 points to 235. The CCI remains in the middle of the range it has held since 2010. Falling shipping traffic and an increase in initial jobless claims off of near 40-year lows were the main detractors from the CCI in the last month, while fed fund rate expectations and credit spreads were the main positive contributors.
  • Inflation and highlights from this week’s economic calendar. Despite Friday’s holiday, retail sales and the consumer price index (CPI) will be reported on that day (producer prices come Thursday) and will highlight what is otherwise a quiet week of data in the U.S. Two reports that deserve some attention, however, are National Federation of Independent Business (NFIB) Small Business Optimism and JOLTS (Job Openings and Labor Turnover) which will provide some insights into the policy-driven rise in business confidence and the job market, where Friday’s weak payroll employment report raised some concerns. Overseas, we get Chinese and Japanese trade data and G7 Finance Ministers will meet, while geopolitical risk will remain in focus following last week’s military strike in Syria.
  • S&P 500 poised for double-digit earnings gain. The S&P 500 is likely to produce double-digit year-over-year earnings growth for the first quarter (Thomson-tracked consensus is +10.1%) as earnings season gets underway this week. Earnings growth would reach 12-14%, the best since 2011, should companies beat estimates by the average 4.1% seen over the last five years according to FactSet. Last year’s first quarter marked the trough of the earnings recession, setting up an easy comparison, though we have several other reasons to be optimistic. Growth is expected to be powered by energy’s rebound from the oil downturn that battered the sector early last year while solid macro data in recent months is also supportive.
  • Fed balance sheet. Minutes from the recent Federal Reserve (Fed) meeting, released last Wednesday, signaled that the Fed intends to reduce its sizable $4.2 trillion balance sheet. We’ll analyze the options available to the Fed to accomplish a reduction of this size. In addition to how the balance sheet was built, we look at the structure of the assets within the portfolio for clues as to how the normalization may impact markets.
  • Continued strong breadth. The New York Stock Exchange (NYSE) Composite Advance/Decline (A/D) line broke out to new highs last week. This is one of our favorite technical indicators, as it shows how many stocks are advancing versus declining at any given time. In other words, it measures overall market breadth. To see new highs occur suggests there is a good deal of investor participation and the overall equity rally could continue to have legs. Also, the NYSE A/D line broke out to new highs one year ago this week, well ahead of the eventual S&P 500 Index’s (SPX) new highs in July 2016.

MonitoringWeek_header

Tuesday

  • Eurozone: Industrial Production (Feb)

Wednesday

  • Bank of Canada Rate Decision & Monetary Policy Report

Thursday

  • Initial Jobless Claims (Apr 1)

Friday

  • Banks Open, Markets Closed
  • CPI (Mar)
  • Retail Sales (Mar)

 

 

 

 

 

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: April 3, 2017

MarketUpdate_header

  • Stocks search for direction to begin Q2. After closing out a solid first quarter amidst Brexit and Trump-trade uncertainties, equities are modestly lower in early trading. Friday’s session saw the S&P 500 (-0.2%) and the Dow (-0.3%) finish in the red, ending the quarter without enthusiasm despite an overall increase of 5.5% for the S&P. Rate-sensitive real estate (+0.5%)  and utilities (+0.3%) won the sector battle for the day as a number of Federal Reserve (Fed) presidents expressed interest in potentially reducing the Fed’s balance sheet; financials (-0.7%) was the worst performer. Overseas, the Hang Seng (+0.6%) and Nikkei (+0.4%) gained ground on strong regional Purchasing Managers’ Index (PMI) data; China’s Shanghai Composite was closed for a holiday. In Europe, the STOXX 600 Index (-0.2%) and most markets are lower. Meanwhile, WTI crude oil ($50.46/barrel) is down slightly, COMEX gold ($1253/oz.) is near flat, and the yield on the 10-year Treasury is down to 2.36%.

MacroView_header

  • Checking in on so-called Trump trades. Recent underperformance of small caps, financials, and industrials likely reflects some loss of confidence in the Trump agenda, although we believe small caps and financials may have enough going for them that the recent weakness may be a buying opportunity, even with a scaled-back policy path. Industrials, on the other hand, may need more help from the macroeconomic environment should policy disappoint.
  • Just missed five in a row. The S&P 500 lost 0.04% last month, after a late-day drop on Friday. This was the first monthly decline since October, just missing the first five month win streak since March-July 2016. It was still a great first quarter as the S&P 500 jumped 5.5%; the best return since Q4 2015 and the best Q1 since 2013. For the quarter, technology and consumer discretionary led, while telecom and energy lagged.
  • April is usually strong. Over the past 20 years, no month sports a higher monthly S&P 500 average than April at 2.0%. Going back to 1950[1], the average monthly return is 1.5%, with only the historically strong months of November and December better. Post-election years are also strong, up 1.6% on average. Lastly, after a big first quarter gain of 5% or more (like 2017), April actually does better at up 2.0% on average.
  • April is a big month. There are multiple potential market-moving events in April: the start of Q1 earnings season, elections in France, and a potential government shutdown head the list of things we are watching closely. To get ready for the big month, we will examine these events more closely.

MonitoringWeek_header

Monday

  • ISM (Mar)
  • Eurozone: Markit Mfg. PMI (Mar)
  • Eurozone: Eurostat PPI Industry Ex-Construction (Fed)

Tuesday

  • Eurozone: Eurostat Retail Sales Volume (Feb)

Wednesday

  • ISM Non-Mfg. (Mar)
  • Eurozone: Markit Services & Composite PMI

Thursday

  • Initial Jobless Claims (Apr)
  • Eurozone: Market Retail PMI (Mar)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Mar)
  • Unemployment Rate (Mar)
  • Average Hourly Earnings (March)

 

 

 

 

[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.

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.

Mark Cuban Says This Will Be the No.1 Job Skill in 10 Years

Study after study has shown that millions of jobs are at risk of becoming automated in the coming years.

And the U.S. is not prepared, says Mark Cuban, the billionaire software developer and owner of the Dallas Mavericks.

In a recent interview on Bloomberg TV, Cuban warned that even people with in-demand skills like computer coding could soon be displaced.

“That might have been a great job a few years ago, but you might be out of work in five years,” he said, citing what he called “the automation of automation,” where computers learn how to write software better than humans can.

“We’re going to have a lot of displaced workers — the nature of work is changing,” he said.

So a new skill will become more in-demand than it ever has been: creative thinking.

“I personally think there’s going to be a greater demand in 10 years for liberal arts majors than there were for programming majors and maybe even engineering,” he said. “When the data is all being spit out for you for you, options are being spit out for you, you need a different perspective in order to have a different view of the data.”

In particular, experts in philosophy or foreign languages will ultimately command the most interest from employers in the next decade, Cuban said.

Cuban went on to say that America should be investing in programs like Americorps, which leverages community-building and creative thinking to create social impact. But that type work isn’t always seen as valuable, Cuban said.

“Making it a real job…that’s what we’re going to need,” he said.

Written By: Rob Wile
Source: Money

Market Update: March 6, 2017

MarketUpdate_header

  • Equities move lower to begin week. U.S. stocks are moving lower in early trading, following their European counterparts on little news. The major averages all managed to squeak out slight gains on Friday; the S&P 500’s 0.1% gain was led by financials and healthcare, which both closed up 0.4%. Overnight in Asia, stocks finished mostly higher with the exception of Japan’s Nikkei (-0.5%) as the yen strengthened; the STOXX Europe 600 is lower by 0.5% in afternoon trading. Meanwhile, the yield on the 10-year Treasury is near flat at 2.48% as market-implied expectations of a Fed rate hike in March are near 86%, WTI crude oil ($53.25/barrel) is slightly lower, and COMEX gold ($1231/oz.) is climbing 0.4%.

MacroView_header

  • Brexit, EU summit, China forecasts, Fed “quiet period”, and February jobs report highlight week ahead. Other than the February employment report (due out this Friday, March 10)  it’s a relatively quiet week for U.S. economic data. It’s also the unofficial quiet period for the Federal Reserve ahead of the March 14-15 FOMC meeting. The overseas calendar is chock full of potentially market-moving events, including the EU leaders summit, a potential House of Lords vote on Brexit, the European Central Bank meeting, and a few key reports on China’s economy in February.
  • Beige Book. This week, we’ll examine the Fed’s latest Beige Book, looking for signs of any impact from the new Trump administration, an overheating labor market, rising wages, and inflation ahead of next week’s FOMC meeting.
  • Corporate sentiment improved again in our latest Corporate Beige Book. Sentiment improved among corporate executives based on our analysis of fourth quarter earnings conference call transcripts. Not surprisingly, policy was a popular topic, as corporate tax reform, infrastructure and regulation saw big jumps in the number of mentions. Currency and China also continued to garner a lot of attention, while energy and Brexit faded. The solid fourth quarter results coupled with improved sentiment from corporate executives support our expectation of mid-to-high single digit earnings growth for the S&P 500 in 2017.
  • The Chinese National People’s Congress began its annual meeting on Sunday. Nothing shocking has come out of the meeting so far, though little was expected. Official economic growth forecasts have been cut to 6.5%. The focus of the meeting has been on economic stability, including a reduction in monetary growth targets and efforts to reduce China’s bad debt problem. The most notable change in language related to calls for further currency liberalization. A more market-oriented currency policy suggests potential weakening of the yuan, which would run counter to China’s long-term political goals, as well as increase the likelihood of China being labeled a “currency manipulator” by the Trump administration.
  • Make that six in a row. The S&P 500 was up 0.7% for the second consecutive week, and managed to close at a new weekly all-time high. In the process, it closed higher for the sixth consecutive week for the first time since a six-week win streak off of the February 2016 lows. The last time it was up seven weeks in a row was late 2014. Here’s the catch, the S&P 500 was up only 4.9% the past six weeks – making this one of the weakest six-week win streaks ever. Given the historically small daily trading ranges recently, this shouldn’t come as a big surprise. You have to go back to late 2013 for the last time there was a smaller return during a six-week win streak.

MonitoringWeek_header

Monday

  • Kashkari (Dove)

 Tuesday

  • China: Imports and Exports (Feb)
  • Japan: Economy Watchers Survey

 Wednesday

  • ADP Employment (Feb)
  • China: CPI (Feb)

Thursday

  • Initial Claims (3/5)
  • Challenger Job Cut Announcements (Feb)
  • Household Net Worth and Flow of Funds (Q4)
  • European Union leaders Summit in Brussels Begins
  • Eurozone: European Central Bank Meeting (No Change Expected)

Friday

  • Employment Report (Feb)
  • European Union leaders Summit in Brussels Continues

 

 

 

 

 

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: February 27, 2017

MarketUpdate_header

  • Stocks lower as busy week begins. Markets are lower this morning as investors evaluate mixed durable goods orders data and await several Fed speakers and President Trump’s address to Congress this week. Domestic stocks rallied at the end of the day on Friday, helping the Dow notch its eleventh consecutive gain; the S&P 500 was up 0.2%. Rate-sensitive utilities (+1.5%) and telecom (+0.7%) outperformed while energy (-0.9%) and financials (-0.7%) were the only sectors to lose ground. Overnight in Asia, the Nikkei (-0.9%) and Shanghai Composite (-0.8%) led broad declines in the region, while most European exchanges are modestly lower in afternoon trading, although Italy’s MIB (+1.5%) is bucking the trend.  Elsewhere, WTI crude oil ($54.38/barrel) is up 0.7%, COMEX gold ($1259/oz.) is near flat, and the yield on the 10-year Treasury note is up three basis points (0.03%) to 2.34%.

MacroView_header

  • Earnings season winds down this week. With 32 S&P 500 companies slated to report this week and 460 having reported already, this week effectively marks the end of fourth quarter earnings season. S&P 500 earnings growth for the quarter is tracking to solid 7.7% growth according to Thomson Reuters data, less than 2% above prior estimates, while revenue growth is tracking to a very respectable 4.3% increase. While fourth quarter upside is below average, the growth rate is a meaningful improvement from the 4% growth rate in the third quarter of 2016 and flat or negative growth for several quarters before that. Looking forward, the modest 1% drop in 2017 S&P 500 earnings estimates, which remain 10-11% above 2016 earnings, is an encouraging sign. We believe our mid- to high-single-digit S&P 500 earnings growth forecast for 2017[1] is achievable given our expectation for better economic growth and potential for a policy boost.

021717_earningsdashboard-011

  • Busy start to a very busy month. This is an incredibly busy week for economic data and events around the globe. In the U.S., President Trump will address a joint session of Congress on Tuesday night, and Fed Chair Yellen and Vice Chair Fischer will deliver speeches on Friday. In addition, there are half a dozen other FOMC members on the docket this week, and the Fed will also release its Beige Book Wednesday March 1 ahead of the March 14-15, 2017 meeting. In addition to that, data for January and February on ISM (manufacturing and non manufacturing), vehicle sales, and pending home sales are due out. Overseas, the U.K.’s House of Lords will begin debate on Article 50 (aka Brexit), China will release key data in manufacturing and service sector activity, and in Europe, February data on CPI and bank lending for January will be closely watched.
  • Durable goods order and shipments. Sizable upward revisions to prior months’ data offsets weaker than expected January reading. New orders for “core” durable goods fell 0.4% between December and January, but the December reading, initially reported as a 0.7% gain, was revised up to show a 1.1% increase instead. The durable goods data are notoriously volatile month-to-month and subject to large revisions.  Looking at changes over three months can help to smooth out some of the inherent volatility, and in the three months ending January 2017, core durable goods orders rose 9%, a clear acceleration from the 4% gain posted in the three months ending October 2016. The acceleration in orders in the past three months suggests that business capital spending is likely to be a plus for GDP in the first half of 2017.
  • Up five weeks in a row. The S&P 500 had a late-day surge on Friday to close higher for the fifth consecutive week for the first time since coming off of the February 2016 lows. Momentum seems to stay in play after long weekly win streaks, as the past 10 times the S&P 500 was up five consecutive weeks, it was higher two weeks later nine times. Under the surface though there was a unique development, as the Dow Jones Utility Average had its best week since early July – up 4.1%. In fact, since the bull market started nearly eight years ago, that type of weekly move happens only 2.9% of the time. Three of the four days last week saw utilities gain at least 1%, which hasn’t happened since October 2015. Historically, utilities taking the lead has been a warning sign, as defensive names find a bid.
  • Dow does it again. It took a nice-sized rally the last 20 minutes of the day, but the Dow eked out a gain of 0.05% on Friday. This was the eleventh consecutive record high, with only one streak longer since 1900 (12 in a row in 1987). In terms of any winning streaks, not just record highs, the current streak of 11 in a row is the most since early 1992.

MonitoringWeek_header

Monday

  • Durable Goods Orders and Shipments (Jan)
  • Dallas Fed Mfg. Report (Feb)
  • Kaplan (Hawk)
  • Eurozone: Money Supply and Bank Lending (Jan)
  • Germany: Retail Sales
  • UK House of Lords Begins Debate on Article 50

Tuesday

  • Chicago Area Purchasing Managers Report (Feb)
  • Richmond Fed Mfg. Report (Feb)
  • Williams (Dove)
  • Bullard (Dove)
  • Eurozone: CPI (Feb)
  • President Trump Addresses a Joint Session of Congress
  • China: Official Mfg. PMI (Feb)
  • China: Official Non-Mfg. PMI (Feb)
  • China: Caixin Mfg. PMI (Feb)

Wednesday

  • ISM Mfg. (Feb)
  • Vehicle Sales (Feb)
  • Beige Book
  • Kaplan (Hawk)
  • UK: Bank Lending and Money Supply (Jan)
  • Germany: CPI (Feb)
  • Canada: Bank of Canada Meeting (No Change Expected)

Thursday

  • Challenger Job Cut Announcements (Feb)
  • Mester (Hawk)
  • China: Caixin PMI Services (Feb)
  • Japan: Jobless Rate (Jan)

Friday

  • ISM Non Mfg. (Feb)
  • Yellen (Dove)
  • Fischer (Dove)

Sunday

  • China: National People’s Congress Meeting Begins in Beijing.

 

 

 

 

 

 

 

 

[1] We expect mid-single-digit returns for the S&P 500 in 2017 consistent with historical mid-to-late economic cycle performance. We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.

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

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%.

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  • 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)

 

 

 

 

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