Market Update: July 3, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

MacroView_header

Key Insights

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

Macro Notes

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

MonitoringWeek_header

Monday

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

Tuesday

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

Wednesday

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

Thursday

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

Friday

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

 

 

 

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

Market Update: June 12, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

MacroView_header

Key Insights

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

Macro Notes

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

MonitoringWeek_header

Monday

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

Tuesday

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

Wednesday

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

Thursday

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

Friday

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

 

 

 

 

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

 

Market Update: June 5, 2017

MarketUpdate_header

Last Week’s Market Activity

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

Overnight & This Morning

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

MacroView_header

Key Insights

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

Macro Notes

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

MonitoringWeek_header

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

Monday

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

Tuesday

  • Eurozone: Markit Eurozone Services PMI (May)

Wednesday

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

Thursday

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

Friday

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

 

 

 

 

 

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

Market Update: May 30, 2017

MarketUpdate_header

Last Week’s Market Activity

  • S&P 500 Index and the Nasdaq closed at new record highs last Friday; seventh consecutive gain for S&P 500 and 20th record close year to date.
  • The combination of positive sentiment and low volatility suggests stocks may continue to absorb challenging headlines.  Investors weathered potential risks from last week’s news, including: fallout from Comey firing, growing investigation into Administration/Russia ties, White House’s 2018 budget proposal, terrorist bombing in Manchester, Moody’s China debt downgrade, CBO’s score for AHCA, and minutes from last Federal Open Market Committee (FOMC) meeting suggesting higher interest rates ahead.
  • Markets also handled disappointing economic reports, specifically weakness in new home sales, durable goods orders; instead focusing on longer-term trends such as positive global data (Germany, Japan), upward revision to U.S. gross domestic product (GDP) in the 1st quarter.
  • Orders for durable goods fell in April, but good news in the details. Drop (-0.7%) in orders bested expectations (-1.0%) and March revision was strong (details below).
  • Orders ex-transportation showed a similar pattern. Nondefense capital goods shipments ex-air, a proxy for business spending, fell slightly (-0.1%) but better than forecast, following four consecutive monthly gains.
  • For the week, stocks rose +1.5% to +2.0%, powered higher by the unusual combination of utilities and technology sectors, each up >2.0%.  Investors likely hedging their bets, counting on growth prospects of technology, but not necessarily buying into Fed’s rate outlook as “bond proxy” utilities sector rose.
  • Weakness in energy (-2.0%) as markets appeared to have already priced in extension to OPEC production cuts, but investors wanted deeper cuts and pushed WTI crude oil down by >1.5% last week (after rising for three weeks) to ~$49.00/bbl.
  • Action in U.S. Treasury market also points toward less Fed activity after expected June hike, with 10-Year Treasury yield hovering in the 2.25% range, on track for fourth straight monthly gain.
  • U.S. dollar firmed slightly (+0.1%) on the heels of solid GDP revision.
  • Stocks in Europe basically flat Friday; euro & pound sterling weakened as Conservatives’ lead over Labour has narrowed considerably in recent weeks.
    Emerging markets stocks +2.0% on the week, maintaining year to date leadership globally.

Overnight & This Morning

  • Stocks in Asia little changed amid shortage of overseas leads.
  • Yen strengthened for a third day against the U.S. dollar (USD/JPY -0.3% to 110.9)
  • In Europe, shares down fractionally (Euro Stoxx 600 -0.1%); bank stocks, weakness in business & consumer confidence weighing
  • European Central Bank (ECB) Head Draghi was critical of U.S. trade proposals in speech to European Parliament yesterday.  He also reaffirmed commitment to maintaining ECB stimulus, placing pressure on the euro.
  • Euro down -0.1% to $1.11
  • Commodities – Mostly lower, led by weakness in precious metals and agriculture, with WTI oil holding below $50.00/bbl. COMEX gold (-0.2%) to $1265 and copper (-0.6%).
  • U.S. stock, Treasury yields down slightly in muted, post-holiday trading.
  • U.S. dollar weak vs. yen but stronger vs. euro and other major currencies
  • U.S. Personal Income and Spending for April met expectations after two consecutive shortfalls. Inflation metrics in this report are. Its preferred measure of price growth, the Core PCE deflator, key inflation metric for the Federal Reserve, at 1.7% from 1.6%.

MacroView_header

Key Insights

  • The trend for business spending/capital investment is improving.  After years of hoarding cash, paying yield, and buying back shares, the business cycle has returned with upward shifts in pricing and U.S. monetary policy.  Businesses can no longer simply attempt to maintain market share, but rather, they must grow market share as the recovery/expansion enters its ninth year.
  • While personal consumption is still the primary driver of U.S. economic growth, we believe the rate of growth in the coming quarters/years will be driven by capital investment, which is taking up a larger portion of GDP contribution (details below).
  • 1Q earnings per share (EPS) (+15% year over year) faced the easiest comparisons and we look for remainder of 2017 quarterly EPS gains to hover in the mid-high single digit range. These are smaller percentage gains than what we’ve become accustomed to these past couple of quarters, but still indicative of sustained, late cycle growth accompanied by still low interest rates and inflation (details below).
  • We recognize current trading range is of concern. Despite the flattening yield curve, which could partly be the result of global sovereign credit valuations, there appears to be little stress evident in the credit markets (details below).

Fixed Income Notes

  • Despite equity markets at/near record levels, bond market continues to hang in there.  Constant maturity 10-year Treasury note up four consecutive months, Barclays Aggregate (+2.0%) and Barclays High Yield (+4.0%) providing positive returns year to date.
  • After 1.35% low last June, 10-year Treasury yield surged to 2.65% in late February/early March of this year. Since then, several factors have conspired to push yields lower, despite Fed’s plans to raise interest rates (see below). First, failure of the first vote on ACA repeal placed a great deal of uncertainty on likelihood of President Trump’s pro-growth policy agenda being fully enacted. Second, weak Q1 GDP enabled flattening of the yield curve. Third, some are projecting higher short-term borrowing costs will curb lending and growth, making it tougher for Fed to sustain 2.0% inflation target. Fourth (less sinister) reason has to do with relative valuation.  With Fed moving in a different direction from ECB and BOJ, those sovereign bonds trading at very expensive valuations, increasing attractiveness of U.S. government bonds.
  • This can be a blessing and a curse: curse is that a bid for U.S. Treasuries from global investors helps mask our spending profligacy. The blessing is global investors appear confident slow growth with low inflation likely to be sustained in U.S., without signs of excessive upside, or downside risks.
  • As a result, we continue to look for the U.S. benchmark Treasury yield to trade within the 2.25% to 2.75% range in the second half of 2017.
  • Corporate credit spreads (high yield & investment grade) remain narrow, credit default swaps (CDS) also held steady. If these critical market signposts (10-year Treasury yield, credit spreads, CDS) hold steady, financial markets likely to continue narrow trading range
  • Geopolitics may periodically cause near term uncertainty, but like equity markets, next catalyst likely move the bond market will be clarity on U.S. fiscal policy

Macro Notes

  • S&P 500 currently at another record level, 2415, but technicals suggest move to 2450-2475 within reach in coming months.
  • Bullish catalyst is necessary, could come in the form of: sustainable EPS growth, > expected GDP in Q2/Q3, less aggressive Fed in 2H17, corporate tax cuts, tax reform, global GDP etc.
  • Unfortunately, move of this magnitude highly dependent on fiscal policy changes, where uncertainty narrows trading ranges until clarity emerges.
  • Fundamentally, move toward this level can be justified, but anything above it would need more clarity on 2018 EPS increases, largely due to combination of repatriation tax holiday/reduction in corporate tax rate.
  • Assuming $130.00 in S&P 500 operating EPS this year, stocks currently trading ~18.5x calendar 2017; a move >2450 would take market price-to-earnings ratio (P/E) >19x.
  • Tax reform may be too big to achieve in current political environment, but corporate tax cuts still possible; if implemented, 2018 EPS could be >$140.00, which would bring target ranges for index 2500 to 2550 in 12 to 18 months
  • U.S. Q1 Real GDP revised higher from +0.7% to +1.2%, helped by a more positive picture of business investment, which had already posted a strong quarter, and a slightly better picture of consumer spending. The improvement alleviates some concerns of Q1 weakness and increases the likelihood of a Fed rate hike in June. Looking at Q2 GDP, prospects are for much stronger growth, and could be in the +3.0%, as pent up demand in cap-ex, housing, and an inventory rebuild from Q1 weakness propels GDP higher.
  • Though components of the durable goods report (airlines, transportation) can be volatile, the trend over the past year for orders (business investment) is still up approximately +5.0% year over year, despite last month’s weakness
  • A host of European economic data was released overnight, generally showing that the economic recovery continues, but at a somewhat slower pace than expected. The highlighted number was German inflation, running at 1.4%, below forecast and previous readings of 2%, which is also the ECB target rate. This data reduces some pressure on the ECB to alter its current monetary policy.
  • Politics continue to foil plans for European certainty. Just three weeks ago, the election of a Conservative government in the U.K. was seen as both a certainty and a boost for Prime Minister Theresa May. In the past few weeks, a Conservative victory, while still likely according to the polls, is now less certain. The British pound has also weakened, not coincidentally. In addition, there have been renewed calls for an early election, as soon as September 2017, as opposed to the 2018 election now expected. An early election would likely focus directly on the EU and the euro.
  • Corporate Beige Book supports strong earnings outlook. Much like first quarter earnings results and management guidance, our measure of corporate sentiment based on our analysis of earnings conference call transcripts was better than we expected. We saw a sharp increase in strong and positive words over the prior quarter, with no change in weak and negative words. Wwe believe the positive tone from management teams supports a favorable earnings outlook in the quarters ahead.
  • New highs and no volatility, more of the same. The S&P 500 Index closed at another new high on Friday, making it seven consecutive higher closes. It hasn’t been up eight days in a row since July 2013 and the previous two seven day win streaks ended at seven days. It also gained 1.4% for the week, avoiding its first three week losing streak since before Brexit. Last, the incredible lack of volatility continued, as the S&P 500 Index traded in a range of only 0.19% on Friday, the smallest daily range since March 1996 and the smallest daily range while also closing at a new all-time high since August 1991.
  • June is a busy month for central banks. Summer is nearly here and historically that has meant lower volume, but potential market volatility. As we turn the calendar to June, the three big events this month are all from central banks: as the Fed, the ECB, and the BOJ all have meetings to decide interest rate policy. These events, along with a few others, could make for an eventful month in June.

MonitoringWeek_header

Monday

  • Memorial Day Holiday
  • Eurozone: Money Supply (Apr)
  • Japan: Jobless Rate (Apr)

Tuesday

  • PCE (Apr)
  • Conference Board Consumer Confidence (May)
  • France: GDP (Q1)
  • Germany: CPI (May)
  • Eurozone: Consumer Confidence (May)
  • Japan: Industrial Production (Apr)
  • China: Mfg. & Non-Mfg. PMI (May)

Wednesday

  • Chicago Area PMI (May)
  • Beige Book
  • France: CPI (May)
  • Germany: Unemployment Change (May)
  • Eurozone: Unemployment Rate (Apr)
  • Italy: CPI (May)
  • Eurozone: CPI (May)
  • India: GDP (Q1)
  • Canada: GDP (Mar)
  • Japan: Nikkei Japan Mfg. PMI (May)
  • China: Caixin China Mfg. PMI (May)
  • Japan: Capital Spending (Q1)

Thursday

  • ADP Employment (May)
  • Non-Farm Productivity (Q1)
  • Initial Jobless Claims (May 27)
  • Markit Mfg. PMI (May)
  • ISM (May)
  • Eurozone: Markit Eurozone Mfg. PMI (May)
  • Italy: GDP (Q1)
  • Brazil: GDP (Q1)
  • South Korea: GDP (Q1)
  • Canada: Markit Canada Mfg. PMI (May)
  • Japan: Vehicle Sales (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (May)
  • Unemployment Rate (May)
  • Trade Balance (Apr)
  • Eurozone: PPI (Apr)

 

 

 

 

 

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

Market Update: May 1, 2017

MarketUpdate_header

  • Stocks head higher to begin week. U.S. stocks are modestly higher in early trading, following news that Congress reached an agreement late Sunday to fund the government through September 30; pending approval by Friday, the deal will avoid a government shutdown. The major averages all closed lower on Friday, though the S&P 500 still managed a 1.5% gain for the week. Earnings dominated last week’s headlines, as the S&P’s advance was led by more than 2% weekly gains in the technology, healthcare and consumer discretionary sectors. Overnight, nearly all major markets in Asia and Europe were closed for holidays; Japan’s Nikkei was the exception, closing up 0.6% after Purchasing Mangers’ Index (PMI) data came in near expectations. Meanwhile, the yield on the 10-year Treasury is up slightly to 2.30%, COMEX gold ($12669/oz.) is flat, and WTI crude oil is dropping more than 1% to below $49/barrel.

MacroView_header

  • Another busy week of earnings on tap. A very strong earnings season continues this week with 127 more S&P 500 companies slated to report results. With about two-thirds of companies having reported, S&P 500 earnings for the first quarter of 2017 are now tracking to a 13.6% year-over-year increase, well above the 10.2% increase reflected in consensus estimates as of April 1. The upside surprise has been about more than just easy comparisons in energy, with broad-based strength across several key sectors, including financials, healthcare, industrials, and technology. The 77% earnings beat rate thus far, should it hold, would be the best since 2010.

earnings-dashboard-5-1-17.jpg

  • Company guidance has been more upbeat than usual. Forward estimates for the S&P 500 have only fallen 0.2% since earnings season begin, reflecting generally optimistic guidance from corporate America (average earnings season declines are 2-3%). We see little potential for policy upside in calendar 2017 (though there is a fair amount in 2018), suggesting most of the resilience in earnings estimates reflects recent firming in the business environment.
  • Employment report highlights a busy week. The first week of the month always includes some key economic data, highlighted by Friday’s Employment Situation report. Usually, any Federal Reserve (Fed) policy meeting would be the week’s highlight, but this week’s meeting, concluding Wednesday, will not receive as much attention, with expectations near zero for a rate hike and no new projections accompanying the release of the policy statement. We’ll also get a read on U.S. business activity, with April manufacturing and non-manufacturing PMI from the Institute for Supply Management released on Monday and Wednesday, respectively. Internationally, we’ll get March Eurozone unemployment on Tuesday, Eurozone first quarter 2017 gross domestic product (GDP) on Wednesday, and preliminary Eurozone PMI data on Thursday.
  • Congress reaches deal to fund the government. As expected, after an initial one-week extension, House and Senate negotiators reached a deal to fund the government through September. A vote is expected later this week, possibly as early as Wednesday. Although few saw material risk of a shutdown, clearing this hurdle does help pave the way for other initiatives. Tax reform is the top priority but Republican policymakers continue to try to craft an agreement to repeal and replace ObamaCare, where the path to compromise remains extremely difficult.
  • Almost all markets in Europe and Asia are closed today for the May 1 holiday. Japan is the major exception to the general state. One data point was released, Chinese manufacturing PMI was 51.2, lower than the March figure of 51.8 and also lower than expectations. Lower prices for commodities is largely the culprit, not a drop in demand. Still, it does highlight the sensitivity of the Chinese economy to “Old Industrial China.” After generally good economic reports in Q1 2017, the Chinese government has announced a series of crackdowns on excessive leverage in the real estate and financial markets.
  • Reflecting on Nasdaq 6000. The Nasdaq Composite hit 6000 last week, more than 17 years (or 6250-plus days) after first reaching 5000 back in March of 2000. During the dotcom boom in the late 1990s, moves from 3000 to 4000 and 4000 to 5000 were quick at 56 and 71 days, before the long and winding road to 6000 over the course of nearly two decades. Although this milestone has sparked more bubble talk in the media, we believe stocks are far from bubble territory, and the Nasdaq stands on a much stronger foundation today than it did in the days leading up to the dotcom crash.
  • Welcome to May. May is a busy month with multiple events that could move global markets. From the Fed meeting, to Presidential election in France, to the kickoff of what has historically been the worst six months of the year for equities; this is a big month.

MonitoringWeek_header

Monday

  • Personal Consumption Expediture Core & Deflator (Mar)
  • ISM Mfg. PMI (Apr)
  • BOJ: Minutes of March 15-16 Meeting
  • China: Caixin Mfg. PMI (Apr)

Tuesday

  • Eurozone: Unemployment Rate (Mar)

Wednesday

  • ISM Non-Mfg. PMI (Apr)
  • FOMC Rate Decision (May 3)
  • Eurozone: GDP (Q1)

Thursday

  • Eurozone: Markit PMI (Apr)
  • Eurozone: Retail Sales (Mar)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Apr)
  • Unemployment Rate (Apr)
  • Labor Force Participation & Underemployment Rates (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: February 21, 2017

© Susan Walsh/AP Photo

MarketUpdate_header

  • Stock advance continues following record-setting week. U.S. stocks are moving higher in early trading as markets reopen following the Presidents’ Day holiday. All three major averages ended the prior week at record highs; the S&P 500 (+0.2%) advanced modestly as telecom (+0.9%) was the best performing sector. Equities in Asia closed mostly higher overnight amid a quiet session, though the Hang Seng lost 0.8%. European markets are seeing broad strength in afternoon trading (STOXX Europe 600 +0.5%) as investors sift through PMI data that came in mostly above expectations; the U.K.’s FTSE is the exception (-0.1%) as disappointing earnings in the banking sector drag it lower. Finally, Treasuries are losing ground as the yield on the 10-year note is up to 2.44%, WTI crude oil ($54.78/barrel) is up 1.9%, and COMEX gold ($1234/oz.) is slipping 0.4%.

MacroView_header

  • Treasury prices initially lower, then rebound late week. Last week began with Chinese consumer price index (CPI) and producer price index (PPI) data rising much more than analyst estimates, setting the tone for more inflationary pressure on U.S. Treasuries. On Tuesday, Federal Reserve Chair Yellen, in her semi-annual testimony before Congress, stated that it would be “unwise to wait too long to hike interest rates.” This moved the yield on the U.S. 10-year Treasury higher by 8 basis points (0.08%) to 2.52%, as investors began to price in a March rate hike. Thursday’s session saw a slight rebound in prices following a move lower in European yields as the Greek bond market stabilized. This week, investors will be watching the economic calendar for more evidence of inflation.
  • Inflation expectations edge up. The 10-year breakeven inflation rate finished last week slightly higher, moving from 2.01% to 2.02%. Importantly, the breakeven rate is above the Fed’s 2% inflation target. This week, we take a deeper look at Treasury Inflation-Protected Securities (TIPS) and why, despite solid performance relative to Treasuries in the second half of 2016, there may be further opportunity within the asset class for investors seeking credit and inflation protection.
  • Municipals supply lower on the week. Muni supply, as measured by the Bond Buyer 30-day visible supply data, remains below the 10-year average of approximately $11 billion, coming in at $7.5 billion last week. Supply is expected to remain light due to the holiday-shortened week. However, March and April supply is expected to grow as the Bloomberg fixed rate calendar supply data already shows an increase in supply from $6 billion on Thursday, February 16 to $7.6 billion today.
  • Investment-grade corporates spread breaches 1.2% level. As measured by the Bloomberg Barclays US Corporate Index, this level had provided resistance since late January. As equities made a decisive move higher over the last two weeks, investment-grade corporates have followed suit. Equity strength, investors’ demand for high-quality yield (above that of Treasuries), and increased prospects for corporate tax reform were all contributed to the spread contraction.
  • Earnings dipped last week but estimates still holding firm. Q4 2016 earnings for the S&P 500 are now tracking to a 7.5% year-over-year increase (as measured by Thomson), down about 1% over the past week on insurance industry declines. Financials and technology are still on course for solid double-digit earnings gains. While a 7.5% growth rate is certainly nothing to sneeze at, the better news may be that consensus 2017 estimates are down only 1.1% since earnings season began (and still up over 10% versus 2016), buoyed by flat or positive revisions to financials, energy and industrials estimates. Interestingly, these sectors are particularly policy sensitive, suggesting policy hopes are seeping into analyst and management team outlooks.

021717_earningsdashboard-01

  • Leading indicators rise. The Conference Board’s Leading Economic Index (LEI), an aggregate of indicators that tends to lead overall economic activity, rose a strong 0.6% month over month in January, beating the expected 0.4% increase and better than December’s also-strong 0.5% gain. The LEI is now up 2.5% year over year, a rate of change that historically has been accompanied by low risk of recession in the next year.
  • Domestic oil markets in focus. The addition to U.S. supply from shale deposits over the past decade is well known, but demand has changed as well, influenced heavily by our choice of vehicles as well as fuel efficiency standards. President Trump has signed a number of executive orders related to energy, most notably on the Keystone XL Pipeline. However, the administration has not weighed in on other issues, such as fuel economy standards. Any policy changes, as well as how they are enacted, could influence both U.S. supply and demand considerations.
  • European economic growth accelerates. A series of PMI data was released in Europe overnight, pointing to growth increasing at a faster rate than expected. Data from the two largest countries, France and Germany, were better than expected. The Eurozone composite reading (including services and manufacturing) registered 56, the highest reading in 70 months. Inflation in France remained contained at 1.3%, though many in Europe believe that the stronger economy will lead to higher inflation data in the near future.
  • More new highs. Equities staged a late-day rally on Friday to close at new record highs. In fact, the S&P 500 closed at its ninth record high for 2017. This is halfway to the 18 from 2016 and nearly to the 10 record highs made during 2015. Although no one knows how many more new highs will be made this year, it is important to note that they tend to happen in clusters potentially lasting decades. Going back to the Great Depression[1], there have been two long clusters of new highs – from 1954 to 1968 and from 1980 to 2000. The years in between were marked by secular bear markets and a lack of new highs. Could the current streak of new highs that started in 2013 last for many more years?
  • Four in a row. The S&P 500 gained 1.5% last week, closing higher for the fourth consecutive week for the first time since July 2016. The last time it made it to five weeks in a row was coming off of the February 2016 lows. Of the last 12 times the S&P 500 has been up four consecutive weeks, 10 of those times it has closed even higher two weeks later, so momentum can continue in the near term. The S&P 500 has been up only 3.5% in the current streak – the weakest four-week win streak in nearly five years. Going back to 1990, when the S&P 500 is up four weeks in a row, but with a total gain less than 4%, the average return the following two weeks is twice as strong (1.0% versus 0.5%) as the average return after all four-week win streaks.

MonitoringWeek_header

Tuesday

  • Markit Mfg. PMI (Feb)
  • Harker (Hawk)
  • Kashkari (Dove)
  • Eurozone: Markit PMI (Feb)
  • China: Property Prices (Jan)

 Wednesday

  • Existing Home Sales (Jan)
  • FOMC Minutes
  • Germany: Ifo (Feb)
  • OPEC Technical Meeting in Vienna
  • Brazil: Central Bank Meeting (Rate Cut Expected)

 Friday

  • New Home Sales (Jan)

 

 

 

 

 

 

 

[1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 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.

Monthly Market Insights | January 2017

U.S. Markets

The post-election rally in the stock market gathered fresh momentum in December, but lost steam following a Fed rate hike and the onset of holiday trading.

For December, the Dow Jones Industrial Average jumped 3.3 percent, the Standard & Poor’s 500 Index gained 1.8 percent and the NASDAQ Composite rose 1.1 percent.1

quote

After slipping in the first days of the new month, stocks renewed their climb higher, setting new records on major indices. The market maintained its optimistic view of the anticipated economic direction that a Trump presidency may take, focusing on the potential positive impact expected tax cuts, infrastructure spending and deregulation might have on economic growth and corporate profits.

Fed’s Influence

The climb in stock prices stalled in advance of the Fed decision to raise the federal funds rate by a quarter-percentage point. The Fed also suggested that it might increase rates further in 2017 by three-quarters of a percentage point. This took some of the wind out the equity market’s sails and led to a higher U.S. dollar and tumbling bond prices. (Bond prices move inversely to yields, so as yields rise, bond prices decline.)

Amid thin holiday trading the market moved lower, shaving off some of its December gains.

For the Year

For 2016, the Dow Jones Industrial Average gained 13.4 percent and the Standard & Poor’s 500 Index rose 9.5 percent. The NASDAQ Composite picked up 7.5 percent.2

Sector Performance

Most industry sectors ended higher in December, led by Energy (+6.65 percent) and Financials (+4.46 percent). Other sectors posting gains included Consumer Staples (+1.11 percent), Industrials (+0.18 percent), Materials (+1.25 percent), Real Estate (+0.26 percent), Technology (+1.39 percent) and Utilities (+1.18 percent). Consumer Discretionary (-0.55 percent) and Health Care (-0.32 percent) sustained minor losses.3

charts-table-1

World Markets

Global markets ended the year on an encouraging note, with the MSCI-EAFE Index rising 2.8 percent for the month.4

European stocks staged a broad rally to end 2016. Major markets posted strong gains, including Germany, France and the U.K.5

Pacific Rim markets were mixed, as Australia benefited from higher commodity prices, Hong Kong fell on a weaker Yuan and capital outflows from China and Japan settled higher.6

charts-table-2

Indicators

Gross Domestic Product: An earlier estimate of third quarter GNP growth was revised higher to 3.5 percent, up from 3.2 percent. While the increase represented an exceptional growth rate for the economy, the overall economic growth rate through September 2016 remained consistent with the tepid growth that has marked this long economic expansion.7

Employment: The unemployment rate declined to its lowest level in nine years, dropping to 4.6 percent from 4.9 percent a month earlier. Workers’ wages also gained, rising 2.5 percent over November 2015, as employers competed for workers in a tightening labor pool.8

Retail Sales: Sales at retailers ticked 0.1 percent higher in November, a disappointing slowdown that some attributed to uncertainty about the U.S. election. Nevertheless, retail sales were higher over the same month last year by 3.8 percent, suggesting a better start to the holiday shopping season.9

Industrial Production: Industrial output by factories, mines and utilities fell 0.4 percent as a consequence of unseasonably warm weather in November. Capacity utilization also slipped 0.4 percent to 75 percent.10

Housing: Housing starts fell 18.7 percent from a robust result in October. However, over the last three months, housing starts have been at their highest level since the end of 2007.11

Sales of existing homes rose 0.7 percent, the third consecutive month of higher sales. Thirty-two percent of November sales were from first-time buyers, while over 20 percent of sales were all-cash transactions.12

New home purchases climbed 5.2 percent, the largest one-month gain since July. Through November, sales are 12.7 percent higher over the same period last year.13

CPI: For the fourth straight month, consumer prices moved higher, rising 0.2 percent in November. Prices were also higher when compared to November of last year, up by 1.7 percent—the biggest increase since October 2014.14

Durable Goods Orders: Orders for civilian aircraft dropped sharply in November, leading to a 4.6 percent decline in durable goods orders. Excluding transportation orders, orders for long-lasting goods increased 0.5 percent.15

The Fed

The Federal Reserve announced on December 14 that it would hike the federal funds rate by a quarter of a percentage point, with Fed officials signaling their expectation to raise rates by another 0.75 percent in 2017, which may come in three separate quarter-point moves. The decision to hike rates at a faster pace than previously anticipated reflected the Fed’s escalating conviction in the economy’s strength and stability.16

What Investors May Be Talking About

Markets are expected to watch carefully to see what President Trump attempts to accomplish in the early days of his presidency with a Republican Congress. Many of the initiatives that have been discussed by the President-elect have the potential to further impact stock valuations. Among them are:

  • The rollback of environmental, energy and climate policies enacted by the Obama Administration.
  • Corporate income tax reform to reduce taxes, eliminate deductions and repatriate overseas profits with a one-time reduced tax assessment.
  • The withdrawal from trade agreement talks (Trans Pacific Partnership) or the renegotiation or withdrawal from existing trade agreements (NAFTA) may benefit some companies, but could harm others with substantial exports or overseas manufacturing.
  • The reduction of corporate regulations may influence profits. For example, revamping Dodd-Frank Wall Street Reform and Consumer Protection Act may prove beneficial to financial companies’ profits.
  • The Affordable Care Act may be up for a significant rewrite or even repeal, though without knowing what replaces it, it is difficult to estimate the impact any health care law changes may have in the market.

Of course, disappointment in achieving some of the anticipated changes that have driven markets higher since the election may be cause for a broad price retreat.

In any event, experience teaches investors that overreacting to current events can be counterproductive to long-term investment strategies, but ignoring them entirely runs its own set of risks.

 

 

 

 

 

  1. The Wall Street Journal, December 31, 2016
  2. The Wall Street Journal, December 31, 2016
  3. Interactive Data Managed Solutions, December 31, 2016
  4. MSCI.com, December 31, 2016
  5. MSCI.com, December 31, 2016
  6. MSCI.com, December 31, 2016
  7. The Wall Street Journal, December 22, 2016
  8. The Wall Street Journal, December 2, 2016
  9. The Wall Street Journal, December 14, 2016
  10. The Wall Street Journal, December 14, 2016
  11. The Wall Street Journal, December 16, 2016
  12. The Wall Street Journal, December 21, 2016
  13. The Wall Street Journal, December 23, 2016
  14. The Wall Street Journal, December 15, 2016
  15. The Wall Street Journal, December 22, 2016
  16. The Wall Street Journal, December 15, 2016

 

Source: Lake Avenue Financial

Market Update: January 17, 2017

MarketUpdate_header

  • U.S. markets begin week lower. Stocks opened on a weak note this morning despite upbeat results from Morgan Stanley and United Health. Markets were closed yesterday for the holiday, but the Dow ended flat on Friday while the S&P 500 (+0.2%) and Nasdaq (+0.5%) posted modest gains. S&P sector movements were also muted, driven largely by a rebound in interest rates, as financials (+0.6%) was the best performer and real estate (-0.3%) the worst. Overseas Monday night, the Nikkei shed over 1.5%, dropping to a new low on the year, while the Shanghai Composite (+0.2%) posted a minor gain. European shares are mixed in afternoon trading, although comments from Prime Minister Theresa May have boosted the British pound and lowered the FTSE 100 by 1%. Elsewhere, WTI crude oil ($52.76/barrel) is up 0.7%, COMEX gold ($1214/oz.) is up 1.5% on precious metals demand, and the yield on the 10-year Treasury note is down to 2.33%.

MacroView_header

  • Treasury yields move higher through Thursday but finish the week flat. Treasury yields fluctuated on the week with the yield on the 10-year note starting and ending the week just under 2.4%. Prices moved higher based on the success of Wednesday’s $20 billion 10-year Treasury auction, which saw foreign buyers (indirect bidders) buy 70.5% of the auction. Friday opened weaker as Thursday’s $12 billion 30-year auction was not as well received as the 10-year auction, but foreign participation was still significant at 66.7%.
  • Yield curve steepens for week. The 2-year Treasury fell by 1 basis point to 1.21%, while the 10-year finished the week unchanged. This brings the 2-year/10-year slope, a measure of the steepness of the yield curve to 121 basis points (1.21%), higher on the week by 1 basis point (0.01%). A steeper, more positive yield curve generally indicates that the market anticipates higher interest rates and more growth. As such, investors require more yield as they move longer on the yield curve. The 2-year/30-year steepness was also wider on the week by 4 basis points (0.04%) to 180 basis points (1.80%).
  • Inflation expectations remain range bound near 2%. Inflation expectations ticked up slightly from 1.95% on Monday to 1.99% on Friday. This is near the highest reading year-to-date, however the number has yet to hold above the Federal Reserve Bank’s 2% target. We continue to monitor oil prices, which could drive headline inflation above 2% over the course of the year.
  • Municipals outperformed U.S. Treasuries on the week. Municipal bonds, as measured by the Barclays Municipal Bond Index, outperformed U.S. Treasuries as measured by the Barclays US Treasury Index on the week. The 10-year muni finished the week lower in yield by 5 basis points (0.05%) to 2.28%, down from 2.33% on Monday. The longer 30-year maturity also finished lower in yield by 5 basis points. Declining municipal yields led to 10-year and 30-year AAA municipal to Treasury ratios that are on the expensive side of their recent range, finishing the week at 93% and 99%, respectively.
  • High-yield spread holds below the 4% level. High-yield spreads ended the week just below 4% as measured by the Barclays High Yield Index. The additional yield offered by high yield bonds remains attractive in a low-yield environment, though high-yield spreads are pricing in a lot of good news, leaving less room for error for the asset class.
  • Preferred stocks rebound. Positive earnings expectations for financials (which are heavy issuers of preferred stocks) and lower rates helped the Merrill Lynch Preferred Stock Hybrid Index continue its recent uptrend last week, returning 0.7% to beat the Barclay’s U.S. Aggregate Bond Index by 0.5%. Year-to-date, preferreds, as measured by the index have returned 2.6%, regaining some strength after a weak fourth quarter that returned -4.6%.
  • Manufacturing still moving higher. Aided by a turnaround in oil production, a relatively stable dollar, and better economic performance overseas, manufacturing began to stabilize at midyear 2016, and over the past few months, the data suggest some modest reacceleration. The January 2017 readings on the Empire State (+7) manufacturing survey matched expectations and the December 2016 reading. The readings on the Empire State Manufacturing Index in the past few months were the highest in nearly two years. Although manufacturing accounts for less than 20% of economic activity and employment in the U.S., it has a much larger impact on S&P 500 earnings, and therefore, equity markets.
  • Is small cap strength sustainable? Small caps have surged since Election Day, with the Russell 2000 Index outperforming the large cap S&P 500 by 8.5% since November 8, 2016. Given the magnitude of small cap outperformance, investors with previously established small cap stock allocations may want to consider waiting for a dip before adding to positions. The relative strength has been driven by several election-related factors, including prospects for tax reform, deregulation, and President-elect Trump’s focus on encouraging U.S. manufacturing.
  • First busy week of earnings on tap. With results from 29 companies in the books, S&P 500 earnings growth is tracking to 6.2%, driven by financials and technology. The earnings beat rate is a solid 72%, while revenue results have brought more misses than hits so far with a beat rate of 34%. Another 34 companies report this week (January 17-20), dominated by financials and industrials.

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  • How slow is slow? Going back to 1950, the +7.8% rally in the Dow from the Election through year end was the third-strongest rally ever. Yet, over the past month the Dow has held close to the 20,000 level, unable to break above. At the same time, it isn’t selling off either – instead trapped in an incredibly tight range. In fact, using closing prices back to 1900, the Dow has traded in a range of only 1.07% over the past 21 trading days, which is the tightest monthly range ever. Looking at reliable intraday data going back to 1970, the range over the past month has been only 1.42% – again the smallest monthly range ever. Lastly, this is so rare because the Dow has closed within 1.5% of its all-time high for 45 consecutive days – one of the 10-longest such streaks ever.

MonitoringWeek_header

Tuesday

  • Empire State Manufacturing Report (Jan)
  • Dudley* (Dove)
  • Germany: ZEW Survey (Jan)
  • World Economic Forum begins at Davos, Switzerland

Wednesday

  • CPI (Dec)
  • Kashkari* (Dove)
  • Yellen* (Dove)
  • China: Property Prices (Dec)

Thursday

  • Philadelphia Fed Index (Jan)
  • Yellen* (Dove)
  • Eurozone: European Central Bank Meeting (No Change Expected)
  • China: GDP (Q4)
  • China: Industrial Production (Dec)
  • China: Retail Sales (Dec)
  • China: Fixed Asset Investment (Dec)

Friday

  • Inauguration Day
  • Harker* (Hawk)
  • U.K.: Retail Sales (Dec)

 

 

 

 

 

 

 

 

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

Market Update: December 12, 2016

MarketUpdate_header

  • Stocks search for direction as oil spikes. Global markets are mixed in Monday sessions, failing to get a lift from a 4.5% rise in WTI crude oil ($53.83/barrel). Oil’s surge comes after non-OPEC producers agreed to cut output by 585,000 barrels per day. Domestic indexes are mixed after the S&P 500 rose over 3% last week on strength in the heavily weighted technology and financials sectors. Looking ahead, investors will be watching the Federal Open Market Committee (FOMC) this week; the market is expecting a rate hike of 25 basis points (0.25%). Overseas, Chinese markets sold off as the Shanghai Composite lost 2.5% and the Hang Seng shed 1.4%; Japan’s Nikkei gained 0.8%. Weakness in China came on the heels of a ban on leveraged stock purchases by the country’s insurers. European markets are near flat with the exception of Italy’s MIB (+0.9%), continuing its rally after the failed constitutional referendum. Meanwhile, COMEX gold ($1161/oz.) is modestly lower, extending a five-week slide, and the yield on the 10-year Treasury note is up to 2.50%.

MacroView_header

  • Oil rallies on OPEC and non-OPEC news. Consistent with the Organization of Petroleum Exporting Countries (OPEC) meeting on November 30, eleven non-OPEC producers announced plans to cut OPEC production, though possibly below the 600,000 barrel per day production cut promised. In addition, Saudi Arabia suggested that it might cut production even more than it had announced on November 30. The market views compliance with new production quotas as key to maintaining prices at current levels, if not higher.
  • FOMC and much, much more. The Federal Reserve Banks’s (Fed) FOMC will hold its eighth and final meeting of 2016 on Wednesday, and it will likely raise rates by 25 basis points (0.25%), a move that is fully priced in by the fed funds futures market. In addition, the FOMC will release a new set of dot plots and economic forecasts for 2017 and beyond. But that’s not all. This week is chock full of key economic data for November and December, including reports on housing, inflation, consumer spending, and manufacturing. Overseas, the key ZEW report in Germany and the Tankan survey in Japan are due out, and China will continue releasing its data set for November. The Bank of England meets this week as well and is expected to stand pat on rates. Mexico’s central bank is likely to raise rates, as inflation is heating up south of the border.
  • FOMC FAQ. This week we’ll cover several key questions ahead of this week’s eighth and final FOMC meeting of 2016. While a rate hike later this week is fully priced in by markets, there are still plenty of questions surrounding the Fed as 2016 turns into 2017.
  • Growth starting to look cheap versus value. Based on the Russell indexes, following value’s outperformance this year, growth is now as cheap relative to value as it has been at any point since the financial crisis. We still think style balance, or a slight growth overweight, are prudent at this point in the business cycle, but note that relative valuations (growth is at a 13% premium to value, about half its 15-year average) and the magnitude of the financials-driven value rally may make it difficult for value to continue its momentum.
  • Small caps starting to get expensive. Following recent strength, small caps are starting to look expensive versus their large cap counterparts. The Russell 2000 is now trading at a 42% premium to large caps on a forward price-to-earnings basis, about ten percentage points above the 15-year average premium. We have a slight positive bias toward small caps in the first half of 2017 on prospects for corporate tax reform and less foreign trade risk, but valuations and the magnitude of the small cap rally may make it difficult for small caps to continue their momentum and we would not be surprised if cap leadership reversed later in 2017.
  • Surging bond yields have not spooked stock market investors. This week, we look at when rising interest rates might begin to hurt stock prices. It is logical to think higher rates will eventually slow the economy as borrowing costs rise and inflation erodes purchasing power. But given the still low rate environment, the market is interpreting higher interest rates as a signal of improving growth expectations, not worrisome inflation, and we do not think rising interest rates put the bull market at risk.
  • The rally continues. The S&P 500 gained 3.1% last week and closed higher every single day. You have to go back to June 2014 the last time all five days of the week were higher. It didn’t end there though, as both the Nasdaq and Dow also were green each day, and closed Friday at new all-time highs. The Dow even made a new all-time high all five days, something it hasn’t done for 17 years. The S&P 500 is up six straight days for the first time since June 2014, and it hasn’t been up seven in a row since September 2013. Lastly, momentum has been very powerful the past few years as the previous 10 times the S&P 500 was up more than 3% for the week (like it was last week), it was green the following week.
  • How long can the bull market go? With new highs being made across the board for U.S. equities, and European markets finally starting to potentially turn the corner as we noted in last week’s blog post, the big question is how long can this current bull market last? As we will lay out in our 2017 Outlook, we feel that stocks should produce mid-single-digit returns[1] and the bull market could continue through at least 2017.

MonitoringWeek_header

Monday

  • China: Retail Sales (Nov.)

Tuesday

  • NFIB Small Business Optimism (Nov)
  • Germany: ZEW (Dec)
  • Japan: Tankan (Q4)

Wednesday

  • Retail Sales (Nov)
  • FOMC Statement
  • FOMC Economic Forecasts and Dot Plots
  • Yellen Press Conference
  • Japan: Nikkei Mfg. PMI (Dec)

Thursday

  • Empire State Mfg. Report (Dec)
  • Markit Mfg. PMI (Dec)
  • CPI (Nov)
  • Philadelphia Fed Mfg. Report (Dec)
  • Eurozone: Markit Mfg. PMI (Dec)
  • European Union: Leader Summit in Brussels
  • UK: Bank of England Meeting (No Change Expected)
  • Mexico: Central Bank Meeting (Rate Hike Expected)

Friday

  • Housing Starts and Building Permits (Nov)
  • Lacker (Hawk)

 

 

 

 

 

[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. 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: April 6, 2016

Domestic equity markets were pushed higher last week by dovish comments from the Federal Reserve and cooperative economic data that didn’t change expectations for future rate hikes. The Dow Jones Industrial average rose 1.6 percent while the S&P 500 climbed 1.8 percent. The NASDAQ gained 3 percent. This closed out a first quarter where the S&P 500 appreciated 0.8 percent – a small miracle given its collapse during the first several weeks of 2016.

Goldilocks Gets a Job

The Labor Department released March jobs figures on Friday. This is the last report before the Federal Reserve’s next meeting in late April. According to the figures, U.S. employers added 215,000 jobs in March, slightly above consensus expectations and roughly in line with the average monthly gain for the past year. The unemployment rate ticked up slightly to 5 percent, but this is largely the result of more Americans looking for jobs. For the month, the participation rate rose to 63 percent, a good sign as an improving economy and slightly rising wages encourage out-of-work Americans to begin looking for jobs again. The average hourly earnings rate rose 2.3 percent year-over-year to $25.43.

IPO Market Dries Up

The volatility in the equity markets during 2016 has taken a toll on initial public offerings. So far this year, only nine companies have gone public raising just $1.2 billion. This is the lowest number of deals since the depths of the financial crisis when two firms raised $830 million in the first quarter of 2009. Interestingly, while nine deals were completed, more than twice as many companies shelved plans at the last minute due to the market turbulence. This marks only the 15th quarter since 1995 where the number of withdrawn public filings exceeds the number of completed listings. This is extremely unusual given markets are hovering near all-time highs.

WAAAA1

Gold Shines During First Quarter

Gold surprised several investors during the start of 2016 with a 16.5 percent rally during the first three months of the year. This marks the largest quarterly gain in three decades. Most of the rise was recorded during the first few weeks of the year, which is not unusual given the slump in stocks. However, the precious metal added to its gains even as stocks rallied in the back half of the quarter. Is this a sign the recent stock rally isn’t sustainable? A precursor to pending uncertainty given the U.S. election trajectory? Or, simply a response to the continued dovish stance by most central banks? Only time will tell. The rise in the commodity has also pushed gold mining equities higher. Some of the largest players have witnessed stock appreciation of around 50 percent so far in 2016.

WAAAA2

Fun Story of the Week

Have you ever wanted to change your name? Perhaps you are tired of it, your parents saddled you with something you just don’t like, or the combination of your newly married name sounds silly. Some people have a very different reason for wanting to do so: their name breaks the internet. Jennifer Null has this problem. Whenever she fills out an online form to buy books or a plane ticket, she is greeted with a message to fill in her last name and try again. Most programmers know that “null” is the default database entry when a field is left blank, so her last name is fooling the computer and won’t let her proceed with her transaction. She must call and complete the transaction by phone. These types of problems are called “edge cases” by programmers; the one in a millionth example that doesn’t work. But, as the world becomes more global, they are occurring more frequently. For these people, however, there is hope as serious discussions among programmers to improve support for “edge case” names have occurred.