Market Update: Monday, October 23, 2017

MarketUpdate_header

Market Recap

  • Stocks rally on tax reform hopes after Senate agreed on a budget resolution, a needed step to achieve tax reform. S&P 500 Index (+0.5%) rose for the sixth straight week. Dow +0.7%, Nasdaq +0.4%.
  • Financials, industrials led. So-called Trump (or reflation) trades in favor; defensive sectors lagged.
  • Strong breadth. NYSE breadth positive (1.5:1) with volume (120%) solidly above recent averages.
  • Yields higher on policy optimism. 10-year yield +6 basis points (0.06%) to 2.38%. Dollar higher vs. euro, yen (DXY Index +0.5%).
  • Commodities – WTI crude oil +0.7% to $51.66/bbl., COMEX gold slipped (-0.6%) to $1282/oz.

Overnight & This Morning 

  • S&P 500 flat as busiest earnings season starts. Tax reform, next Federal Reserve (Fed) Chair speculation (Powell vs. Taylor?), Japan, Catalonia remain in focus.
  • European markets up; STOXX Europe 600 +0.3%, holding up well after Spain (-0.4%) strips power from Catalonia.
  • Japanese stocks rise, yen lower after Abe’s ruling coalition secured election victory over the weekend: Nikkei (+1.1%) up for 15th consecutive session. China stocks mixed with Shanghai Composite +0.1%, Hang Seng -0.6%.
  • Treasuries are lower despite muted stock market, 10-year yield +4 basis points (+0.04%) to 2.39%; U.S. dollar up slightly vs. euro, yen.
  • Commodities – Oil +0.6% to $52.15/bbl., copper +0.4%, gold -0.4% to $1276/oz.
  • Today’s economic data includes Chicago Fed National Activity Index.

MacroView_header

Key Insights

  • After a 15-day win streak for the Nikkei, Japan’s stock market has our attention. In this week’s Weekly Market Commentary, we highlight five reasons why we think Japan is worth a look: The Japanese economy is improving, Prime Minister Abe has a mandate for more stimulus after his latest election victory, corporate governance is improving, valuations are attractive, and technical analysis reveals favorable chart patterns.

Macro Notes

  • Good guidance, slow growth. With nearly 20% of the S&P 500 having reported third quarter results, earnings are on track for a 4.2% year-over-year increase, below the 5.9% expected on September 30, 2017. Hurricane impacts have led to slower growth and limited upside to prior estimates. However, estimates for S&P 500 earnings for the next four quarters have impressively increased 0.3% during that time, a rare occurrence and reason to call the season a success thus far. This week (October 23-27), 183 S&P 500 companies will report results, by far the busiest week of the season.

  • Weekly economic data releases are headlined by the initial release of third quarter GDP on Friday. Bloomberg consensus is calling for an annualized 2.3% increase in real gross domestic product (GDP), a dip from 3.1% in the second quarter but still–despite hurricane impacts–above the expansion trend. Consensus reflects a pickup in the fourth quarter, to 2.7%, as more rebuilding efforts take place. Other U.S. data of note include regional manufacturing surveys (Chicago and Richmond), and durable goods orders. Globally, preliminary October manufacturing PMIs (purchasing manager’s indexes), U.K. GDP, German retail sales, Japan CPI, and the ECB meeting are worth noting. Finally, earnings season will kick into high gear with the busiest week of the season and nearly 40% of the S&P 500 market cap slated to report.
  • The latest Beige Book suggests a steady economy. The Fed released its latest Beige Book last week ahead of the October 31 – November 1, 2017 Federal Open Market Committee meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in October, tying its previous high of +77 in April 2017, indicating continued steady economic growth in late 2017 with some signs of potential acceleration. This beige book was also the first to include the impacts of Hurricanes Harvey and Irma. The word “disrupt” and its variants were used 11 times in relation to the hurricanes, though comments indicated that recovery efforts were progressing steadily.
  • That’s a lot of sixes. The S&P 500 is up 6 days in a row, 6 weeks in a row, and 6 months in a row. If it’s up today it would mark the 4th seven-day win streak of the year, the most since 2013 and 1980 before that. The S&P 500 was up six straight weeks earlier this year and hasn’t been up seven consecutive weeks since late 2014. The S&P hasn’t had a seven-month win streak since 2013 and hasn’t made it to eight in a row since 2007.
  • Today sets yet another amazing record. The S&P 500 could go 242 consecutive days (approximately 11.5 months) without a 3% correction after today, officially the longest streak in the history of the S&P 500 without a 3% correction. Our latest LPL Research blog post takes a look at this incredible feat and what it could mean.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Monday

Tuesday

  • Markit Manufacturing & Services PMI (Oct)
  • France: Markit France Manufacturing & Services PMI (Oct)
  • Germany: Markit Germany Manufacturing & Services PMI (Oct)
  • Eurozone: Markit Eurozone Manufacturing & Services PMI (Oct)
  • BOJ: Outright Bond Purchase
  • ECB: Bank Lending Survey
  • Japan: Cabinet Office Monthly Economic Report for October

Wednesday

  • MBA Mortgage Applications (Oct 20)
  • Durable Goods Orders (Sept)
  • Federal Housing Finance Agency House Price Index (Aug)
  • New Home Sales (Sept)
  • UK: GDP (Q3)
  • Eurozone: European Commission Economic Forecasts
  • Germany: IFO (Oct)
  • Italy: Industrial Orders (Aug)
  • South Korea: GDP (Q3)
  • Japan: PPI Services (Sept)

Thursday

  • Wholesale Inventories (Sept)
  • Weekly Jobless Claims (Oct 21)
  • Advance Report on Goods Trade Balance (Sept)
  • Retail Inventories (Sept)
  • Kansas City Fed Manufacturing Index (Oct)
  • Germany: Consumer Confidence (Nov)
  • Eurozone: Money Supply (Sept)
  • Italy: Consumer Confidence (Oct)
  • BOJ: Outright Bond Purchase
  • Japan: CPI (Sept)

Friday

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.

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.

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.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-657953

 

 

Here it Comes: The Longest Streak Ever Without a 3% Correction

2017 continues to break records, as the S&P 500 Index makes new highs amid historically low volatility:

  • The index has now gone 33 consecutive sessions without a 0.5% daily decline, which is the longest streak since 1995.
  • The index’s average daily change on an absolute basis so far this year has been only 0.30%, the smallest since 1965.
  • The index has closed lower 1% or more only four times—the fewest for a full year since 1964.

Per Ryan Detrick, Senior Market Strategist, “I feel like a broken record, but so many times when I’m talking about 2017, I usually say ‘the last time since 1964, 1965, or 1995 when making comparisons to 2017. Those three years are widely considered the least volatile years ever, and 2017 is right there with them trying to make the medal stand.”

One other amazing streak may take place at Monday’s close: The S&P 500, should it return at least -2.99%, will officially have gone 242 trading days (about 11.5 months) without a 3% correction, topping the record of 241 days set in 1995. If we jinx it and the S&P 500 falls 3%, we apologize … but the last time the S&P 500 closed down more than 3% the day after making a new all-time high was in November 1991, and the index has made 474 new highs since then without a 3% drop the following day.

What can we say about 2017 that hasn’t already been said? What we’ve seen so far this year is like nothing we’ve seen for decades. Just remember that markets aren’t always this calm; and a perfectly normal correction of 3–5% could happen at any time, if for no other reason than it has been more than 11 months since the last 3% correction. Overall, the global economy continues to hum along thanks in part to strong earnings, and we aren’t seeing the excesses usually seen at previous peaks, which supports higher equity prices in 2018 and suggests that the odds of a recession are low. However, as the economic cycle continues to age, we expect volatility to get up off the mat and make a comeback.

IMPORTANT DISCLOSURES

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.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

Tracking #1-658137 (Exp. 10/18)

Does Dow 23,000 Mean Anything?

The Dow Jones Industrial Average (Dow) closed above 23,000 for the first time ever on Wednesday, marking the fourth 1,000-point milestone cleared so far in 2017.

To put that into perspective, no other year has cleared more than two 1,000-point intervals. Of course, the percentage increase needed to reach each subsequent interval gets smaller; still, this is yet another way of showing how rare and strong 2017 has been.

As the chart below shows, it took only 54 trading days for the Dow to go from 22,000 to 23,000—one of the quickest 1,000-point jumps ever.

Here’s a look at some of the Dow’s major big milestone levels:

  • The Dow first closed above 100 in January 1906, but it traded consistently below this level until 1924 amid the 1920’s bull market. After the stock market crash of 1929 and the Great Depression that followed, the Dow traded beneath 100 until May 26, 1942—some 36 years from the first time it closed above this level.
  • The Dow first reached 1,000 on an intraday basis on January 18, 1966. However, it didn’t officially close above this level until November 14, 1972—nearly seven years later. Shortly after that, it moved back below 1,000 and didn’t break back above it for another 10 years.
  • The Dow first closed above 10,000 in early 1999, but the bursting of the dot-com bubble a year later pushed it back below that mark, which it failed to recapture until the summer of 2010, nearly 11 years later.

So what tends to happen after big round milestones? Do these big 1,000 levels slow down rallies? History suggests that there could be a pause, but the subsequent returns a year later have been above average, which makes sense as above-average returns are most often seen during bull markets.

Per Ryan Detrick, Senior Market Strategist, “Besides being a big number, 23,000 really isn’t any more special than 22,999. Still, we sometimes like to use these milestones as a chance to reflect and take a closer look at how investors’ portfolios are positioned. In the end, it is important to remember that fundamentals, technicals and valuations have always and will continue to drive equity gains over the long term – not big round numbers.”

IMPORTANT DISCLOSURES

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.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Dow Jones Industrial Average is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

Tracking #1-657742 (Exp. 10/18)