Yesterday’s Market Activity

• U.S. equities mixed yesterday. Overall market was little changed as Fed announcement fell in line with general expectations. Dow +0.2%, S&P 500 Index +0.1%, Nasdaq -0.1%.
• Energy sector led, aided by continued rise in WTI crude oil prices. Banks drove financials; healthcare outperformed as well. Consumer staples lagged.
• Above average NYSE exchange volume (100.79%). Breadth was positive (1.3:1).
• U.S. dollar strengthened; 10-year Treasury yield +2 basis points (0.02%) to 2.26%.
• Commodities – COMEX gold (-0.5%) to $1304/oz., WTI crude (+1.64%) to ~$50.3/bbl. Industrial metals rose.
• FOMC held rates steady; balance sheet run-off scheduled to commence next month

Overnight & This Morning

• Asian markets little changed. Nikkei +0.2%, Hang Seng -0.1%, Shanghai Composite -0.2%.
• Stocks in Europe mostly higher on little news. STOXX Europe 600 +0.2%, though U.K’s FTSE 100 is holding flat.
• Crude oil (-0.9%) above $50/bbl. ahead of Friday’s OPEC meeting.
• Industrial, precious metals sharply lower. Gold (-1.8%) to $1293/oz., copper -1.0%.
• U.S. stocks opened flat. Treasury yields similarly unchanged as investors continue to digest yesterday’s Fed statement.
• Today’s economic calendar includes initial jobless claims and September Philly Fed Index.

• The Federal Reserve (Fed) left rates unchanged as expected; however, a December hike is still likely. Investors also received much-anticipated details on the Fed’s plan to unwind its balance sheet, which is slated to start next month. We believe the initial impact to markets will be limited as market participants have had plenty of time to price in this well telegraphed move. Get more insights and takeaways from yesterday’s Fed meeting in our most recent blog post.

Macro Notes

• Bank of Japan (BOJ) leaves policy unchanged. As expected, the BOJ maintained the status quo following its monetary policy meeting. However, a new board member dissented from the otherwise unanimous vote, suggesting additional asset purchases would be needed for the BOJ to achieve its 2% inflation target. In contrast, other members foresee either no need to change the current terms of the bank’s asset purchase program or a potential need to decrease asset purchases, though not any time soon. Liquidity in the country’s government bond market is another source of debate given that the central bank holds a ~40% share, though the board assured markets that there were no issues.
• Existing home sales missed expectations in August. On the economic front we saw existing home sales, which came in at 5.35 million, below consensus of 5.48 million and down 1.7% month over month. Year over year they were up 0.2%. Part of the miss was likely due to Hurricane Harvey, with the South down the most at -5.7% month over month.
• Crude oil inventories show a build, while RBOB Gasoline shows a drawdown for the week of September 15. The EIA‘s Petroleum Status Report also showed a build in crude oil inventories, but this report was also likely impacted by Hurricane Harvey, which caused the shutdown of major refineries on the gulf coast. However, any weakness that this report may have caused was offset by more talk of supply cuts from major OPEC and non-OPEC countries, which triggered oil to move higher and close just above $50/bbl. for the first time since the end of July.

Click Here for our detailed Weekly Economic Calendar

 Thursday

• Initial Jobless Claims (Spet 16)
• Continuing Claims (Sept 9)
• Philadelphia Fed Manufacturing Index (July)
• FHFA House Price Index (July)
• Leading Economic Indicators (Aug)
• Household Change in Net Worth (Q2)
• Eurozone: Consumer Confidence (Sept)
• Argentina: GDP (Q2)
• BOJ: Kuroda
• ECB Publishes Economic Bulletin
• Japan: All Industry Activity

Friday

• Markit US Manufacturing & Services PMI (Sept)
• Williams (Dove)
• George (Dove)
• Kaplan (Hawk)
• France: GDP (Q2)
• France: Markit France
• France: Manufacturing & Services PMI (Sept)
• Germany: Markit Germany
• Germany: Manufacturing & Services PMI (Sept)
• Eurozone: Markit Eurozone
• Canada: CPI (Aug)

 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

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Tracking # 1-645782

As was expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), passed on a rate hike but did announce that its balance sheet normalization program, first discussed in an addendum to the June FOMC meeting statement, will begin in October. The plan calls for the gradual reduction of the Fed balance sheet by decreasing reinvestment of principal payments from maturing bonds. The Fed will start slow, with an initial cap of $10 billion per month ($6 billion for Treasuries and $4 billion for mortgage-backed securities), which will increase by $10 billion every three months until reaching a maximum of $50 billion. We continue to believe that the initial impact to markets will be limited as market participants have had plenty of time to price in this well telegraphed move.

Changes to FOMC members’ expectations for the path of rate hikes in the near future were limited. The median expectation continues to be one more hike in 2017 (likely in December), and three more in 2018. However, the Fed did reduce the number of hikes they expect in 2019 from three to two, and also added a projection for 2020, where the median expectation is one rate hike.

The Fed’s statement described household spending as expanding at a moderate rate, while business fixed investment was described as picking up in recent quarters (click here for a side-by-side comparison of today’s statement versus the Fed’s statement released at the last FOMC meeting on July 26, 2017). Below-target inflation had been a hot topic during recent Fed meetings, and last week’s stronger than expected August Consumer Price Index (CPI) report led to optimism on the part of some market participants that inflation could be picking up. While the Fed statement didn’t specifically mention the CPI report, it did indicate that the Fed expected a temporary bump in inflation due to the impact of recent hurricanes, but expects additional near-term weakness before inflation stabilizes around its 2% target in the medium term. In addition, the FOMC mentioned that the disruption from the hurricanes and rebuilding efforts may have an impact on near-term economic data, but isn’t likely to have a lasting effect on the trajectory of the economy. As it has done in the past several statements, the FOMC highlighted that the “near-term risks to the economy are roughly balanced,” and noted that the committee was “monitoring inflation developments closely.”

Stocks were down slightly in the immediate aftermath of the decision before recovering to end the day, while bond yields moved higher. This reaction makes some sense given the somewhat hawkish tone by the Fed as it stuck to its guns on three rate hikes in 2018, even as it downgraded its inflation forecast slightly. However, we will continue to monitor sentiment as initial reactions often change as market participants have more time to digest the Fed’s guidance.

IMPORTANT DISCLOSURES

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.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The eleven-person FOMC is composed of the seven-member board of governors, and the five Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other regional Federal Reserve Banks rotate their service in one-year terms.

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.

All indexes are unmanaged and cannot be invested into directly.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

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.

Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, market and interest rate risk.

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 # 1-646605 (Exp. 09/18)

As we noted in Is It Time for That September Weakness?, the second half of September can be troublesome from a historical standpoint. Below is a popular chart we’ve shared before that shows how late-September can be weak, but in a different fashion. It illustrates how often each day of the year has been positive for the S&P 500 Index over the past 20 years. As you can see, we are in the heart of one of the least likely times of the year to expect equity strength.

Per Ryan Detrick, Senior Market Strategist, “Although seasonality is something we watch, in the end, fundamentals, technicals, and valuations matter more. Still, given that the S&P 500 has gone 10 months without so much as a 3% correction, which is the second longest streak ever, it is important to remember to pay attention to the calendar and be ready for any potential volatility.”

IMPORTANT DISCLOSURES

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

The Standard & Poor’s 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.

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.

Indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.

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.

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 # 1-645949 (Exp. 09/18)