Weekly Update 7/20/2018 – Mr. Powell Heads to Capitol Hill

US: S&P 500 Index +0.02%, Dow +0.15%, Nasdaq -0.37%
Europe: STOXX Europe 600 +0.2%, German DAX +0.2%, France CAC 40 -0.6%, U.K. FTSE 100 +0.2%
Asia: Japan Nikkei +0.4%, China Shanghai Composite -0.1%, Korea KOSPI  -0.9%
Rates/Commodities: 10-Year Treasury yield +7 basis points to 2.90%, WTI crude oil -4.1%, COMEX gold -0.8% Continue reading

LEI’ding The Way To A Stronger Economy

The Conference Board’s Leading Economic Index (LEI) is one of our favorite economic indicators. It is designed to predict future movements in the economy based on a composite of 10 economic indicators (like manufacturers’ new orders, stock prices, and weekly unemployment claims) whose changes tend to precede shifts in the overall economy. Yesterday, it painted a continued strong backdrop for future economic growth, as it rose 0.5% month over month and 5.8% year over year. Continue reading

Market Update: Friday, July 20, 2018

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Daily Insights

  • The full $500 billion? In an interview aired this morning, President Trump said he is ready to go with tariffs on $500 billion in Chinese imports in an effort to drive an agreement. Tariffs on just $34 billion in Chinese goods have been implemented thus far, with $16 billion coming soon and an additional $200 billion previously threatened. With China only buying about $130 billion in U.S. goods, Chinese retaliation would have to come in other forms, such as regulatory actions, boycotts, currency devaluation, U.S. Treasury sales, or other non-tariff actions. These latest developments may bring the tit-for-tat closer to its end, though resolution may take the bulk of the summer.

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Market Update: Thursday, July 19, 2018

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Daily Insights

  • Business confidence holding up well amid escalating trade tensions. Business confidence remains strong based on the latest survey data from the National Federation of Independent Business. The percentage of small business owners indicating it is a good time to expand dipped slightly from May to June but remains above the peaks of the past three decades. Strong data from the Institute for Supply Management tells the same story, even though all Federal Reserve (Fed) districts cited concerns about the continued tightening of the labor market, inflationary pressures, and tariffs in the Fed’s Beige Book.

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Stocks’ Summer Strength Points to More Gains

The S&P 500 Index is on a three-month winning streak, and more gains may be in store for bulls. As shown in our LPL Chart of the Day, in the last 15 instances when the S&P 500 has closed higher in April, May, and June (like 2018 just did), all but one of those years saw unusually strong returns in the second half. In fact, in those 15 years, the S&P 500 returned 10.6% on average from July to December. The chart also illustrates that weakness in July following a strong second quarter doesn’t necessarily portend the remainder of the year; and, with the index up roughly 3% on the month so far, note that third quarter and full-year returns were positive in every instance where July finished in the green. Continue reading

Market Update: Wednesday, July 18, 2018

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Daily Insights

  • Powell testifies before Congress. Federal Reserve (Fed) chair Jerome Powell emphasized a “solid pace” of U.S. economic growth in a testimony before Congress on Tuesday, a signal that the Fed plans on continuing its path of gradual rate hikes. Powell qualified that gradual tightening will continue “for now”, possibly trying to reassure markets that the Fed’s decisions remain data-dependent. However, fed funds futures read Powell’s testimony as hawkish, and are now pricing in a 60% probability of a fourth rate hike this year. As of now, we still see one additional hike this year (three total) as the more likely scenario, but we will continue monitoring Fed activity and any changes in the economic backdrop.

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Market Update: Tuesday, July 17, 2018

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Daily Insights

  • Solid week for economically-sensitive fixed income. High yield, emerging markets debt (EMD), and bank loans all performed well (as measured by the Bloomberg Barclays Capital High Yield, JP Morgan Emerging Markets Bond Global, and the S&P/LSTA US Leveraged Loan indexes, respectively) last week alongside solid equity market returns. The continued recovery in EMD bodes well for trade tension fears, as the asset class was previously hit hard by concerns over trade skirmishes and a strengthening dollar. Investment-grade corporates also continued to recover, as fears about interest rate risk and anticipated heavy issuance due to merger and acquisition activity are relenting after pressuring the asset class early in the year.

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Build Out Your Midyear Outlook Suite

LPL Research has released the Midyear Outlook 2018: The Plot Thickens, and our Chart Book is an excellent addition to our suite of Midyear Outlook material. The Chart Book compiles the data and visuals to highlight the top takeaways from the publication. Take a look at what LPL Research thinks may be in store for the economy, stocks, and bonds—along with our investment recommendations for the rest of 2018. Get your copy of the Chart Book today! Continue reading