Nasdaq 6,000: Now What?

It was 17 years in the making, but the Nasdaq Composite finally closed above the next 1,000 point milestone level of 6,000. Considering it first closed above the 5,000 level on March 9, 2000, this equates to an annualized price return of 1.0%. In comparison, the record move from 3,000 to 4,000 took less than two months—equal to an annualized return of 555.8%. Many have said tech is in a bubble currently, but a 1% annualized gain for 17 years isn’t what we’d call asset soaring and in a bubble.

Is the Nasdaq really at a record though? Looking at nominal prices, it sure is. But what if we factored in inflation (real prices)? Doing this suggests the all-time record closing price is really 7,196.56 (using March Consumer Price Index data), not the 5048.62 it closed at on March 10, 2000. So in one respect, it’s still another 19.4% away from a “real” all-time high—yet another reason to suggest tech isn’t in a bubble.

The Nasdaq is considered to be a technology-heavy index, but technology actually comprises less than half of the index’s total market value. A purer look at where the technology sector stands relative to historical highs is better seen in the Dow Jones U.S. Technology Index, which is still 8.0% away from its highs set in March 2000. Here’s the catch: A real breakout just took place for tech. However, per Ryan Detrick, Senior Market Strategist, “Tech might feel like a darling sector now, but on a bigger picture view it is important to remember this group lagged for years. One of our favorite charts shows the Dow Jones Technology Index relative to the S&P 500 completing a 17-year saucer bottom* formation, which suggests the tech rally could only be just beginning.”

Tech remains one of our favorite sectors: Earnings are strong, technicals are improving, and valuations are still attractive. Add it all up and even though this group is off to a great 2017, there could be continued outperformance in the future.

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

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 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.

Stock investing involves risk including loss of principal.

Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

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.

*A rounding or saucer bottom, is a long-term reversal pattern that signals a shift from a downward sloping to an upward sloping trend. This pattern historically lasts anywhere from several months to several years in duration. Due to the long-term look of these patterns and their components, the signal and timing of execution of these types of patterns tend to be difficult to identify than other reversal patterns.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S.-based common stocks listed on the NASDAQ stock market. The index is market-value weighted. This means that each company’s security affects the index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. It is not possible to invest directly in an index.

The Dow Jones U.S. Technology Index is measures the stock performance of U.S. companies in the technology industry.

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 # 1-603073 (Exp. 4/18)

Market Update: Wednesday, April 26, 2017

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  • Markets quiet ahead of tax policy announcement; earnings wave continues. (10:14am ET) U.S. equities are in wait-and-see mode this morning as investors anticipate the Trump administration’s tax policy announcement while keeping an eye on earnings. After two days of firm gains for domestic indexes, markets are easing off the gas after yesterday’s session saw the Nasdaq (+0.7%) breach 6,000, and the S&P (+0.6%) and Dow (+1.1%) again notching solid advances. Materials (+1.6%) and energy (+0.9%) led the advance for the S&P, with defensive sectors utilities (-0.1%) and telecom (-0.3%) the only decliners. Overseas, Asian markets posted further gains as the Nikkei  (+1.1%) extended its longest rally so far this year and the Shanghai Composite (+0.1%) held ground. In Europe, the STOXX 600 (+0.2%) is has climbed into the green after utilities company earnings weighed it down earlier in the session. Meanwhile, interest rates are stable with the yield on the 10-year note at 2.33%, WTI crude oil ($49.14/barrel) is down almost one percent, and COMEX gold (-0.3%) is slightly lower to $1265/oz.

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  • Trump’s tax plan just the start of negotiations. As widely reported, the Trump tax plan will be released today at 1:30pm ET today by Treasury Secretary Mnuchin and National Economic Director Gary Cohn. The proposal will reportedly include a 15% corporate tax rate, a 10% rate on repatriated profits, and a 15% maximum rate for pass-through businesses. Notable by its omission will be the border adjustment tax, although something like it is still possible as a revenue raiser to help offset the lost revenue from the tax cuts or to potentially pay for some infrastructure spending. We would view today’s announcement as an opening to negotiations and still expect the final rate to settle between 20-25%, with 25% more likely, and for the horse trading in Congress to delay passage until year-end or into early 2018. That said, the apparent willingness by the administration to potentially add some to the deficit and make the cuts temporary (sunset after 10 years) make a deal more likely. Tax reform could boost S&P 500 corporate profits meaningfully, potentially by 5% or more beginning in 2018.
  • Nasdaq hits 6,000. Yesterday, the Nasdaq closed above 6,000 for the first time in history. Many are wondering if this means it is now in another bubble. There are two important things to consider though, which we will examine in closer detail on the LPL Research blog.

 

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • Bank of Japan (BOJ) Outlook Report & Monetary Policy Statement
  • BOJ Interest Rate Decision

Thursday

Friday

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

Saturday

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

 

Past performance is no guarantee of future results.

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

 The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 Stock investing involves risk including loss of principal.

 Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

 Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

 Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

 Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

 Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

 Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

 Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

 Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

 This research material has been prepared by LPL Financial LLC.

 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 # 1-603066

 

Vive La Breakout: France Breaks Through; Will Broader Europe Follow?

European equities had a huge day yesterday, as the French election eased fears over anti-euro concerns. How historic was the day?

  • The Paris CAC 40 Index gained 4.1% for its first >4% gain since August 2015.
  • The Euro STOXX 50 Index gained 4.0% for its best daily gain since August 2015.
  • The S&P 500 Index gained more than 1% for the first time since March 1, 2017, and it was only its second 1% gain this year.
  • Volatility imploded, as the CBOE Volatility Index (VIX) sank 25.9% for its largest one-day drop since August 2011. Going back to 1990, this was the fourth-largest one-day percentage drop ever.

We took a technical look at European markets in early December and noted things were looking potentially bullish. After yesterday’s big gains, markets continue to advance. In fact, most European markets are now outpacing U.S. markets year to date.

Per Ryan Detrick, Senior Market Strategist, “One chart that could bode well for European markets, and likely for global markets in general, is the Paris CAC 40. It didn’t just break a bearish trendline going back 17 years yesterday; it blew the doors off the trendline. This is a picture-perfect breakout and one that should bode well for future gains.”

What about European equities in general? The London FTSE Index breakout earlier this year and Paris CAC 40 breakout are both major positives, but the Euro STOXX 50 still has a little work to do before it breaks out. This trendline won’t go down without a fight, but should the Euro STOXX 50 move above the trendline, it could be an even better sign for continued European strength.

We are only focusing on technicals here, and that is just part of the story. For more on our thoughts on Europe, be sure to read this week’s Weekly Market Commentary: Europe Enters The Tour De France.

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

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 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.

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, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

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.

The CAC 40 is a capitalization-weighted index of the 40 largest French equities designed to measure the overall performance of the Paris Bourse, the French stock exchange.

The EURO STOXX 50 Index is a blue-chip index for the Eurozone, which covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

The VIX is a measure of the volatility implied in the prices of options contracts for the S&P 500. It is a market-based estimate of future volatility. When sentiment reaches one extreme or the other, the market typically reverses course. While this is not necessarily predictive, it does measure the current degree of fear present in the stock market.

The FTSE 100 is an index of blue-chip stocks on the London Stock Exchange.

Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

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 # 1-602571 (Exp. 4/18)