A Closer Look at the Dow’s Recent Nine-Day Win Streak

It’s been a record breaking year for 2017, but there’s still a whole quarter to go. Major U.S. indexes have marched steadily higher, but what makes this year different is that volatility has been nearly non-existent. The recent Dow win streak best sums this up. It was the third win streak of the year that stretched at least nine days, which is the most since 1955, yet it gained only 2.9%, making it one of the weakest returns during a nine-day win streak ever.

Looking more closely, during the last seven days of the Dow’s most recent nine-day winning streak, it gained less than 0.3% each day. The only other year since the Dow’s inception in 1896 to see a streak like that was in 1965. Not surprisingly, that was one of the least volatile years ever, and has many other similarities with 2017 so far.

Per Ryan Detrick, Senior Market Strategist, “2017 is going down as one of the least volatile years ever for equities. Only 1964, 1965, and 1995 match what we’ve seen so far this year. But remember, we still have three months left, and we wouldn’t be surprised to see volatility pick up in the fourth quarter.” Take a look at our latest Weekly Market Commentary for more of our thoughts.

Last, you might think nine-day win streaks suggest near-term weakness, but that isn’t always the case. In fact, going back to 1950, a month after a nine-day win streak, returns have been somewhat muted, but positive; but going out three and six months, the Dow was notably higher, on average.

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 #1-647997 (Exp. 09/18)

Market Update: Tuesday, September 26, 2017

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Market Recap

  • Major U.S. indexes lower on Monday, as cash rotated out of heavily-weighted technology sector. S&P 500 Index (-0.2%), Dow (-0.2%), Nasdaq (-0.9%).
  • Energy, telecommunications best performers on the day, technology the most notable decliner.
  • 10-year Treasury prices rose with yields -3 basis points (0.03%) to 2.22%.
  • NYSE breadth was positive (1.3:1); Nasdaq’s was negative (1.3:1).
  • WTI crude oil continued advance (+1.3%) to $52.17/bbl., COMEX gold rallied (+1.2%) to $1313/oz.

Overnight & This Morning

  • Stocks in Asia were mixed overnight, despite North Korea’s foreign minister saying Trump’s UN comments were a “declaration of war.” KOSPI, Nikkei -0.3%, Shanghai Composite, Hang Seng +0.1%.
  • European markets flat late in trading. STOXX Europe 600 +0.1%. Euro -1.4% since German election, -2.5% since its recent high on September 8.
  • Oil (-0.7%) lower for first session in more than a week, WTI crude $51.86/bbl.
  • Metals broadly lower, yet copper (-0.1%) outperformed; gold -0.7% to $1302/oz.
  • Rates steady. 10-year Treasury yield +1 basis point (0.01%) to 2.23%.
  • U.S. stocks look to bounce back from Monday’s losses, S&P 500 opened +0.1%.
  • In addition to Janet Yellen’s speech, we’ll receive data on housing prices, new home sales, consumer confidence later today.

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Key Insights

  • Federal Reserve Chair Janet Yellen speaks in Cleveland. The debate within the Federal Reserve (Fed) over the path of interest rates continued yesterday after the New York Fed’s President William Dudley continued to back one more rate hike this year, while Minnesota Fed President Neel Kashkari highlighted a lack of inflationary pressure. Yellen’s speech in Cleveland this afternoon may provide greater clarity.

Macro Notes

  • 10-year bounces off 2.25% level. The 10-year Treasury closed last week at 2.26% following heightened expectations for a rate hike at the Fed’s December meeting (expectations currently sit at 67% according to Bloomberg calculations). However, another spike in tensions related to North Korea pushed yields lower, with the 10-year yield declining to 2.22% at Monday’s close. Shorter-term yields followed a similar path last week, though declined less on Monday to leave the yield curve slightly flatter. The futures market for the 10-year Treasury continues to see an elevated net long position, indicating participants believe rates may move lower.  However, as we have seen in the past, if rates do begin to move higher, the unwinding of these long futures trades could cause rates to move higher at a faster rate than they otherwise would. We continue to believe the 10-year Treasury will end the year in a range of 2.25%–2.75%, and though hopes of significant stimulus by year end have faded, a surprise move in that direction could push the 10-year toward the 3% level.
  • Inflation expectations remain near top of recent range. Last week’s Fed meeting showed that the central bank continues to believe that inflation will rise toward their 2% target, though perhaps more slowly than they envisioned even in June. The Fed did say that they expected a slight bump in inflation due to hurricane related impacts, but expected additional near-term weakness before inflation moves toward its 2% goal in the medium term. Breakeven inflation expectations (as measured by the difference between the 10-year Treasury and 10-year Treasury Inflation Protected Security yield) hit their highest level since May (1.87%) last week, before moderating slightly following the Fed meeting to end the week at 1.84%.
  • Corporate spreads continue to tighten. Investment-grade and high-yield corporate spreads continued to tighten last week despite a relatively flat week for equities. Both sectors are approaching important psychological spread levels, investment-grade near 1% and high yield near 3.5%. Spreads are tight on a historical basis, but for good reason, given the current environment of strong corporate earnings and low defaults, even lower default forecasts for the coming year and positive forward indicators of defaults like loosening bank lending standards.
  • Puerto Rico’s crisis deepens. Hurricane Maria has devastated Puerto Rico, leading to deaths, destruction of their electrical grid, and likely leaving the territory without power for months. It could also impact the municipal bond market, due to the islands $70B+ debt burden and the tremendous recovery process ahead of it. In this week’s Bond Market Perspectives piece, we discuss the situation in Puerto Rico, how it is affecting bond prices of local issuers, and its potential impact on the broader municipal market.
  • Tax reform details leaking out. Though not officially due out until tomorrow, details of Republicans’ tax reform plan leaked out yesterday, though they had little market impact. The key proposals in the legislation include a target corporate tax rate of 20%, well below the current 35% but above President Trump’s desired 15% level, as well as full expensing of capital investments (though it would revert after five years), cutting the top tax rate for small business from 39.5% to 25%, doubling the standard deduction, and eliminating the deduction for state and local taxes.
  • Healthcare reform hopes deflated – again. After some previously failed attempts to repeal and replace the Affordable Care Act, Republicans are making yet another effort; however, with a looming Saturday vote, the GOP has seemingly failed to secure the necessary 50 votes in the Senate to pass the latest version of the Graham-Cassidy bill.
  • A closer look at the Dow nine-day win streak. Last week saw the end of a nine-day win streak for the Dow. Incredibly, it was the third nine-day win streak of the year – the first time this has happened since four in 1955. What stands out about this win streak though is the Dow gained only 2.9% during the streak, which is one of the weakest gains ever. What happens next? Today on the LPL Research blog, we take a closer look.

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Click Here for our detailed Weekly Economic Calendar

Tuesday

Wednesday

  • MBA Mortgage Applications (9/22)
  • Durable Goods Orders (Aug)
  • Core Capital Goods Orders (Aug)
  • Pending Home Sales (Aug)
  • Bullard (Dove)
  • Rosengren (Hawk)
  • France: Consumer Confidence (Sept)
  • Germany: Retail Sales (Aug)
  • Eurozone: Money Supply (Aug)
  • China: Current Account Balance (Q2)

Thursday

  • Personal Consumption Core Price Index (PCE) (Q2)
  • Weekly Jobless Claims (9/23)
  • GDP (Q2)
  • Wholesale Inventories (Aug)
  • Kansas City Fed Manufacturing Activity Index (Sept)
  • George* (Hawk)
  • Fischer* (Dove)
  • Germany: Consumer Confidence (Oct)
  • Germany: CPI (Sept)
  • Eurozone: Consumer Confidence (Sept)
  • UK: Consumer Confidence (Sept)
  • Japan: Jobless Rate (Aug)
  • Japan: CPI (Aug)
  • Japan: Retail Sales (Aug)
  • China: Caixin China Manufacturing PMI (Sept)

Friday

  • Personal Income and Spending (Aug)
  • PCE Core Price Index (Aug)
  • Chicago PMI (Sept)
  • U of Mich. Consumer Sentiment (Sept)
  • Harker* (Hawk)
  • UK: GDP (Q2)
  • France: CPI (Sept)
  • France: PPI (Aug)
  • Germany: Unemployment Change (Sept)
  • UK: Current Account Balance (Q2)
  • UK: Money Supply (Aug)
  • Italy: CPI (Sept)
  • Eurozone: CPI (Sept)
  • Canada: GDP (July)
  • ECB: Draghi
  • BOE: Carney
  • IMF: Lagarde
  • Japan: Vehicle Production (Aug)
  • Japan: Housing Starts (Aug)
  • China: Manufacturing & Non-Manufacturing PMI (Sept)

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 # 1-648298

 

 

Will Oil’s Bullish Momentum Continue?

Crude oil (WTI) increased approximately 18.7% off its June 21, 2017 bottom (price as of September 22, 2017) and is now testing resistance at its $50/barrel (bbl.) level.  Today we assess a few technical analysis factors that we are monitoring to measure the likelihood of oil continuing to move higher over the next 3–12 months.

Since bottoming on June 21, the price of oil has closed back above both its 50- and 200-day moving averages (DMA), and its daily chart is starting to form what technicians describe as a potentially bullish measured move price pattern*. The measured move is likely to execute into its second leg higher if the spot price (on a closing basis) can remain above its $50/bbl. resistance level for at least five trading days. In this scenario, there is an increased likelihood that oil’s momentum may continue and the price may move higher.

 *A measured move chart pattern resembles the form of a lightning bolt and is comprised of three legs; two legs which are at the top and bottom of the lightning bolt tend to be parallel to each other, moving closely in magnitude and direction; and one leg which is in the middle of the bolt tends to move in the opposite direction to the other two.  A measured move chart pattern may be helpful in assessing the future price direction of an index or security.

Oil’s recent move back above its 200-DMA, coupled with the fact that the short-term trend (depicted by the 50-DMA) is sloping upward, increases our level of conviction that a measured move chart pattern will execute.

Looking at historical WTI price data going back to 1984, there were 28 instances when the price closed back above its 200-DMA while the 50-DMA was upward sloping. Subsequent price returns tended to be bullish over the next 3–12 months.

Will oil breakout through its key resistance level at $50/ bbl.? There is certainly no guarantee; however, with the recent price closing back above its 200-DMA, there is an increased likelihood that oil’s price continues higher, which may be the catalyst needed to execute the second leg of a measured move and continue its bullish momentum.

Stay tuned to the LPL Research blog for future analysis of oil and other commodities.

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.

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.

Bloomberg’s spot crude oil price indications use benchmark WTI crude at Cushing, OK; and other U.S. crude oil grades trade on a price spread differential to WTI, Cushing. Prices are on a free-on-board basis. West Texas Intermediate crude oil at Cushing, OK typically trades in pipeline lots of 1,000 to 5,000 barrels a day for delivery between the 25th of one month to the 25th of the next month. These prices are for physical shipments.

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 #1-647686 (Exp. 09/18)