Rain on the Parade?

President-elect Donald Trump’s inauguration is happening tomorrow (January 20, 2017), and there is no shortage of news stories discussing what this means for the markets. Given that Trump’s policies have been so widely discussed, we thought it would be fun to take a break from all the seriousness and ask if the weather in Washington, D.C. on inauguration day has historically had any relationship to S&P 500 price returns during a president’s term. To be sure, the weather on any given day is of no consequence to long-term returns for markets, but patterns do emerge at times, even if the correlations are just coincidence.

Going back to the 1949 (the second inauguration of Harry Truman, and also the earliest inauguration day where weather data were available), the presence of precipitation appears to be the most impactful data point. As the chart below shows, rain (or snow) on inauguration day has historically been a bad omen for the stock market.

1-19-17-fig-1

The average annualized price return when there is no precipitation has been 11.4%, significantly higher than the overall average annualized return for presidential terms of 7.4%. The average return when there was rain was -1.3%, but this number was also impacted by Richard Nixon’s second term (ending when he resigned on August 8, 1974), an outlier during which the S&P 500 fell 22%. But even with the outlier removed, the average return was still low, at just 2.7%. Even when looking only at terms where returns are positive (50% of the time when there is precipitation) weather still seemed to have an impact, with returns 3.2% lower than years where it didn’t rain or snow during the inauguration.

So now the big question, what is the weather forecast for the upcoming inauguration day? As of today (Thursday, January 19), forecasts are showing a 60% chance of rain. However, given that this is just for fun and the pattern really is just random, the most important takeaway is that those planning on attending the inauguration should bring an umbrella.

 

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.

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 # 1-573660 (Exp. 1/18)

 

Market Update: Thursday, January 19, 2017

MarketUpdate_header

  • Stocks rise, bonds drop as ECB holds steady. (10:21am ET) Major U.S. indexes are mixed this morning while European equities moved decisively higher in afternoon trading following the European Central Bank’s (ECB) decision to leave interest rates and its quantitative easing policy unchanged. The S&P finished the prior session with a 0.2% gain on the back of financials (+0.8%); telecom (-0.8%) and energy (-0.3%) underperformed as rates rose and oil fell. Overseas, Asian markets were mixed as the Nikkei gained 0.9% but the Shanghai Composite lost 0.4%. Elsewhere, WTI crude oil ($52.45/barrel) is rebounding from yesterday’s 2.6% selloff, COMEX gold has pulled back close to $1200/oz. as the dollar regains some ground, and the yield on the 10-year Treasury is up 5 basis points (0.05%) to 2.47%, adding to yesterday’s gains.

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  • Fed remains on track for at least two hikes in 2017. The Federal Reserve Bank’s (Fed) Beige Book, released Wednesday, suggested that the Fed’s plan for three rate hikes remains intact, although we continue to believe two is as likely as three. Several factors support 2-3 hikes this year, including: the recent pickup in reported inflation, the Fed’s acknowledgment that pricing pressures have intensified, the Fed’s (reiterated) expectation-consistent with our view-that labor markets will tighten and push wages higher, and the increasing number of mentions of the word inflation in the Beige Book. Chair Yellen’s comments yesterday were also consistent with this view and suggested a pace of three hikes per year for several years, contributing to the upward pressure on Treasury yields yesterday.
  • Claims dipped last week, reversing the prior week’s increase. Initial claims for unemployment insurance fell 13,000 to 234,000 in the week ending January 14, 2017. The dip may have been distorted by Midwest ice storms and a reversal of annual mid-December auto plant shutdowns. Claims remain near the lowest level in more than 40 years and will likely remain subject to year-end, quarter-end, and holiday distortions for another week or so. This does not change the fact that the data continues to suggest the labor market is tightening and that the Fed remains on track to do two to three rate hikes in 2017.
  • Housing starts rise but remain volatile. Housing starts for December hit the economic data trifecta of accelerating from the prior month, topping expectations, and seeing an upward revision to the prior month. Recent volatility in data has been impacted by large swings in multifamily starts, which provided a boost to December’s data. The overall trend for starts continues to climb but still remains below typical expansion levels. New permits, which tend to be a leading indicator, were flat and modestly missed consensus expectations. Years of underbuilding and demographic forces are likely to help housing, but rising rates may act as a headwind.
  • As expected, the European Central Bank made no changes to either its interest rate or bond buying policies. Inflation across the Eurozone had increased to 1.1%, still well below the ECB’s 2% inflation target. Some politicians, especially in Germany, are worried that inflation has been accelerating too quickly and argue that the ECB should take action now to prevent unacceptable price increases in the future. In his press conference, ECB President Mario Draghi acknowledged these concerns, but defended the current policies. The euro declined modestly after the announcement.

MonitoringWeek_header

Thursday

  • Philadelphia Fed Index (Jan)
  • Yellen* (Dove)
  • Eurozone: European Central Bank Meeting (No Change Expected)
  • China: GDP (Q4)
  • China: Industrial Production (Dec)
  • China: Retail Sales (Dec)
  • China: Fixed Asset Investment (Dec)

Friday

  • Inauguration Day
  • Harker* (Hawk)
  • U.K.: Retail Sales (Dec)

 

Important Disclosures

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.

A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

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.

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.

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 #1-573679

Just How Boring Have Things Been? (Part 2)

After 10 days of the year, the S&P 500 is up 1.3%, which might not sound like much, but it is a lot better than the down 8.0% after the first 10 days of 2016. As we mentioned yesterday, the Dow is in a historically tight trading range over the past month, and today we will take a look at some interesting stats from the S&P 500 recently.

  • Since Thanksgiving 2016, the S&P 500 has alternated between higher and lower for the week for eight consecutive weeks—for only the tenth time since 1928.* There was a record streak of 11 alternating weeks back in 2015.
  • The S&P 500 hasn’t closed more than 1.5% away from an all-time high for 46 consecutive days, the longest streak since 72 in a row in summer 2014 and early 1995.
  • On an intraday basis, the S&P 500 hasn’t had a 1% intraday move for 21 consecutive days—the longest streak since 25 in a row in late 2014.
  • Over the past month (21 trading days), the S&P 500 has traded in a range of only 1.7% (using closing prices). Other times we’ve seen ranges like this were September 2016, September 2014, January 2014, April 2013, September 2012, and January 2007. In other words, what we’ve seen over the past month is very rare, and usually we see surges in volatility over the coming months after periods like now.
  • The S&P 500 has now gone 66 consecutive days without a 1% drop, tying the 66 days from summer 2014.

01-18-17-fig-1

  • Last, the CBOE Volatility Index (VIX) was beneath its long-term average of 19.7 for the fifth consecutive year in 2016. As this chart shows, volatility rarely stays this low for this long. Per Ryan Detrick, Senior Market Strategist, “Of course, it doesn’t mean volatility can’t be beneath the long-term average for another year or two, but be aware this period of a lull in volatility is getting long in the tooth. Coupled with economic uncertainty, despite some upside to growth prospects with the new administration, this further increases the chances of much more volatility later this year.”

01-18-17-fig-2

IMPORTANT DISCLOSURES

*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.

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

Indices 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.

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.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure against market risk.

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.

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.

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 #1-573170 (Exp. 1/18)