Market Update: Wednesday, February 17, 2016

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  • Bargain hunters still buying. Indexes diverged from their recent lockstep with WTI crude oil prices as Friday’s rally continued in the face of oil weakness. All 10 sectors advanced with shares in beaten down sectors like consumer discretionary and financials (which had jumped 4% on Friday) among the day’s top gainers; but it was technology leading the broad advance and pushing the Nasdaq up 2.3%. Gold and Treasuries fell amid equity gains, though the yield on the 10-year Treasury was range bound and rose a modest 0.03% to finish at 1.78%. Dow +222.57 at 16196.27, Nasdaq +98.44 at 4435.89, S&P 500 +30.80 (1.7%) at 1895.51.
  • Stocks continue ascent as oil tracking resumes. U.S. and European equities are moving higher as oil stages a morning rebound despite reports of Iran’s resistance to curb output. Trading in crude was volatile overnight, however, leaving Asian markets mixed. Japan’s Nikkei Index slid 1.4% as yen strength was also in focus. Shares in Hong Kong also fell, while China’s Shanghai Composite gained 1.1%. Gold and Treasuries continue to fall while the dollar is gaining some ground. Economic data may also garner some attention today as investors digest U.S. producer prices, industrial production, and housing data.

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  • The S&P 500 gains 1% for two straight days. The S&P 500 gained more than 1% for the second consecutive day yesterday for the first time since mid-December 2015. It hasn’t gained 1% on three consecutive days since October 2011. Since 1990, after two consecutive 1% gains, the median return a full month later is 1.5%. Going back to 1928, the S&P 500 has gained 1% on two consecutive days 412 times and made it to three consecutive days 67 times. Lastly, the all-time record for +1% streaks is five straight days in June 1938.
  • A closer look at the crude oil bear market. Crude oil has been extremely volatile of late, as rumors about potential production cuts and freezes dominate trading. Taking a bigger look at the crude oil bear market, however, shows just how extreme the weakness has been. As of last night, crude oil has been beneath its 200-day moving average for 390 days. The next closest streak was 280 days from 1993-94. Additionally, from its peak in July 2008, crude oil was down 80% as of last night and hit as low as 81% last week. This is the furthest off its all-time high crude oil has ever been; the previous record was February 2009, when it was 77% off its previous high.
  • Housing starts slow. Housing starts declined in January, coming in below economists’ consensus expectations. Permits, which tend to act as a leading indicator, were near flat and came in slightly below consensus, but are still up over 10% year over year. While housing construction is only a small part of gross domestic product (GDP), it can have knock-on effects to other areas of the economy. Consumer strength may help support housing and the overall economy in 2016 and we continue to forecast trend GDP growth of 2.5-3.0%, although the downside risks to that forecast have increased in early 2016.

 

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Wednesday:

  • Housing Starts and Building Permits (Jan)
  • FOMC Minutes
  • UK: Jobless Claims and Unemployment Rate (Jan)
  • China: CPI (Jan)

Thursday:

Friday:

  • CPI (Jan)
  • EU Leaders Summit

Saturday:

  • N/A

Sunday:

  • Japan: Nikkei Japan Mfg. PMI (Feb)

Click Here for our detailed Weekly Economic Calendar

 

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.

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) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

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.

 

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