Market Update: Friday, March 04, 2016

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  • Stocks post modest gains, brace for jobs report on Friday. The broad markets showed reserved optimism on Thursday as investors waited for the upcoming payroll numbers to provide them with the latest signal on the health of the U.S. economy. Eight of 10 sectors rose, though energy outperformed, closing up 1.3% despite a slight loss of ground for WTI crude oil, which closed down 0.5%. The 10-year Treasury yield dropped 0.02% to 1.83%, while COMEX gold continued its upward advance, finishing at its highest level in a year. Final tallies: Dow: +44.58 to 16943.90, Nasdaq: +4.00 to 4707.42, S&P 500: +6.95 (+0.35%) to 1993.40.
  • Markets up on solid jobs report. U.S. markets are positive as payroll numbers came in at 242,000, handily beating expectations. However, the report was not all positive, as data showed a surprise dip in wages. Overseas, Asian markets closed modestly higher and Europe is also trading up. Gold futures spiked higher overnight but have since retreated to yesterday’s close; Treasuries are little changed and oil is holding its recent gains.

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  • Strong jobs report dampens concern about economic weakness. The economy created 242,000 jobs in February, well ahead of expectations of 190,000, with a strong upward revision to January’s number, from 151,000 jobs created to 172,000. The unemployment rate held steady at 4.9%, in-line with expectations, while the participation ticked a tenth of a percent higher to 62.9%. The only disappointing aspect of the report was a 0.1% contraction in wage growth. The report provides further evidence that consumer strength is helping the U.S. economy weather the downturn in manufacturing.
  • Mixed data on the services sector. The Institute for Supply Management’s (ISM) non-manufacturing Purchasing Managers’ Index (PMI) held steady in February, coming in at 53.4 versus expectations of 53.1 and 53.5 in January, signaling continued resilience in the services sector, which makes up about 20% of the U.S. economy (a PMI over 50 indicates expansion). Markit’s alternative measure of service sector activity, however, at 49.7, showed modest contraction in the services sector, indicating that some risks to growth do remain. We view the risk of a recession in the next year elevated at about 30%, but still unlikely.
  • The Chinese National People’s Congress (NPC) formally begins a two-week meeting on Saturday. The NPC will formally set growth and inflation targets, define government priorities for the coming year, and possibly announce major structural reforms. The Chinese market rose last night with stories of significant government purchases in order to ensure market stability as the Congress begins. One should expect additional interventions during the NPC to avoid market turbulence, which would be embarrassing for national leaders, during the event.
  • Reversal of fortune? The Bank of Japan’s (BOJ) Governor Kuroda spoke on Friday, stating that the BOJ did not intend to lower interest rates further, though suggested they would engage in further stimulus if necessary. The markets have been suggesting the possibility of lower rates before each BOJ meeting. That possibility has been taken off the table for now.

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Friday:

  • Employment Report (Feb)
  • China: Chinese Government Announces 2016 GDP Target

Sunday:

  • Japan: Bank of Japan’s Kuroda Speak in Tokyo


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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