Market Update: Monday, March 7, 2016

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  • Stocks gain amid volatility following jobs data. A headline beat in February’s nonfarm payrolls report also showed a slight decline in wage growth, making for a volatile session as traders weighed its implications. In the end, major indexes managed to tack modest gains on to their third straight weekly advance, though sector performance illustrated the diverging views; telecom lagged on the day, while utilities paced the broad market. Energy stocks also outperformed as WTI crude oil spiked 3.6%. Treasuries finished off their lows, but yields on the 10-year Treasury rose 0.05% to end at 1.88%, while COMEX gold advanced 1%. Final tallies: Dow +62.87 at 17006.77, Nasdaq +9.60 at 4717.02, S&P 500+6.59 (0.33%) at 1999.99.
  • Global markets start the week modestly lower after three weeks of gains. S&P futures are down 0.4% as investors look to take profits from the three-week rally in global equities ahead of a busy week. Asian markets were mixed overnight as the Nikkei lost 0.61% and the Shanghai Composite gained 0.85%. European markets are weaker with most major indexes down over 1.0%. Despite most equity markets showing some modest weakness, U.S. Treasuries are weaker with the rate on the 10-year breaking above 1.9%, as strong data out of the U.S. last week forces investors to recalibrate expectations for the Federal Reserve Bank (Fed). Oil continues to add to its rally with WTI trading above $36 this morning.

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  • Bull market to celebrate its seventh birthday this week. One of the longest bull markets in history, which began on March 9, 2009, is poised to enter its eighth year this week. At 2,555 days (as of Wednesday), this bull is just 52 days shy of matching the length of the powerful 1949 bull market that lasted from June 1949 until August 1956 and produced a 267% gain for the S&P 500 (the current bull has seen the S&P 500 rise 196%). The longest post-WWII bull remains the 1990s (3,452 days and a 417% gain); it would require more than two more years and another 220%-plus of additional gains to match that bull.
  • March madness. The S&P 500 gained each of the first three days of the month and is up +3.51% for the month. This is the best start to the month of March since 2002. In fact, only three years going back to 1928 have had a better start to the month of March after three days. The last time March was higher the first four days of the month was 2013. Last week, the S&P 500 gained 2.67%, which was the third straight weekly gain of more than 1%. There hasn’t been a streak like that since June 2014. It hasn’t made it to four in a row since May 2013. Lastly, out of the past 14 times the S&P 500 gained more than 2.5% for the week (going back to June 2012), the following week was green 11 times.
  • European Central Bank meeting highlights week ahead. The European Central Bank (ECB) meeting on Thursday will receive the most attention this week, with expectations running high for additional stimulus. Germany, France, the U.K., and Spain will all provide industrial production data, and we’ll also get a second look at Q4 2015 Eurozone gross domestic product (GDP). U.S. releases include data on consumer credit, labor market conditions, small business optimism, and wholesale trade. Chinese data on money supply and loan growth will be watched as well.
  • Expectations for Thursday’s ECB meeting are for a rate cut, an expansion of its quantitative easing (QE) program, or both. Recent forecasts suggest a slowing of gross domestic product (GDP) growth of 1.5%, with inflation expected to fall to 0.5%. The current QE program purchased 60 billion euro each month, a number likely to be expanded to at least 70 if not 80 billion. The ECB may be forced to expand its definition of allowable purchases beyond the mostly government issued bonds it currently buys.
  • The Chinese National People’s Congress formally began on Saturday. Though most real news will not be apparent until its conclusion at the end of next week, a few points are worth noting thus far. Growth targets were set in a range of 6.5-7.0%, a reduction from previous targets but still likely unattainable. In addition, the government has agreed to run a larger budget deficit, cutting some taxes and increasing spending on housing. Finally, there was vague language around letting some state-owned companies go bankrupt or merge to become more efficient, but not details were announced. Generally, this is considered a step in the right direction, but a very small step.

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Monday:

  • Fischer (Dove)
  • Brainard (Dove) 

Tuesday:

Wednesday:

  • Wholesale Trade (Jan)
  • Canada: Bank of Canada Meeting (No Change Expected)
  • Malaysia: Central Bank Meeting (No Change Expected)


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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