Market Update: Tuesday, March 29, 2016


  • Stocks continue to consolidate gains. Indexes were relatively unchanged on Monday, continuing a trend from the prior week in which neither buyers nor sellers were able to gain much traction. Growth stocks largely underperformed, with the exception of consumer discretionary, which was the best performing sector on the day, up 0.5%. The price of WTI crude oil stayed below $40/barrel, ticking down 0.3%, while COMEX gold closed up 0.4% and the 10-year Treasury yield moved down 0.01% to 1.89%. Final tallies: Dow +19.66 to 17535.39, Nasdaq -0.14% to 4766.77, S&P 500 +1.11 (+0.05%) to 2037.03.
  • Stocks slip ahead of Yellen speech. U.S. and European equities are trending lower amid light volume, as investors await comments from Federal Reserve Bank (Fed) Chair Janet Yellen following recent lackluster economic data. Continued weakness in the oil patch, on a forecast of another record for U.S. stockpiles, is also weighing on indexes. Overnight trading in Asia left shares mixed, with major indexes in China and Japan slipping while Hong Kong and Korea advanced. Gold is moving back toward the flat line after trading lower overnight, while Treasury yields are falling.


  • Bond dealer Treasury holdings on the rise. Bond dealer Treasury inventories are at their highest level since the taper tantrum of 2013. The upcoming Bond Market Perspectives, due out later today, looks at possible drivers and explores feared implications of foreign selling or a fragile Treasury market. Dealer inventories can impact the bond market, but ultimately do not have the impact of the true drivers of bond yields: economic growth, inflation, and Fed policy.
  • Yield curve flattens after steepening for three weeks. The yield curve, as measured by 2- and 10-year Treasury yields, flattened by 0.05% last week, ending a three-week trend of modest steepening since the end of February. Breakeven inflation expectations declined last week, corroborating the flatter yield curve move. Both measures remain at levels that are indicative of sluggish economic growth, despite the improvement in risk assets in recent weeks.
  • High-yield rally pauses; valuations near fair value. After rallying since mid-February, during which time the spread to comparable Treasuries fell by almost 2%, high-yield bonds lost momentum last week. The average yield spread increased by 0.2% last week and finished Monday at 6.9%. Lower oil prices contributed to a soft week for high-yield bonds; but given the strength of the rally since mid-February and the fact that defaults are on the rise, the average yield spread of 6.9% presents roughly fair value in our view. Income generation can still be a notable driver of return, but price gains may have run their course.
  • Municipal defaults continue to trend lower.As of March 24, municipal defaults remain very isolated with only seven year to date, below the limited number of the past two years. The decline in defaults represents broad improvements in the economy and state and local finances, even if additional revenue improvements have stalled in recent months. As has been the case for the past few years, defaults remain concentrated among the most speculative of issuers.
  • Chicago and Pennsylvania head in different directions. The Illinois Supreme Court ruled last week that Chicago’s proposed plan to reduce pension liabilities was illegal, a blow that may lead to another tax hike. On the other end of the spectrum, Pennsylvania was able to pass a budget last week, ending a near nine-month delay, without raising taxes. Despite the improvement in many states’ and local governments’ revenue in recent years, expenses have increased as well, keeping budgets tight and the threat of higher taxes firmly in place.
  • Improvement in the European financial transmission has stalled. Europe’s fractured banking and financial system has been a big impediment to growth in the Eurozone since 2007. Starting in late 2013, as the European Central Bank (ECB) became Europe’s unified banking regulator, and continuing with the ECB’s launch of quantitative easing (QE) in early 2015, Europe’s monetary transmission system has been on the mend. However, the progress stalled out in Q4 2015 and into early 2016, as lending to households and businesses decelerated to just 0.3% year over year in January 2016 and 0.7% in February 2016, after running above 2% in November 2015. In fact, the 0.3% year-over-year reading posted in January 2016 was the lowest since early 2015, just as the ECB began QE. M3 money supply growth also decelerated over the course of Q4 2015 and here in early 2016. Because the ECB just announced plans to expand its QE program and purchase corporate bonds from bank balance sheets in early March 2016, today’s data (for February) do not reflect any positive impact on bank lending; however, market participants will be watching this data set closely in the coming months to gauge the efficacy of the ECB’s recent actions.
  • Where did the volatility go? The S&P 500 closed fractionally higher yesterday, to avoid the first four-day losing streak since the mid-February lows. Interesting to note, the record volatility we saw to start this year has totally vanished. In fact, yesterday was the 10th straight day without a 1% move (up or down) for the S&P 500. When you consider 26 of the first 48 days saw 1% moves, it is rather stunning how quickly the volatility has disappeared. The last time there were 11 consecutive days without a 1% move was June 2015. For reference, there was a streak of 62 straight days without a 1% move during the summer of 2014, and the all-time record is 95 straight days in 1995. Lastly, after falling three consecutive months, the S&P 500 is up 5.4% so far in March. This could be the best month since an 8.3% gain in October 2015.
  • Happy anniversary. Seventeen years ago today was the first time the Dow ever closed above the 10,000 level. Today on the LPL Research blog, we will take a closer look at this anniversary, along with how quickly the Dow was able to reach all the various 1,000 area plateaus. Fun statistic: The fastest 1,000 level ever was from 10,000 to 11,000, which took only 24 trading days in early 1999. The longest since 1990 was a move from 11,000 to 12,000, which took 1,879 trading days.




  • Yellen (Dove)
  • Eurozone: Money Supply and Bank Lending (Feb)


  • ADP Employment (Mar)
  • Germany: CPI (Mar)


  • Challenger Job Cut Announcements (Mar)
  • Dudley (Dove)
  • Germany: Unemployment Change (Feb)
  • UK: Money Supply and Bank Lending (Feb)
  • China: Official Mfg. PMI (Mar)
  • China: Caixin Mfg. PMI (Mar)
  • Japan: Tankan Survey (Mar)


  • Employment Report (Mar)
  • ISM Mfg. (Mar)
  • Consumer Sentiment and Inflation Expectations (Mar)
  • Vehicle Sales (Mar)
  • Mester (Hawk)
  • Germany: Retail Sales (Feb)
  • Japan: Vehicle Sales (Mar)


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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