Market Update: Thursday, March 31, 2016

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  • Indexes continue to advance. The S&P 500 moved further into positive territory for the year on Wednesday, one day removed from dovish comments by Federal Reserve Bank (Fed) Chair Janet Yellen. A midday slide in the price of WTI crude oil brought the benchmarks back to more modest gains and WTI ultimately finished flat at $38.32/barrel. Utilities, telecom, and healthcare all posted losses, while technology was the best performing sector, advancing 0.7%. Bonds gave up some of the previous day’s gains, with the yield on the 10-year Treasury moving up 0.03% to 1.83%. Meanwhile, COMEX gold declined 0.7%. Final tallies: Dow +83.55 to 17716.66, Nasdaq +22.67 to 4869.28, S&P 500 +8.94 (+0.44%) to 2063.93.
  • Global shares mixed as quarter ends. U.S. equities are near flat starting the final trading day of the quarter, though stocks in Asia finished mixed overnight amid choppy trading stemming from volatility in currency and commodity prices. China’s Shanghai Composite clung to small gains throughout the session, while Japan’s Nikkei Index slipped another 0.7%. Europe, meanwhile, is reversing prior day gains as telecom and bank stocks weigh on indexes. Elsewhere, oil and gold are tracking higher, while Treasury yields are down modestly.

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  • New claims for unemployment rose 11,000 to 276,000 in the week ending March 26, but early Easter likely distorted the data. The initial claims data are notoriously difficult to seasonally adjust, especially around moveable holidays like Easter, and that appears to be the case this week. Despite the distortions, claims continue to remain near historically low levels and are close to the lows seen last summer and fall, which were the lowest in 42 years (1973). Claims in the past 26 weeks are down 1,000. In the past, claims need to rise more than 75,000 over a six-month period to indicate recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market. Please see the Weekly Economic Commentary, “What Do Claims Claim?” for more details.
  • Spike in layoff announcements in January and February fades in March.There were 48,207 announced job cuts in March 2016, down from 75,000 in January and 62,000 in February. Energy layoffs accounted for up to one-third (~25,000 per month) of all layoffs in January and February, but only totaled 8,000 in March. In the past 12 months, there were 643,000 announced layoffs, roughly 100,000 higher than the levels seen in 2012-14, which, taken at face value, suggests some weakening in labor market trends. But 110,000 of the 643,000 announced layoffs in the past 12 months came in the energy sector. While energy prices have stabilized and moved higher in recent weeks, we continue to expect more layoffs in the energy sector in the coming weeks and months. Outside of energy, the layoff data are consistent with a solid labor market.
  • Last day of a great month. Welcome to the last day of the month. The S&P 500 is up 6.8% so far in March, which would be the best March since 2009 gained more than 8.5%. Incredibly, the S&P 500 has been higher 15 trading days so far in March, the most since October 2013. If it is green today, that would be the first time 16 days were up for any month since July 2013. As we’ve mentioned before, if the quarter finishes higher, this would be the first quarter since the Great Depression that the S&P 500 was down 10% at one point and finished green. One interesting phenomenon is how weak the last day of the month has been recently. Last year, the last day of the month was up only twice, the least since 1932. So far this year it was up in January and down in February. Lastly, going back 16 months, the last day of the month has been up only three times.

 

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Thursday:

  • 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)

Friday:

  • 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.

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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.

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