- Calm end to turbulent week as stocks finish modestly higher. Boosted by a nearly 7% rise in the price of WTI crude oil, 8 of the 10 sectors were positive on Friday, including energy, which posted a 2% gain; consumer discretionary was the laggard amid disappointing sales data from several retailers. The 10-year Treasury yield bounced back slightly to 1.72%, but still ended the week lower by 0.06%. Finally, COMEX gold closed 0.5% higher and WTI crude finished the week at $39.75/barrel. Final tallies: Dow +35.00 to 17576.96, Nasdaq +2.32 to 4850.69, S&P 500 +5.69 (+0.28%) to 2047.68.
- U.S. markets turn positive. Equities moved from red to green this morning, mimicking a reversal in European indexes. The main driver was a meeting between Italy’s Treasury, central bank, and financial institutions that raised bailout hopes for Italy’s beleaguered financial system. Asian indexes also closed on a positive note as the Shanghai Composite finished up 1.6% and the Nikkei Index finished near its session highs. Meanwhile, investors will be monitoring upcoming earnings reports for signs that companies can deliver, now that the dollar headwind has weakened significantly. The yield on the 10-year Treasury is trading up to 1.74%, gold is up half a percent, and crude oil is slightly higher following last week’s strong run-up.
- Earnings season kicks off today. With Alcoa’s results, first quarter earnings season unofficially kicks off today. The season may bring little to get excited about with consensus estimates calling for a 7% year-over-year decline for S&P 500 earnings (according to Thomson), the biggest decline since 2009; and 7 of 10 sectors are expected to experience a decline. However, this quarter may mark an inflection point, supported by oil and U.S. dollar headwinds beginning to abate, and consistent with consensus estimates for the rest of this year. This week (April 11-15), 15 S&P 500 companies will report results, highlighted by the financials sector (JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo). See our earnings preview for our thoughts.
- Sectors to watch. We believe energy, financials, and healthcare are the key sectors to watch this quarter. For energy, which is expected to suffer an unusual quarterly loss (not just a decline), we would like to see evidence of further U.S. production cuts beyond the 8% drop already experienced. The quarter may prove difficult again for financials given lower interest rates, financial market volatility, and slowing issuance activity. Healthcare, where results are likely to be strong again (consensus calling for a 4.5% gain), may benefit from the market’s increased focus on earnings and less on high drug price sound bites coming from the presidential campaign trail.
- Global growth front and center this week. The pace and sustainability of global growth will get plenty of attention this week, as China reports its Q1 gross domestic product (GDP) data and the rest of its activity data for March, and the International Monetary Fund (IMF) releases the spring edition of its World Economic Outlook ahead of its annual meeting in Washington, DC. Please see our Weekly Economic Commentary (due out later today), “Gauging Global Growth: An Update 2016 & 2017,” for the recent changes to the consensus estimates for global GDP growth. With the Federal Reserve Bank (Fed) citing global growth concerns in recent weeks, the seven Fed speakers on this week’s docket will likely add to the conversation on global growth. On the data front in the U.S., the April Empire State Manufacturing Index, March data on retail sales, Consumer Price Index (CPI), and industrial production will compete for attention with the first few corporate earnings reports for Q1 2016.
- The first of a series of Chinese economic data was released overnight. Inflation came in unchanged, and more or less at expectations of a 2.3% year-over-year increase. Outside of food, inflation was only up 1%. Producer prices inflation remained negative year over year; though at -4.3%, this was higher (less negative) than expected. Chinese investors tend to look at a lot of economic data largely in terms of how it may impact government policy, and are less focused on the data itself.
- Opportunity in EM? Emerging market (EM) earnings expectations were significantly reduced last year and early in 2016. Analysts may have been overly pessimistic, which, combined with stability in commodity prices, has led to upward revisions recently. EM valuations appear attractive, so if earnings can come through, EM may be able to add to 2016 gains and reverse its multiyear performance downtrend. We discuss this potential opportunity in this week’s Weekly Market Commentary, due out later today.
- Over the last month, the LPL Financial Current Conditions Index (CCI) rose 6 points to 189.The CCI remains near the low end of its range for the current expansion, indicating the economy is likely still experiencing below-trend growth. Improvements in two market-based indicators of financial stress (credit spreads and the VIX, a measure of market volatility) made the largest positive contributions to CCI growth over the last month, while retail sales and shipping traffic made the largest negative contributions. View the CCI.
- Dudley (Dove)
- NFIB Small Business Optimism Index (Mar)
- William (Dove)
- Lacker (Hawk)
- IMF publishes World Economic Outlook
- China: Imports and Exports (Mar)
- Retail Sales (Mar)
- Beige Book
- IMF publishes Fiscal Monitor
- Canada: Bank of Canada Meeting (No Change Expected)
- Singapore: GDP (Q1)
- CPI (Mar)
- Lockhart (Dove)
- IMF’s Christine Lagarde speaks on the Global Economic Outlook in Washington, DC
- UK: Bank of England (No Change Expected)
- China: GDP (Q1)
- China: Industrial Production (Mar)
- China: Retail Sales (Mar)
- Empire State Manufacturing Index (Apr)
- Consumer Sentiment and Inflation Expectations (H1 Apr)
- IMF and World Bank hold their spring meetings in Washington, DC
- Official campaign for UK’s EU referendum begins (Vote on June 23, 2016)
China: Property Price Indexes (Mar)
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.
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