Market Update: Tuesday, April 12, 2016


  • Stocks take last hour dive to finish in the red. Major averages rallied to kick off the week, but were brought down by a late-day sell-off, as investors turned cautious ahead of a barrage of earnings due out later this week. Healthcare and consumer staples led the way down, while materials and financials were the only sectors to hold their gains. Energy stocks closed down 0.4%, despite a 1.8% increase in the price of WTI crude oil, which closed at $40.47/barrel. Finally, COMEX gold rallied 1.6%, and 10-year Treasury yields ended the day flat at 1.72%. Final tallies: Dow -20.55 to 17556.41, Nasdaq -17.29 to 4833.40, S&P 500 -5.61 (-0.27%) to 2042.07.
  • Oil boosts U.S. stocks. Equities are tracking oil this morning as it moves higher ahead of a key meeting between OPEC and non-OPEC producers on Sunday to discuss production freezes or cuts. Traders are also digesting earnings from Alcoa yesterday after it kicked off earnings season. Overnight, the Nikkei index gained 1% as the yen took a break from its recent surge. Other Asian markets were mixed and European indexes are trading near flat. Gold is building on yesterday’s strong gains, while 10-year Treasury yields are up several basis points.


  • Treasury yields near February lows. The 10-year Treasury yield has given back most of its March gains, and last week hit 1.69%, nearing one-year lows set in February 2016. Continued volatility in oil prices and equity markets have contributed to the decline, as have a move lower in international yields, with the 10-year German bund closing at 0.09% on Thursday, nearing its all-time low of 0.08% set in April 2015.
  • Market still calling the Fed’s bluff. Markets continue to believe that the pace of Federal Reserve Bank (Fed) rate hikes will be even slower than the Fed’s projections, with fed fund futures projecting a slim 4% chance of a hike in April; expectations for June are also very low at 18%, and December, at 55%, is the first month where chances move above a coin flip. The Fed’s own projection of rate hikes moved lower in its most recent dot plot released after the March Fed meeting, but the divergence between Fed and market expectations remains high.
  • Emerging markets debt (EMD) spread back above 4%. EMD spreads, which saw tightening in recent weeks, moved back above the 4% level last week as recent volatility in commodity and equity prices took their toll. The 4% yield spread has acted as an inflection point in recent years, with market participants showing more buying interest when spreads have exceeded 4%, and less when they remained below that level.
  • High-yield spreads remain range bound. High-yield spreads, which saw significant tightening before stalling in recent weeks, fell a slight 0.10% for the week to end at 7.1%. High-yield energy spreads, which hit a high of 20.75% in February, have fallen steeply since and closed the week at 13.2%. They were down approximately 0.40% for the week as the price of oil recovered and ended the week back near the $40 level. Volatility in oil prices is likely to continue to pressure high-yield bonds in the near future, and given that defaults are still rising, the current yield spread represents roughly fair value in our view. But even so, yields above 8% mean that simply clipping the coupon may be impactful for portfolio performance.
  • Puerto Rico continues toward default. Though not entirely unexpected, the news from Puerto Rico continues to point to a likely default in the near future. Puerto Rico’s Treasury secretary indicated last week that the government will not have the funds needed to pay a $423 million payment due July 1. The commonwealth also passed a law last week giving Governor Padilla the power to halt payments to bondholders if necessary. Markets also appear to be betting on a default, as the price of uninsured Puerto Rico general obligation (GO) debt is near all-time lows.
  • With tax day right around the corner, this week’s Bond Market Perspectives takes a look at the fiscal situation of states. State revenue has seen relatively strong growth in recent years, a positive for credit metrics, though projections show that growth may slow going forward. Revenue growth has also trailed expense growth slightly since the financial crisis, meaning budgets are tight and the appetite for additional debt issuance is low. This may help keep a lid on supply going forward, a positive for municipals. And though budget battles and Puerto Rico continue to make headlines, municipal defaults remain low.
  • March 2016 and fiscal year to date federal budget data due out later today. Later today, the Department of Treasury will release the federal budget data for March 2016 and for the first six months of fiscal year (FY) 2016, which began on October 1, 2015. According to analysis by the nonpartisan Congressional Budget Office (CBO), the federal deficit was $457 billion in the first six months of FY 2016, $18 billion higher than the same period in FY 2015. Both revenue and outlays were 4% higher in the first six months of FY 2016 than in the same period in 2015. The largest increase came in net interest payments, which rose 19% from the first six months of 2015, and most of that increase came from higher inflation adjustments on Treasury Inflation-Protected Securities (TIPS). Access the CBO monthly budget review for March 2016 here.




  • 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)

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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