Market Update: Wednesday, April 13, 2016

MarketUpdate_header

  • Stocks gain as oil posts 2016 high. Equities moved up on Wednesday, boosted by a 4.1% rise in WTI crude oil, which closed the day at $42.12/barrel. All 10 sectors finished higher on the day, with the biggest gains coming from energy and the heavily weighted financial sector. Financials benefited from a continued bounce in Treasury yields, as the 10-year note closed at 1.77%, up 0.05% on the day. Meanwhile, COMEX gold was relatively unchanged, closing up 0.2%. Final tallies: Dow +164.84 to 17721.25, Nasdaq +38.69 to 4872.09, S&P 500 +19.65 (+0.96%) to 2061.72.
  • Strong Chinese trade data, JPM results boost equities. Surprise growth in both imports and exports fueled stock rallies across the globe, with China’s Shanghai Composite finishing higher by 1.4% and Japan’s Nikkei Index doubling that gain. Positive sentiment carried over to Europe where Germany’s DAX and France’s CAC 40 are both up over 2%. An earnings beat from JP Morgan added to the upbeat mood this morning with U.S. stocks also moving higher. The risk-on attitude has driven the 10-year Treasury yield up for a fourth straight session, while gold is down over 1% to start the day. Meanwhile, oil is pulling back toward its 200-day moving average after recent strength.

MacroView_header

  • Now it really starts. With JPMorgan Chase results this morning (and Wells Fargo after the close), today really kicks off earnings season (no offense to Alcoa). The good news is that JPMorgan was able to hit Wall Street’s earnings and revenue targets despite declines in capital markets revenue, higher reserves against bad energy loans, and little help from the December increase in the federal funds rate; plus, loan demand remains strong and the read-through for the economy appears incrementally positive. The bad news is that low interest rates continue to pressure net interest margins—and may not provide much help over the next couple of quarters—and energy defaults are rising. After dragging down overall Q4 2015 earnings, this report may provide some hope that the worst may be behind the financials sector in terms of earnings. Although we remain cautious on the sector overall, cheap valuations make the banks an intriguing long-term investment.
  • April in the green. After a rocky start to April, as of last night the S&P 500 Index was actually positive for the month of April—by +0.1%. We’ve noted before that going back the past 10 years, April is the strongest month on average and it has gained in 9 of the past 10 years. What is also worth noting though is the first half of April tends to be weak, with nearly all of the gains happening the second half of the month. With the second half of April right around the corner, seasonality is one bullet in the bulls’ pocket.
  • A bullish sign for crude? Crude oil closed above its 200-day moving average for the first time in 427 days earlier this week. Going back to 1983, this was by far the longest streak we’ve seen. In fact, the previous streak beneath this long-term trend line was 280 days in 1993 and 1994. After such an extended time beneath this important trend line, the logical question is: How long will it now stay above this trend line? Crude oil bottomed exactly two months ago when it was nearly 80% off its all-time high, another record. So far the bounce has been impressive, but the key could be how it reacts up near the 200-day moving average.
  • March retail sales soft, but prior months (January and February) were revised higher; shift in Easter/spring break between 2015 and 2016 and the ongoing bout of retail deflation are likely distorting the data. The 0.3% drop in retail sales between February and March was below expectations (+0.1) and a deceleration from the flat reading in February. However, the February reading was revised higher (from -0.1% to 0.0%). Core retail sales (sales excluding autos, gasoline, and building materials) rose just 0.1%, short of expectations (+0.4%), but were in-line with February’s upwardly revised 0.1% gain. Building material sales—a proxy for business capital spending and housing—were robust in March, rising 1.4%, and are up 15% from a year ago. The March data and revisions to prior months suggest that gross domestic product (GDP) in Q1 is tracking to around 1.5%. Keep in mind that the retail sales data are nominal, not inflation adjusted, and with prices of many items falling, including gasoline, the nominal retail sales data understate the health of the economy.
  • Chinese trade data was released overnight. Exports for March were up 11.5%, a solid number. However, because of the seasonal distortions due to the timing of the lunar New Year, it’s best to look at data over the entire quarter. First quarter exports fell about 10% on a dollar basis. Commodity imports, especially for copper and iron ore, were up for the quarter on a volume, not price, basis. Overall, this is a positive for the economy, suggesting the possibility of an acceleration in the future. The data show stability, but not meaningful growth at this point.

MonitoringWeek_header 

 Wednesday:

  • Retail Sales (Mar)
  • Beige Book
  • IMF publishes Fiscal Monitor
  • Canada: Bank of Canada Meeting (No Change Expected)
  • Singapore: GDP (Q1)

Thursday:

  • 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)

Friday:

  • 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)

Sunday:

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.

This research material has been prepared by LPL Financial LLC. 

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity. 

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-487323