Market Update: Tuesday, April 19, 2016


  • Markets shake off early sell-off; Dow closes above 18,000. Stocks reversed a first-hour drop and rose throughout the session on Monday; the Dow finished above 18,000 for the first time since last summer, led by WTI crude oil and the energy sector, which retraced losses after the weekend’s failed Doha meeting. Oil ended the day down 1.2%, but was down more than 6% in early trading, while energy stocks closed up 1.6%. Both Treasuries and COMEX gold were little changed in the risk-on move, with the 10-year yield moving up 0.02% to 1.77% and gold inching higher by just $0.40/oz. Final tallies: Dow +106.70 to 18004.16, Nasdaq +21.80 to 4960.02, S&P 500 +13.61 (+0.65%) to 2094.34.
  • Global markets rally as oil rebound continues. U.S. equities are tracking overseas markets higher this morning as crude prices continue to recover. Overnight, Japan’s Nikkei Index led Asian markets higher and fully recovered Monday’s steep losses on news that the Bank of Japan may lower negative rates even further, putting pressure on the yen. European stocks are near three-month highs in afternoon, trading on strength from commodity stocks. Meanwhile, 10-year Treasury yields are modestly higher, gold is up, and silver is rallying 4% after reports that hedge fund activity boosted the net long position in the overall market to record levels.


  • Treasuries weaker over past week, despite bond-friendly news… Despite mixed to weaker economic data–including lower inflation and weaker than expected retail sales and industrial production data–Treasury prices finished last week marginally lower. Treasury auction demand was strong but also failed to have a lasting push higher. Oil closing higher for the week helped, as did better economic data out of China.
  • …But low yields may have repulsed investors. Treasury yields at the low end of a four-year range may have been more important. The 10-year Treasury, at just above 1.7%, marked the low end of a broad yield channel that may have once again worked to weaken overall demand. The 1.7% yield level has been breached three times over the past four years, but only briefly in each case. A natural floor on interest rates, absent weaker economic reports, may have been the primary force behind Treasury price movements.
  • Economically sensitive bond sectors rally to strongest levels year to date. Corporate bond markets rallied last week, with high-yield bonds leading the way with a 1.6% return; economically sensitive emerging markets debt returned 1.4%, while investment grade corporate bonds added 0.3%.[1] Yield spreads to comparable Treasuries for all three asset classes dropped to their narrowest levels of 2016. Moody’s forecast that the high-yield default rate may increase to 4.3% by the end of June 2016, after rising to 3.8% in March; but the news scared investors, as two-thirds of defaults came from troubled energy and metals and mining sectors.
  • Municipals outperform Treasuries for a second consecutive week. After lagging Treasuries during the first quarter of 2016, municipal bonds have rebounded in April and outperformed Treasuries to start Q2 2016.[2] The fading of a challenging seasonal period and beginning of a favorable period of April through mid-to-late May was a positive driver, as well as a lingering favorable supply-demand balance. We discuss in more detail in this week’s Bond Market Perspectives publication, due out later today.
  • Puerto Rico’s ongoing saga continues. Puerto Rico made a counter-offer to bondholders last week, increasing its recovery offers on general obligation bonds from 74%, a slight improvement from the 72% offered in February. It also proposed that a previously “contingent pay” bond is now mandatorily payable. The market took the news as a positive, though the saga is long from over.
  • Eurozone ZEW sentiment survey pushes higher. Germany’s closely watched ZEW index of business expectations for the Eurozone hit a three-month high of 21.5 in April, well ahead of consensus expectations and a sizable improvement from March’s 10.6. The current situation index, however, declined, falling to -12.8 from last month’s -11.8. The survey provides further evidence that concerns about global growth that rattled markets earlier in the year are continuing to diminish, and may also reflect the expected impact of an expanded European Central Bank (ECB) bond buying program, announced in March.
  • Housing starts, permits decline. Both housing starts and permits fell in March; starts declined 8.8 % to an annualized 1.089 million, and permits, which tend to be more of a leading indicator, slipped 7.7% to 1.086 million. While the data do tend to be volatile, both numbers came in well below consensus estimates. Year-over-year growth in starts, however, remains robust at 14.2%, while permits have posted less spectacular 4.6% growth. Housing continues to contribute positively to gross domestic product (GDP) growth via the residential investment category, but at only 5% of GDP, has only a limited direct impact. We continue to expect that new home construction will be a plus for GDP growth in 2016, as it was from 2011-15.
  • Back to 18,000. The S&P 500 gained 0.7% yesterday, to close only 1.7% away from the all-time closing high set May 21, 2015. The last time it was this close to a new high was in early December. Of course, it dropped 13% over the next 10 weeks after that. Additionally, the Dow closed above 18,000 for the first time this year and first time since July 20, 2015. That was 188 trading sessions ago for those scoring at home. The Dow first closed above 18,000 on December 23, 2014. Thus, over a period of more than 16 months, the Dow has gone virtually nowhere. Yet, in terms of movement (both positive and negative days), the Dow has moved more than 42,000 points.

1) Measured by Barclays High-Yield Bond Index, JPM Emerging Markets Bond Index, and Barclays Corporate Index 4/8/16 through 4/15/16.

2) As measured by the Barclays Municipal Bond Index versus Barclays Treasury Index from 3/31/16 through 4/18/16.




  • Housing Starts and Building Permits (Mar)
  • Germany: ZEW (Apr)
  • Eurozone: European Central Bank releases Bank Lending Survey
  • Japan: Imports and Exports (Mar)


  • Turkey: Central Bank Meeting (Rate Cute Expected)



  • Markit Mfg. PMI (Apr)
  • Eurozone: Markit Mfg. PMI (Apr)

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.

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