Market Update: Thursday, April 21, 2016


  • Major averages little changed; bond yields jump with oil prices.S. equities closed slightly higher on Wednesday, though the moves in the bond and WTI crude oil markets grabbed headlines. Despite a weekly inventory report that showed a smaller than expected crude build, the price of WTI rose 4.3% to $44.15, a closing high for 2016. Meanwhile, the 10-year Treasury yield advanced 0.06% to 1.85%, continuing a bounce from its monthly low of 1.69%. On a sector level, results were mixed as 5 of the 10 sectors finished higher on the day, with financials and energy leading the way again, while utilities underperformed due to rising bond yields. COMEX gold took the session off as the price per ounce moved up just $0.10. Final tallies: Dow +42.67 to 18096.27, Nasdaq +7.80 to 4948.13, S&P 500 +1.60 (+0.08%) to 2102.40.
  • Equities trading near flat amid earnings barrage. Major U.S. indexes are bouncing around the flat line in early trading as investors digest a slew of earnings reports, including GM and American Express. Overseas, European stocks are mixed after the European Central Bank (ECB) left interest rates unchanged; Asian markets traded mostly higher, punctuated by a 2.7% gain in Japan’s Nikkei Index, though the Shanghai Composite bucked the trend for a second day, falling 0.7%. Gold is up half a percent, oil is pausing after recent strength, and the 10-year Treasury yield is moving higher.


  • No big surprises so far this earnings season. With 71 S&P 500 companies having reported earnings thus far, we would characterize first quarter results as on par. Overall S&P 500 earnings are tracking roughly in-line with March 31, 2016 estimates, as below-consensus energy and financials results have offset an upside surprise across the other eight sectors (Thomson Reuters data). Revenue is also on par, tracking with prior estimates for a 1.3% decline. The good news is that S&P 500 estimates for the balance of 2016 have only fallen marginally during this time (clearly better than last quarter at this time), aided by some of the factors we cited in our Weekly Market Commentary earnings season preview and preserving the possibility of a solid H2 2016 ramp-up. Look for our updated earnings dashboard on Monday, April 25.
  • Claims reach historic lows. New claims for unemployment fell 6,000 to 247,000 in the week ending April 16, much better than expectations for an increase (Bloomberg consensus was 265,000). This level represents a more than 40-year low and the longest streak of sub-300,000 readings since 1973 at 59 weeks. Claims are down 18,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) 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.
  • Existing home sales rebound. Existing home sales in March rebounded from February weakness, a reassuring signal from the housing market after the disappointing housing starts and permits data released earlier this week. Sales came in at an annualized rate of 5.33 million, topping consensus expectations and increasing 5.1% from February. Existing home sales have no impact on gross domestic product (GDP) growth other than through associated services, such as broker commission and mortgage origination fees, but can have an indirect impact from increased spending as owners turn their new houses into homes.
  • No change to ECB rates. As expected, the ECB left benchmark interest rates unchanged this morning. In his post-announcement press conference, ECB President Mario Draghi reiterated his confidence in the current policy path, suggesting that the measures put in place needed more time to work. He also stated that structural reforms would make current monetary policies more effective. This is consistent with other central bankers’ comments and the communique issued at the last G20 meeting in Shanghai, stating that monetary policy was reaching the end of its effectiveness and changes in fiscal policies were necessary to meaningfully improve the global economy.
  • Two in a row over 2,100. The S&P 500 managed a slight gain yesterday, to close above the 2,100 level for the second straight day. For the week, the S&P 500 is up 1.0% and is going for its first two-week win streak since early March. Also, the S&P 500 hasn’t broken the previous week’s lows for nine consecutive weeks. This week has a shot at making it 10 straight for the first time since early 2011. The record (since 1970) is 13 consecutive weeks of a higher weekly low. Lastly, the S&P 500 is now 1.3% away from a new all-time high, but the S&P 500 total return (including dividends) made a new all-time high. Today on the LPL Research blog, we will take a closer look at the hidden gains that reinvesting dividends can produce.
  • Does anyone want to own stocks? A Gallup poll released yesterday showed that 52% of Americans own stocks, matching the lowest level in 19 years of the poll. Not surprisingly, the middle class and adults under 35 are less likely to invest as well. For reference, in 2007, 65% of Americans were invested in stocks. After two market crashes in the past 16 years, the trauma hasn’t wore off for the average investor. Adding to this, the American Association of Individual Investors (AAII) Sentiment Survey was released this morning and the majority is still in the neutral camp, as 42% were neutral. This is now six straights weeks of the neutral reading above 40%, the longest streak since May of last year. The bulls came in at 33%, which is now beneath the long-term average of 38% for 24 consecutive weeks.




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

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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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