Market Update: Wednesday, June 1, 2016


  • Economic data, oil slide weigh on markets. U.S. equities are trading lower this morning after a choppy session on Tuesday left major indexes little changed. A second day of WTI crude oil price declines is weighing on broad sentiment, and investors’ focus on tepid data out of the Eurozone and China’s manufacturing sector is also adding to the cautious tone. Stocks in Europe are awash in red, while Asian markets fared marginally better overnight, though Japan’s Nikkei Index tumbled 1.6% and snapped a five-day winning streak amid a strengthening yen. Meanwhile, the risk-off mood is pushing up precious metals and Treasury prices, with the yield on the 10-year note falling below yesterday’s 1.85% closing level.


  • Earnings estimates have edged higher. With first quarter earnings season behind us, it’s a good time to check in on earnings revisions. Over the past one- and three-month periods, forward S&P 500 estimates have risen by 1% and 1.5%, respectively. Revisions have been most positive in the resource sectors (materials and energy), confirming the stabilization in the commodities complex. We believe recent resilience in earnings estimates increases the credibility of consensus expectations for a strong ramp-up in earnings growth in the second half of the year, driven by better expected U.S. economic growth and reversals of the oil and U.S. dollar drags. Consensus earnings expectations for marginal growth in the second half may prove to be a bit low and could help limit the magnitude of stock market pullbacks when they occur.
  • Chinese data continue to show stability, but do not point to a rebound. The official manufacturing Purchasing Managers’ Index (PMI), for May was 50.1, consistent with expectations and recent history. The Caixin manufacturing PMI (which is private sector oriented) fell from 49.4 to 49.2. This was expected but a decline nevertheless. The Chinese market declined 0.28% overnight. Chinese investors tend to be less sensitive to market data and are often more focused on changes, or rumors of changes, in government policy.




  • Challenger Job Cut Announcements (Apr)
  • ADP Employment (May)
  • OPEC Meeting in Vienna
  • Eurozone: European Central Bank Meeting (No Change Expected)


  • Employment Report (May)
  • ISM Non-Mfg. (May)
  • Evans (Dove)


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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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