Market Update: Wednesday, June 22, 2016

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  • Stocks rising ahead of Brexit, Yellen. U.S. equities are moving up in early trading; they ticked slightly higher in yesterday’s session, but moved off their highs as Federal Reserve Bank (Fed) Chair Janet Yellen expressed concern about the global economic outlook. Six of the 10 sectors closed up on Tuesday, with energy leading the way as the price of WTI crude oil moved back above $50 per barrel. The 10-year Treasury yield remains flat at 1.71%, while the dollar is giving up some of yesterday’s gains. Overnight, Asian markets closed mixed with the Shanghai Composite gaining 0.9%, while Japan’s Nikkei lost 0.6%. Finally, in afternoon trading European stocks are higher across the board, as the latest survey shows that “remain” voters in the U.K. have widened their lead to 54.0%.

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  • Yellen, Fed sound note of caution on raising rates ahead of Brexit. In the first leg of her semiannual Monetary Policy testimony to Congress yesterday, Fed Chair Janet Yellen didn’t vary much from the game plan unveiled by the Federal Open Market Committee (FOMC) at last week’s meeting. Yellen used the word “cautious” three times during her testimony, and continued to say that future rate hikes would be gradual and dependent on the labor market, inflation, and the economy hitting the Fed’s targets. As was the case with the FOMC meeting last week, Yellen gave no hint of a rate hike in July, but didn’t rule it out either. Yellen will deliver the second leg of her testimony to the House today. Formerly known as the Humphrey Hawkins testimony, it was held in June this year instead of July, due to the earlier than usual political conventions this summer and the late July FOMC meeting.
  • S&P 500 and crude oil bounce off 50-day moving averages. After gapping higher and closing well off the highs on Monday, the S&P 500 gained 0.3% yesterday. Technically, the index found support near its upward-trending 50-day moving average; but it is still just beneath the 2,100 level, which is an area that has been trouble for the S&P 500 this year. Energy was the top sector yesterday, as crude oil moved back above $50 per barrel. Speaking of 50-day moving averages, crude oil bottomed at that trend line last week and has moved nicely higher since.

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Wednesday

  • Existing Home Sales (May)
  • Yellen (Dove)
  • Japan: Nikkei Mfg. PMI (Jun)

Thursday

  • Initial Claims (6/18)
  • Markit Mfg. PMI (Jun)
  • Eurozone: Markit Mfg. PMI (Jun)
  • “Brexit” Referendum in UK (First Results Around 7 P.M. ET; Final Results at 2 A.M. ET Friday 6/24)

Friday

  • Durable Goods Orders and Shipments (May)
  • Germany: Ifo (Jun)

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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