Market Update: Thursday, July 21, 2016

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  • Markets steady as ECB in spotlight. U.S. stocks opened flat as investors evaluate the European Central Bank’s (ECB) decision to leave interest rates unchanged. Despite modest gains yesterday, both the Dow and the S&P 500 notched new all-time highs, and strength in the tech sector propelled the Nasdaq to a new 2016 high. European equities are mixed in midday trading overseas, while the Nikkei Index gained ground on hopes of further stimulus from the Bank of Japan. COMEX gold is flat after closing below $1320/oz. for the first time this month, WTI crude oil is trading below $46/barrel, and the 10-year Treasury yield has risen to 1.61%.

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  • Post-Brexit data point: initial claims. At 253,000, new claims for unemployment insurance remained at 40-year lows in the week ending July 16, 2016. The latest report is another indicator that the labor market post-Brexit is little changed from pre-Brexit; but as usual, the weekly claims data are beset by distortions. At this time of the year, the end of the quarter, the end of the school year, and the annual auto plant shutdowns are the likely culprits. Claims are down 38,000 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 a recession, so clearly there is no recession signal from claims.
  • Post-Brexit data point: July Philadelphia Fed Manufacturing Index. The Philadelphia Fed manufacturing survey is a timely, but not a very comprehensive, look at manufacturing each month. In July, the Philadelphia Fed Index was a lot stronger than its -3 headline reading suggests (after the +5 reading in June). A reading below zero indicates that manufacturing in the region is contracting, while a reading above zero indicates expansion. While the headline was -3, the key components (new orders, shipments, employment, and unfilled orders) all improved in July versus June, with all but the employment index above zero. The odd combination (weak headline and strong components) is due to the fact that the headline is not derived from the combination of the components, but is asked as a separate question. We’ll get a more comprehensive view on the health of the manufacturing sector post-Brexit with the release of the July Purchasing Managers’ Index (PMI) for manufacturing, due out tomorrow morning.
  • ECB—too early to act. As expected, the ECB left monetary policy, both the level of interest rates and the terms of its quantitative easing program, unchanged. Financial markets were pricing in this outcome and have not reacted. Traders will be paying close attention to ECB President Mario Draghi’s press conference for signs of changes to policy. Similar to the Bank of England’s statement last week, while Brexit remains a concern, the ECB believes it is too soon to react to the event.
  • The streak of new highs continues. The S&P 500 and Dow both made new all-time highs again yesterday. This was the sixth new high for the S&P 500 in eight days and it was the seventh straight new all-time high for the Dow. In fact, the Dow is up an incredible nine straight days for the first time since March 2013 (and November 1996 before that). Both of those times were up on day 10, but the winning streaks ended on day 11, when both were lower. Taking a closer look at the action, for the second day in a row, technology was the big leader. Given the group has underperformed for much of this year,* the recent strength could bode well for overall market gains, with the largest component of the S&P 500 pulling its weight.
    * As measured by the S&P GICS Information Technology sector’s return of 5.88% versus 7.61% for the S&P 500, year-to-date.
  • A new bull market? The S&P 500 is officially up more than 20% from its intraday February lows. Many use 20% drops as new bear markets and 20% rallies as new bull markets. Going back in history though, a 20% gain from the yearly intraday lows is rather normal. In fact, since 1980, 17 of the 36 years saw the S&P 500 close the year more than 20% above the yearly low. The average gain from those lows since 1980 is 21.8%, more than the current 20.0%. Today on the LPL Research blog we will take a closer look at this event and what it could mean.

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Thursday

  • Initial Claims (7/16)
  • Philadelphia Fed Mfg. Index (Jul)
  • Eurozone: European Central Bank Meeting (No Change Expected)

Friday

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

Saturday

  • G-20 Finance Ministers Meeting in China

Sunday

  • Japan: Imports and Exports (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.

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