Market Update: Friday, August 12, 2016

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  • Stocks open flat after record highs set amid oil rally. Equities are near flat to start the session after yesterday’s trading saw the Dow, S&P 500, and Nasdaq all gain around half a percent for the day, marking the first time in nearly 17 years that all three closed at record highs on the same day. The gains came as a 4.2% rally in WTI crude oil boosted investor sentiment, helping the energy sector lead the advance. Consumer discretionary provided additional leadership following a string of positive retail earnings reports, and department stores remain in focus this morning following results from Nordstrom and J.C. Penney. Overnight, the Shanghai Index rose 1.6% after weaker than expected Chinese economic data spurred expectations for further stimulus; the Nikkei also gained over 1% in a quiet session to close out the week. In Europe, stocks are mixed in afternoon trade despite positive German gross domestic product (GDP). Elsewhere, the 10-year Treasury yield is down to 1.49%, while COMEX gold and oil are both moving higher.

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  • Solid earnings week for consumers. Over 90% of S&P 500 companies have now reported second quarter results. The overall story has not changed much in recent days; we are tracking to a 2.5% overall year-over-year earnings decline for the S&P 500 (a 2% upside surprise with a 70% beat rate, and technology producing the most upside). One thing that has changed this week is consumer discretionary has moved up the ranks of the upside surprises–with help from strong retailer results this week–and with a 75% beat rate it is now tracking 4% ahead of estimates made as of July 1. Look for a more detailed update on earnings here and in the earnings dashboard on Monday as the season winds down.
  • New highs all around. The S&P 500, Dow, and Nasdaq all made new all-time highs on the same day for the first time since December 31, 1999. That headline could bring back memories of what happened next, as the tech implosion and a three-year bear market were right around the corner. What you also need to know though is that this happened for the first time on January 10, 1983, and has now happened a total of 149 times, with many occurrences during huge bull markets. For instance, 1995 had a record 25 days of new highs from the three indexes and that year was part of a huge bull market.
  • New highs in August? The S&P 500 made a new all-time high again yesterday for the ninth time this year, which is a rare occurrence for the historically weak month of August. In fact, going back to 1950, no month has had fewer new all-time highs than August, at only 55 of the total 1,035 new highs. Today on the LPL Research blog we will take a look at this phenomenon and what it could mean for the rest of the year.
  • Chinese data were more or less expected. China released the last piece of its recent data dump to the markets. Industrial production increased 6% year over year, slightly lower than the expected 6.2%. Retail sales were as expected, up 10.3% year to date. Retail sales are an important metric for China, because the number can be independently verified. Overall, these are not market-moving events. Chinese stocks were up 1.6% overnight, carrying through on strength from the U.S. yesterday.
  • Data show that Germany remains Europe’s bright spot, relatively. Data for Germany were better than expected, with Q2 GDP up 0.4%. This is a slowdown from the 0.7% previous figure, but better than the 0.2% expected. Consumer prices rose 0.3% in July, as expected and unchanged from the previous month. While these numbers aren’t spectacular, they are showing the avoidance of deflation and a recession, which have been haunting Europe for over a year now.
  • Soft July retail sales make an unlikely September rate hike even more unlikely. Retail sales were unchanged between June and July, falling well short of the consensus expectation of a 0.4% increase. The weakness was evident across the board, as overall retail sales, sales excluding autos and gasoline, and core retail sales (excluding autos, gasoline, and building materials) were all weaker than expected. The one bright spot in the report was that the strong June sales data were revised higher, taking some of the sting out of the weak July data. July tends to be a throwaway month for retailers–too late for spring, too early for back to school–but the disappointing July results make it less likely the Federal Reserve Bank (Fed) raises rates as soon as September.
  • Week ahead. The minutes of the July Federal Open Market Committee (FOMC) meeting, the July Consumer Price Index (CPI), housing and leading indicators data, and August reports on manufacturing and homebuilder sentiment highlight next week’s busy U.S. economic data calendar. In addition, there are several key Fed officials on the docket next week, including New York Fed President Bill Dudley. Overseas, the German ZEW Index for August highlights an otherwise quiet week in Europe. There are no major central bank meetings next week, although Indonesia’s central bank is expected to cut rates next week.

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