Market Update: Monday, August 15, 2016


  • U.S. stocks rise on China rally, continued oil strength. The major averages are moving higher in early trading, boosted by continued speculation of a new stimulus package from China’s central bank and sustained strength in the oil patch following its more than 6% rise last week. Friday’s session ended similar to the entire week, with stocks finishing mixed and with little change; materials were the outlier, as they fell more than 1%. Overnight in Asia, the Shanghai Composite jumped 2.4% to a seven-month high, while the Nikkei fell 0.3% following a disappointing gross domestic product (GDP) report. In afternoon trading, European shares are being led higher by pharmaceutical stocks. WTI crude oil is higher again near $44.80/barrel, and COMEX gold is flat at $1,344. Finally, the U.S. Dollar Index is down slightly, and Treasuries are holding on to strong gains from Friday as the yield on the 10-year note sits at 1.52%.


  • Earnings recession continues. The second quarter 2016 earnings season will see another decline–its fourth straight based on Thomson data (or fifth based on FactSet). With 458 S&P 500 companies having reported results, earnings are tracking to a 2.5% year-over-year decline, 2% better than estimates as of July 1, as 70% of companies have exceeded estimates. Excluding energy, S&P 500 earnings rose 1.3%. We tentatively expect the earnings recession to end in the third quarter, but it will be the fourth quarter before corporate America delivers any material earnings gains.


  • Another bright spot for the earnings story. The bright spots this earnings season have been technology, which has delivered the most upside to prior estimates (+6.7%), and the resilience of forward estimates, which are down less than average, by 1%, since July 1. But consumer discretionary, a late reporter, has also made a surge, with help from retailers’ reports last week. The sector is now tracking to a more than 4% upside surprise versus prior estimates and a market-leading 13.3% year-over-year earnings gain.
  • A look at international earnings. For all the discussion on macroeconomics and politics, especially given all the machinations from the fallout of the Brexit vote, earnings are still what drive financial markets. Earnings have declined in all regions; if the U.S. is in an earnings recession, one could argue that overseas there is an earnings depression. However, although analysts have reduced expectations for future earnings, overall expectations for growth in 2017 are still solid and supportive of the markets going forward. In this week’s Weekly Market Commentary, due out later today, we look at earnings, and the changes in earnings expectations in Europe and Japan.
  • Should you have a fear of new highs? Last Thursday, the Dow, S&P 500, and Nasdaq all made new all-time highs on the same day for the first time since December 31, 1999. This event has drawn a good amount of media excitement over the weekend, as that last occurrence also marked the peak of the tech bubble, and the start of a recession and bear market. The big question is: how worrisome is this event? Going back to 1980, there have been 148 other times all three major indexes made a new all-time high and the near-term results do show some underperformance. Yet, going out a year, the median return jumps up to 17.2%, well above the at-any-time median return of 11.1%. Today on the LPL Research blog we will take a closer look at this development.
  • The tight range continues. Last week the S&P 500 traded in a range (high to low) of 0.76%, the smallest weekly range since May 2015 had 0.69%. The small daily ranges continued as well, as the S&P 500 fell less than 0.1% on Friday. Incredibly, 19 of the past 21 days have now closed up or down less than 0.5%. That hasn’t happened since September 1995. Additionally, over the past month (21 trading days) the S&P 500 has traded in a range (high to low) of 1.90%. There was a 1.75% range ending September 2014, but you have to go back to August 1995 for the time before that.
  • 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 the week’s busy U.S. economic data calendar. In addition, there are several key Federal Reserve Bank (Fed) officials on the docket this 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 this week, although Indonesia’s central bank is expected to cut rates at its meeting later in the week. See our Weekly Global Economic & Policy Calendar for more details.
  • Business capital spending. In this week’s Weekly Economic Commentary, due out later today, we’ll take a look at the slow pace of business capital spending in the current economic recovery, relative to other recoveries, and the implications for future economic growth.
  • Japanese GDP slows. The Japanese economy was flat for the second quarter, compared to a 0.2% expected growth rate. On an annualized basis, growth was 0.2% versus the 0.7% expected growth rate. The economy was hurt by a contraction in business spending and a significant decline in exports due to the rising Japanese yen. This data put further pressure on the Bank of Japan for a more aggressive expansion in monetary policy, even though the effectiveness of this policy is under review. The markets did not move much on this news, with the yen appreciating slightly and a modest decline in Japanese stocks.




  • Housing Starts and Building Permits (Jul)
  • CPI (Jul)
  • Germany: ZEW (Aug)


  • FOMC Minutes
  • Bullard (Hawk)
  • China: Property Prices (Jul)



  • Indonesia: Central Bank Meeting (Rate Cut Expected)


Click Here for our detailed Weekly Economic Calendar

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The economic forecasts set forth in the presentation may not develop as predicted.

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