Market Update: Monday, August 22, 2016

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  • U.S. markets follow Europe lower. Major indexes in the U.S. and Europe are lower to start the week on little news as investors take a cautious stance ahead of housing, durable goods, and gross domestic product (GDP) reports this week, followed by Federal Reserve Bank (Fed) Chair Yellen’s speech at the Jackson Hole Symposium on Friday. The S&P 500 continued trading in a tight range last Friday, losing just 0.1%. Most sectors were little changed, although utilities, telecom and energy, the year’s strongest performers, all shed around 1%. Comments out of the Bank of Japan over the weekend about potentially sending rates further into negative territory boosted the Nikkei Index 0.3%, while the Shanghai Composite slipped 0.8%. Elsewhere, WTI crude oil is down about 2.5% after last week’s surge, COMEX gold is moderately lower and Treasuries are up as the yield on the 10-year note is down to 1.56%.

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  • Time to call it a season. Earnings season is over and the results were decidedly mixed. The good news: technology results (only sector that has seen second half of 2016 estimates increase) and relatively resilient forward estimates (down just 1% since July 1). Not as good: the S&P 500 only generated about a 2% upside to prior estimates, three sectors (energy, financials, and industrials) missed second quarter estimates, and third quarter 2016 estimates are now calling for a decline, albeit modest at -0.4%. This week, 13 S&P 500 companies will report results, bringing the total to over 490. This week is our last earnings dashboard for Q2; look for Q3 beginning in mid-to-late October.

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  • In today’s blog, we take a look at previous August election year record highs. Two weeks ago we noted on the LPL Research blog how rare it is when the S&P 500 makes a new high during the usually tricky month of August. We also found that when this happens during an election year, the S&P 500’s returns the rest of the year are rather strong. Look for the numbers later today on lplresearch.com.
  • What else is new? More low volatility. The S&P 500 was down 0.0082% last week. Since 1990, the index has been in the red by less just twice. The S&P 500 hasn’t traded in a weekly range of more than 2% in six weeks, the longest stretch in two years. To put that in perspective, the index moved in a more than 2% range 10 days during January 2016.
  • In this week’s Weekly Market Commentary, we look at what stocks may be telling us about the election. Presidential election years have historically been good for stocks and this year has been no different, although with less late summer volatility than we would expect. That relative calm may partly reflect that the market is increasingly pricing in the greater certainty associated with a Clinton victory. The commentary will look not only at what the broad market might be saying about the election outcome but also some politically sensitive industry groups.
  • A closer look at fiscal policy. In this week’s Weekly Economic Commentary, due out later today, we review the ways countries responded to the 2008 financial crisis through both monetary and fiscal policy. Although monetary policy has been the tool of choice more recently, fiscal policy tools are now being more actively considered.
  • Week ahead. Fed Chair Janet Yellen’s Friday speech at the Fed Jackson Hole Symposium will likely garner the most attention this week among economic events, but we also will get updates on several important data points. On Friday we’ll receive the second estimate of second quarter gross domestic product (GDP). Housing will be in focus this week as we receive new data on housing starts and existing home sales. Other key data points include durable goods orders, consumer sentiment, and preliminary readings on August manufacturing and services sector activity, both in the U.S. and abroad. We’ll also receive import/export data for China, leading indicators for Japan, and several key data points on Germany’s economic activity.
  • Quiet data week leaves focus on central banks. With earnings season behind us and a light economic calendar this week, the focus will be on central banks. Bank of Japan Governor Kuroda remarked over the weekend that negative rates could go more negative; and Fed Vice Chair Fisher made hawkish comments in a weekend speech, telling the market a rate hike is likely later this year. And with the always anticipated Fed meeting in Jackson Hole at the end of this week, the next few days will likely be all about central banks.

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Tuesday

  • Markit Mfg. PMI (Aug)
  • Eurozone: Markit Mfg. PMI (Aug)
  • Japan: Bank of Japan’s Kuroda speaks in Tokyo

Thursday

  • Durable Goods Orders and Shipments (Jul)
  • Germany: Ifo (Aug)
  • Japan: CPI (Jul)

Friday

  • Goods Trade Balance (Jul)
  • GDP (Q2 – Revised)
  • Fed Chair Yellen speaks at Jackson Hole Policy Symposium

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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