Market Update: Wednesday, September 28, 2016

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  • Equities dip ahead of Fed speeches. U.S. markets slightly lower in early trading, as investors await comments from six Federal Reserve Bank (Fed) officials who are scheduled to speak today, including Fed Chair Janet Yellen. Stocks moved higher yesterday, though the high-yielding utilities and real estate sectors fell throughout the session, both closing lower by more than 1% despite a continued drop in Treasury yields. Asian markets finished mixed overnight, with Japan’s Nikkei losing 1.3% while the Hang Seng advanced 0.2%. European markets are broadly higher as European financials stage a relief rally; European Central Bank (ECB) President Mario Draghi will speak later today. Meanwhile, the yield on the 10-year note is down 0.01% to 1.55%, WTI crude oil (+1.2%) is back above $45/barrel, and COMEX gold continues to consolidate near $1325/oz.

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  • Durable goods orders flat in August after strong data in July. Little was expected from durable goods orders in August after a July surge; the flat reading came in ahead of consensus expectations of a nearly 2% decline, although a negative revision to July accounts for nearly half of the difference. In a sign of potential economic strength looking forward, core capital goods orders, which exclude defense and the volatile transportation component, rose 0.6%. Shipments of core capital goods, which feed through directly to gross domestic product (GDP) as business spending, declined 0.4%. We continue to believe the economy will expand near 3% in the second half of the year after subdued growth in the first half.
  • Consumer confidence hits post-recession high. The Conference Board’s Consumer Confidence Survey posted its best number of the current expansion in September, supported by improvement in both the Present Situation and Expectations Indexes. Still low energy prices and an improving labor market have been key contributors. Despite the rise in confidence, we still are not seeing the overspending or overborrowing that typically leads to an overheated economy, and believe the improvement will benefit the economy.
  • More volatility in the cards? The S&P 500 bounced back yesterday, gaining 0.64% after two days of modest selling. What stands out about yesterday is that it was the fifth straight day of at least a half a percent gain or loss for the S&P 500. You have to go back three months the last time something like that happened. Remember, the entire month of August only had five days move more than half a percent up or down. As we noted two weeks ago on the blog, from the middle of September until late October is historically one of the most volatile times of the year–so this recent volatility is right on time. Looking under the hood of what happened yesterday, tech once again was the leading sector, gaining 1.1%. With only three days to go until the end of the quarter, tech is now up 10.5% in the third quarter; the next closest sector is financials at 4%.
  • What happens when something should happen, but doesn’t? Last week was the week after September options expiration and as we noted on the blog at the time, this week had been the weakest of the year for the S&P 500–up only four times since 1990 (positive 15.4% of the time). Well, 2016 continues to surprise us, as the S&P 500 added +1.2% for the week. Here’s where things get interesting: If the S&P 500 produces gains during this historically weak week, the month of October has gained +8.0%, +1.8%, +1.5%, and +3.7%. In other words, this usually volatile month has done very well when the S&P 500 can buck the trend and gain during the week after September option expiration. Today on the LPL Research blog we will take a closer look at this development and what it could mean.

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Wednesday

  • Durable Goods Shipments and Orders (Aug)
  • Yellen (Dove)
  • Bullard (Dove)
  • Evans (Dove)
  • Mester (Hawk)
  • George (Hawk)

Thursday

  • Pending Home Sales (Aug)
  • Yellen (Dove)
  • Germany: Unemployment Change (Sep)
  • UK: Money Supply and Bank Lending (Aug)
  • Germany: CPI (Sep)
  • Japan: Minutes of the Sep 20-21 BOJ Meeting
  • China: Caixin Mfg. PMI (Sep)
  • Japan: Jobless Rate (Aug)
  • Japan: CPI (Aug)

Friday

  • Chicago Area PMI (Sep)
  • Eurozone: CPI (Sep)
  • China: Official Mfg. PMI (Sep)
  • China: Official Non-Mfg. PMI (Sep)

Saturday

  • Start of New Fiscal Year and Potential US Government Shutdown

Sunday

  • Japan: Tankan Survey (Q3)

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) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

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.

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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.

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