Market Update: Monday, October 3, 2016

MarketUpdate_header

  • Global markets assess oil rally and Brexit update. U.S. stocks are lower this morning after closing the third quarter on a positive note. The financial and energy sectors led Friday’s rally, boosted by reports that Deutsche Bank may have reached a settlement to reduce the $14 billion fine levied by the U.S. Department of Justice and that OPEC may be on track to reduce output; WTI crude oil sits at $48.20/barrel. The British pound is falling against other currencies after U.K. Prime Minister Theresa May promised a swift exit from the European Union; U.K. stocks are markedly higher though the rest of Europe is near flat in afternoon trade. Overnight, the Nikkei Index gained 0.9% while Hong Kong’s Hang Seng rose 1.2% on mixed Purchasing Managers’ Index (PMI) data; the Shanghai Composite is closed all week for a holiday. Meanwhile, COMEX gold ($1316/oz.) is modestly lower and weakness in Treasuries has lifted the yield on the 10-year note to 1.62%.

MacroView_header

  • Welcome to the fourth quarter. After a strong third quarter for equities, here comes the historically most bullish quarter of the year. In fact, going back to 1950, the fourth quarter is the best quarter of the year for equities, with the S&P 500 up 4.1% on average and higher 78.8% of the time. The catch is that we are in a presidential election year and the fourth quarter during these years has been lower three of the past four cycles. Turning to October, no month is more volatile going back to 1950, as the average range (low to high) during this month is 7.3%–the most out of any month. Lately though, this month has been very strong–up 2.1% on average the past 20 years, ranking it as the top month of the year. In the Weekly Market Commentary, due out later today, we take a closer look at this time of the year and what could be in store for 2016.
  • October volatility during an election year? October has a reputation as a volatile month, thanks to some huge drops. It is worthy though, as no month has a wider range at 7.3% (low to high) since 1950. What happens during an election year? You’d think ahead of a presidential election there would be a lot of volatility, but surprisingly that hasn’t been the case. Today on the LPL Research blog we will take a closer look at this phenomenon and how it relates to the presidential cycle.
  • Taking a closer look at trade. As the election nears, we see how rules on international trade, and globalization as a concept, have impacted American politics. There have always been skeptics on trade from both the traditional “right” and “left” of the political spectrum. That skepticism has become the dominant view of trade, expressed by both presidential candidates. In this week’s Weekly Economic Commentary, due out later today, we will take a look at how our nation views foreign trade.
  • Week ahead. The September jobs report (due out Friday, October 7) concludes a busy week of data and events as markets gauge the health of the economy as Q3 ended and Q4 began. The September Institute for Supply Management (ISM) reading and vehicle sales will be closely watched as well, ahead of the start of Q3 earnings reporting season, which begins in mid-October. There are 10 more Federal Reserve Bank (Fed) speakers on the docket this week (after 13 last week), including an appearance from Fed Vice Chair Fischer. Overseas central banks in India and Australia will meet this week, and the International Monetary Fund (IMF)/World Bank’s annual meeting begins in Washington late this week.

MonitoringWeek_header 

Monday

Tuesday

  • Vehicle Sales (Sep)
  • US Vice Presidential Debate (Farmville, VA)
  • Lacker (Hawk)
  • India: Reserve Bank of India Meeting (No Change Expected)

Wednesday

Thursday

  • Challenger Job Cut Announcements (Sep)

Friday

  • Employment Report (Sep)
  • Fischer (Dove)
  • George (Hawk)
  • IMF/World Bank Fall meetings in Washington, DC
  • China: Caixin Services PMI (Sep)

Saturday

  • IMF/World Bank Fall meetings in Washington, DC

Sunday

  • IMF/World Bank Fall meetings in Washington, DC

 

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.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

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.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-541438