Market Update: Wednesday, October 5, 2016

MarketUpdate_header

  • U.S. higher, overseas mixed on central bank chatter. U.S. equities are up this morning as investors evaluate hawkish comments from Federal Reserve Bank (Fed) member Jeffrey Lacker and a potential slowing in quantitative easing from the European Central Bank (ECB). A slightly weak employment reading from ADP is also under consideration ahead of the Bureau of Labor Statistics Employment Situation report on Friday. Yesterday, the utilities sector (-2.2%) was the worst performer for the third day in a row while financials was the only sector to close higher. The ECB news is weighing on overseas indexes, though stocks in the U.K. are moving higher as the pound continues to slide. In Asia, the Nikkei Index advanced half a percent while the Hang Seng posted a 0.4% gain; the Shanghai Composite remains closed for the week. WTI crude oil ($49.50/barrel) is making gains today on a favorable inventory report and continued speculation that OPEC will lower output. Meanwhile, there is a modest rally in COMEX gold ($1272/oz.) after yesterday’s 3% plunge, and the yield on the 10-year Treasury has risen to 1.72%.

MacroView_header

  • Signs of deceleration in the labor market per ADP, but still strong enough for a Fed rate hike in December. The ADP employment report indicated the private sector created 154,000 net new jobs in September, falling short of raised expectations (+165,000) and decelerating from the 175,000 reading in August. Year to date through September 2016, the ADP employment data show average job growth at 181,000 per month, a slowdown from 2014’s 234,000 per month average and 2015’s 207,000, but still enough to keep the Fed on track to tighten later this year. Fed officials have said job gains in the range of 80,000-150,000 per month are sufficient to tighten the labor market and push up wages, suggesting this report gets them a bit closer to a rate hike later this fall. The U.S. Bureau of Labor Statistics will release its September 2016 Employment Situation report on Friday, October 7, 2016. The consensus is expecting a 174,000 increase in jobs, a 4.9% unemployment rate, and a 2.6% year-over-year increase in average hourly earnings.
  • The 50-day moving average continues to cap the S&P 500. Once again, the S&P 500 found resistance from its flat 50-day moving average yesterday. This trend line has capped the S&P 500 since early September. Technically, the S&P 500 continues to trade in a relatively tight range since mid-July. Although some volatility has picked up, overall the S&P 500 continues to digest the big July surge. Internals remain strong, which should support equities in the near term.
  • Gold takes a big hit. Precious metals were the big underperformers yesterday, as gold dropped 3.3% for its largest one-day drop in more than three years. Meanwhile, silver fell nearly 6% for its largest one-day drop since January 2015. Sparking the weakness in metals was a jump in the U.S. dollar on potentially higher interest rates coming.
  • Earnings season fast approaching. We will preview the upcoming third quarter 2016 earnings season in our Weekly Market Commentary next week, but for those looking to get ahead of the game (Alcoa unofficially kicks us off on October 11), Thomson-tracked consensus earnings estimates for the S&P 500 are calling for a slight 0.5% dip year over year. With the typical historical pattern of upside, a final result in the 2-3% range is likely, ending the earnings recession. Although estimates for subsequent quarters appear too high (+8-15%), we expect shrinking energy declines, a more stable U.S. dollar, and better economic growth to contribute to better–and positive–earnings growth over the next year.

MonitoringWeek_header 

Wednesday

  • ADP Employment (Sep)
  • ISM Non-Mfg. (Sep)

Thursday

  • Challenger Job Cut Announcements (Sep)

Friday

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 # 1-542349