Market Update: Wednesday, October 19, 2016


  • Stocks seek direction as oil, gold advance. U.S. equities are little changed this morning as investors evaluate mixed housing data for September. This follows yesterday’s session in which all eleven sectors gained ground, led by healthcare (+1.1%) and materials (+0.9%). Overseas, China reported Q3 gross domestic product (GDP) growth in line with expectations; the Shanghai Composite barely budged, closing 3 basis points higher. In other parts of the region, Hong Kong’s Hang Seng shed 0.4% while the Nikkei gained just 0.2%. European exchanges are near flat as earnings results continue to pour in. WTI crude oil ($51.40) has moved up over 1% and is within striking distance of a new high for 2016. Meanwhile, COMEX gold ($1270/oz.) has found a bid the last couple of days, and the yield on the 10-year Treasury note is up 0.02% to 1.75%.


  • Q3 earnings turn positive. With only about 10% of S&P 500 companies having reported third quarter results, earnings are now tracking to a year-over-year increase of 0.2%, about 1% above October 1 estimates thanks to a strong 81% beat rate. Financials are tracking 5% above the prior estimate and are the biggest driver of the upside. Despite the meager growth rate, ending the earnings recession may positively impact investor sentiment.
  • Despite weak headline, housing market remains on solid ground as Q3 ended. Housing starts fell a startling 9% between August and September, but all of the decline was in the multifamily area which saw a 38% drop. Starts of single family homes-a much more economically sensitive, stable and reliable indicator of the health of the housing market-rose 8% in September and were up a solid 5% from a year ago. In addition, building permits, a good leading indicator of future housing activity, posted a 6% gain in September and are up 9% from a year ago. Our view remains that housing will add to GDP growth this year as it has every year since 2011. See the Weekly Economic Commentary from October 10, 2016 on housing for more details.
  • Big shock, Chinese GDP as expected at 6.7%. To the surprise of no one, China reported annualized GDP through the end of the third quarter of 6.7%, exactly in line with expectations. Even though the final numbers are “massaged” there is value looking at the composition of the economy. Consumer spending was strong at 10.7% – this is a statistic that can be confirmed through the private sector. Fixed asset investing (basically infrastructure and construction) also increased 8.2% as expected. Regardless of whether you take the numbers at face value, the data suggest that the Chinese government believes there is enough strength in the economy to take more aggressive actions to deal with China’s debt dependence. Asian markets were mixed and did not seem influenced by the news in either direction.
  • Remembering Black Monday. 29 years ago today the Dow had its largest one-day drop ever of 22.6% (the S&P was down 20.5%). As we noted on the blog yesterday, there are some growing concerns that another big drop could be in the cards as 2016 is somewhat similar to the path stocks took in 1987. It is worth noting though the S&P 500 was 16% off its highs before the big drop in 1987. Compare that with today, as the S&P 500 is only 2.3% off the highs. Remember, big drops tend to take place in bear markets – not near highs. Today on the LPL Research blog we take a trip down memory lane and see what various members of the team were doing on that fateful day.



  • Housing Starts and Building Permits (Sep)
  • Presidential Debate in Las Vegas
  • Beige Book
  • Dudley (Dove)
  • Brazil: Central Bank Meeting (Rate Cut Expected)



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

Tracking # 1-546878