Market Update: Friday, October 28, 2016

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  • Markets little changed as corporate earnings, economic data vie for attention. Stocks are near flat in early trading as investors’ mull over upbeat Q3 gross domestic product (GDP) data and how it might impact the Federal Reserve Banks’s interest rate policy over the remainder of the year, while continuing to digest the ongoing flow of corporate earnings. This morning’s action follows a Thursday session which left major indexes in the red, led to the downside by the consumer discretionary, industrials, and technology sectors. Overseas, markets in Asia saw elevated trading volumes and finished mixed amid a flurry of economic data and earnings reports; the Shanghai Composite (-0.3%) and Hang Seng (-0.8%) fell, while Japan’s Nikkei (+0.6%) advanced as rising rates boosted financial stocks. European indexes are mostly lower in afternoon trading, weighed down by lackluster corporate earnings and rising bond yields. Elsewhere, ongoing doubts about a coordinated production cut are keeping WTI crude oil ($49.25/barrel) under pressure, while COMEX gold ($1273/oz) is up, and the yield on the 10-year Treasury note (1.84%) has slipped a basis point.

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  • Q3 GDP snaps back growth below average but above potential. Q3 GDP posted a 2.9% gain, accelerating from a 1.4% increase in Q2. Personal spending, net exports, inventories, R&D spending and government spending. Business capital spending and housing were drags on growth.  We expect Q4 GDP to come in at between 2 and 2.5%, putting the 2H average around 2.5%, which is below the long term average (3.0%) but well above potential GDP (around 2%) which will continue to tighten resources and put upward pressure on prices and wages.
  • Busy week ahead:  Jobs, ISM and the FOMC, too. Any week that has the jobs report (Wednesday, November 2) and ISM (Tuesday, November 1) is important. But add in the Federal Open Market Committee (FOMC) meeting (Wednesday, November 2) key data in China (Purchasing Managers’ Indexes) for October as well as rate decisions from the Bank of Japan and Bank of England, and you have the makings of a critical week for markets ahead of the November 8, 2016 elections in the U.S.
  • Record mergers & acquisitions activity. The Wall Street Journal, citing data from Dealogic, reported this morning that October saw $248.9 billion worth of deals, topping the previous record of $240 billion from July 2015. Also, last week set the single-week record of $177 billion. This is even more amazing when you consider it happened ahead of the election and the political uncertainties that come with that.
  • Will the S&P 500 drop four days in a row? The S&P 500 has been red the past three days, although all of the losses have been very marginal. Nonetheless, the S&P 500 hasn’t been down four consecutive days since June 15 – a streak that has now lasted 94 trading sessions. This is the longest period without a 4-day losing streak in more than 30 months. Lastly, taking a closer look at the recent red days for the S&P 500, the past seven have all closed higher than -0.4% – suggesting the selling, when it has happened, hasn’t been very intense.
  • Best day of the year.  For whatever reason, October 28 is the best day of the year for the S&P 500 since 1950 – up 0.55% on average and higher 70.2% of the time. Now, December 26th is up more often at 83.8% and November 24th is green 78.9% of the time (both near holidays, which tends to be bullish), but no day sports a higher average return than today. Be sure to read yesterday’s blog as we took a closer look at this bullish seasonal timeframe.
  • When average isn’t average. Did you know that going back to 1950, the S&P 500 has averaged a yearly price return of 7.4%? Here’s what’s interesting about that, only five times out of those 87 years did the S&P 500 close between five and ten percent! In other words, what we would consider to be an average year rarely happens. Today on the LPL Research blog we will take a closer look at this and examine what we call “the flaw of averages.”

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Friday

  • Employment Cost Index (Q3)
  • GDP (Q3)
  • Germany: CPI (Oct)

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.

A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

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.

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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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