Market Update: Thursday, November 10, 2016

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  • Equity rally continues, Dow poised for all-time high. U.S. equities opened higher this morning, tracking advances in Asia and Europe, in a continuation of yesterday’s trend which saw the S&P 500 overcome steep overnight losses in the futures market following the U.S. election to close over 1% higher in the regular session; though sector performance varied greatly as rate-sensitive utilities (-3.7%) and real estate (-2.3%) suffered due to the fixed income selloff, while financials (+4.1%) and healthcare (+3.4%) spiked on heightened expectations of an easing regulatory environment.  Overnight in Asia, the Nikkei rocketed nearly 7% higher, recovering all of its losses from the prior day, while other indexes also closed green: Korea and Taiwan rose more than 2% and China’s Shanghai Composite advanced 1.4%. The risk-on sentiment carried over to European markets, which have tacked on to yesterday’s gains. Turning to commodities, WTI crude oil ($44.80/barrel) is down over 1% while COMEX gold ($1265/oz.) remains below its 200-day moving average after a volatile session on Wednesday. Meanwhile, the dollar continues to reach for nine-month highs, and the post-election bond selloff has pushed the yield on the 10-year Treasury note (2.11%) to its highest levels since January.

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  • Over the last month, the LPL Financial Current Conditions Index (CCI) fell three points to 213. The CCI has risen well off early-year lows and remains in the range it has held for most of the current expansion. An increase in the VIX (a measure of stock market volatility) heading into the final weeks of the election and slower retail sales were the main detractors from the CCI in October, while an increase in shipping traffic made the largest positive contribution.
  • Big day after the election. The S&P 500 gained 1.1% the day after the election, for only its second 1% gain during the past two months – but second this week. The S&P 500 gained for the third consecutive day for the first time since September 22 and hasn’t been up four straight days since a five-day win streak ended in mid-July.  In fact, the S&P 500 is now up 3.7% for the week, which would be the best weekly gain of the year. It closed only 1.2% away from new highs as well. The Dow, meanwhile, closed only 49 points, or 0.25% away from new highs. With futures higher, the Dow has a shot at closing at a new all-time high for the first time in nearly three months (August 16).
  • Volatility imploded. The CBOE Volatility Index (VIX), better known as the fear gauge, had a record run up of nine consecutive higher days leading up to the election. Yesterday, with the election uncertainty out of the way, it imploded and sank 23.3%. This was the largest one-day drop in more than five years and the 7th largest drop all-time. As quickly as fear can build up, if the worst case doesn’t materialize, fear will dissipate just as quickly.
  • Market outlook (as of 11/9/16). Following the surprising election victory by Donald Trump, we reiterate our expectation that stocks will produce mid-single-digit returns for the full year, as discussed in our Midyear Outlook 2016 publication, based on an expected late-year earnings rebound, a modest pickup in global growth, stable oil prices, and a largely range-bound U.S. dollar. That said, we continue to expect volatility to increase given the policy uncertainty in the U.S. and amid continued geopolitical risk overseas and an aging business cycle. Although the Trump victory may put incremental upward pressure on interest rates, we continue to expect modest positive bond market performance for the full year 2016 (based on the Barclays Aggregate Bond Index). We believe a Federal Reserve Bank (Fed) rate hike in December of 2016 remains more likely than not amid gradually rising inflation, suggesting that bonds may give back some of their year-to-date gains through year end.

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Thursday

  • Monthly Budget Statement (Oct)
  • Bullard (Hawk)
  • Malaysia : GDP (Q3)

Friday

  • Consumer Sentiment and Inflation Expectations (Nov)

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.

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.

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