Market Update: Friday, November 11, 2016

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  • Stocks open lower after two-day buying binge. Major indexes are modestly lower on profit taking after the Dow notched a new all-time high on Thursday, closing above 18,800. The big story yesterday was once again divergence in sector performance, as financials (+3.7%), industrials (+2.1%), and healthcare (+1.2%) continued to benefit from a shuffling of expectations in the wake of Donald Trump’s victory; rate-sensitive consumer staples (-2.8%), utilities (-2.4%), and telecom (-2.3%) sold off along with bonds. Asian markets were mixed overnight as the Shanghai Composite gained 0.8% while the Hang Seng dropped 1.4%; the Nikkei (0.2%) closed out the week on a quieter note. The U.K.’s FTSE 100 (-1.4%) is leading most European markets lower, though Germany’s DAX is up 0.4%, buoyed by corporate earnings in the financial sector. Meanwhile, WTI crude oil ($43.65/barrel) is lower by over 2% while COMEX gold (1255/oz.) is also struggling to find a bid, down 0.9%. The yield on the 10-year Treasury note finished at 2.15% yesterday; the bond market is closed today for Veterans Day.

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  • Key data on inflation, housing, manufacturing, and the consumer along with Fed Chair Yellen in the week ahead.  A day after the November 8 presidential election, Fed Chair Yellen added a last minute appearance before the Joint Economic Committee of Congress for November 17, and that appearance is the key to next week’s calendar. Data on inflation, housing, manufacturing, and consumer spending will also draw plenty of attention. In addition to Yellen, there are more than a dozen other Fed speakers on the docket next week, presumably preparing markets for a December rate hike. Overseas, key data on gross domestic product (GDP) (Japan) and industrial production and retail sales (China) is set to be released over the weekend, while later in the week a key speech from ECB President Draghi and data on GDP (Eurozone), ZEW (Germany) and CPI (UK) are on tap.
  • New highs for the Dow. The Dow Jones Industrial Average gained 1.2% to close at its first new all-time high since 8/15/2016. This was the best one-day gain that was also a new high since a 1.8% jump on 12/18/13. Turning to the S&P 500, it is now up four consecutive days for the first time since mid-July when it gained five consecutive days. Remember, the S&P 500 was down all five days last week and now has a shot at being up all five days this week. For the week, the S&P is currently up 4.1%, which would be the best weekly gain since the first week of January 2013.
  • What does tax reform mean for the municipal bond exemption? President-elect Trump has called for increased spending to rebuild infrastructure. This, coupled with calls for tax reform, has municipal bond holders nervous that the federal government will limit or end the tax exemption on their bonds as a way to partially pay for this program. Although possible, we do not believe this is probable, a topic that we discuss in more detail today on the LPL Research blog.

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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.

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