- Global markets flat as investors digest central bank comments. U.S. markets are searching for direction in early trading following releases from both Federal Reserve Bank (Fed) Chair Janet Yellen and the European Central Bank (ECB); fed fund futures are currently pricing in a 91% chance of a Fed rate hike next month. Equities were little changed yesterday as the S&P 500 lost 0.2%; technology (+1.0%) outperformed for the second straight day, while financials (-1.4%) continued to consolidate post-election gains. Asian markets closed near flat overnight on little economic data; an announcement from the Bank of Japan to purchase bonds across the yield curve did little to sway equity prices. European markets are similarly unchanged in the afternoon session, with the exception of Italy’s MIB (-1.1%), on concerns of a “No” vote in next month’s constitutional referendum. Finally, Treasuries are lower with the yield on the 10-year Note rising to 2.26%, WTI crude oil (+1.9%) is above $46/barrel, and COMEX gold is unchanged at $1,225/oz
- Data on initial claims for mid November, Philadelphia area manufacturing for mid November, and housing starts and CPI for October were released earlier this morning. The housing data were stronger than expected, bouncing in October after a weather-induced blip lower in September, while the CPI readings matched expectations, leaving the CPI at +1.6% year-over-year, but poised to move over 2% if energy prices stabilize. Initial claims bounced to a fresh 40-year-plus low, as auto shutdowns and bad weather impact the data, and the +8 November reading on the Philadelphia Fed manufacturing index was the fourth in a row above zero, indicating further stabilization in manufacturing. On balance, today’s data keep the Fed on track to tighten in December.
- Yellen continues to prepare markets for a December rate hike. Fed Chair Janet Yellen, delivering testimony before the Joint Economic Committee of Congress referring to a possible rate hike, said that “such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives”. She went on to warn that “Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.” We continue to expect that the Fed will raise rates at its December 13-14 FOMC meeting, and raise rates an additional two times in 2017. View the full release here.
- Latest Portfolio Compass changes see moves in small caps, industrial metals, and TIPS. We upgraded our views to neutral for these three categories. Small caps may benefit, from a relative performance perspective, from Trump’s focus on U.S. jobs and trade, in addition to potential expanded credit availability, although the mid-to-late stages of the business cycle, valuations, and risk of increased stock market volatility suggest some caution is warranted. Copper has benefited from the election results via fiscal stimulus expectations (read through to higher growth and inflation) and recent higher-than-expected Chinese demand. And Treasury Inflation-Protected Securities may be helped by continued increases in inflation expectations, although interest rate sensitivity may remain a headwind.View the publication.
- The Dow win streak is over. The Dow finally dropped 0.3% yesterday, after gaining seven days in a row – the longest winning streak since nine straight back in July. This seven-day win streak was on the heels of a seven-day losing streak. It also ended a streak of five straight gains after the election. This was the longest win streak after an election since eight in a row in 1996. Lastly, you have to go back to July 2010 to find the last time the Dow was up seven straight days after being down seven (or more) straight days.
- The win streak in small caps continues. The Russell 2000 Index (RUT) closed at a new all-time high yesterday. This was the ninth consecutive up day, the longest win streak since 10 in a row in March 2013. The longest win streak ever for small caps is 15 in early 1996. The index has closed at a new all-time high for three straight days for the first time since March 2015.
- Housing Starts and Building Permits (Oct)
- Yellen (Dove)
- Mexico: Central Bank Meeting (Rate hike expected)
- China: Property Prices (Oct)
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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.
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