Market Update: Friday, November 18, 2016

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  • Equities little changed as investors look to lock in second straight week of gains. Investors are taking a cautious stance in early trading as both the S&P 500 and Nasdaq sit near record highs; recent enthusiasm has been tempered in part by Federal Reserve Bank (Fed) Chair Janet Yellen’s strong signal to the market that the Fed will likely raise rates in December. The S&P 500 notched a 0.5% gain yesterday, led higher by financials (+1.3%) and consumer discretionary (+1.2%); real estate was the worst performer, losing just over 1%. Asian markets finished mixed with the Nikkei closing up 0.6% and the Hang Seng advancing 0.4%, while the Shanghai Composite dropped half a percent. European markets are relatively flat in the afternoon session, though Italy’s MIB is down more than 1% for the second consecutive day. Finally, Treasuries are seeing modest gains as the yield on the 10-year Note is down to 2.29%, WTI crude oil trades up 0.5% at $46.20/barrel, and COMEX gold is lower at $1,213/oz.

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  • Yellen comments point toward a December rate hike. Fed Chair Yellen gave a fairly upbeat picture of the economy in her congressional testimony yesterday, indicating that it may be appropriate to raise interest rates relatively soon. While stopping short of saying a rate hike is a sure thing, the market took her comments as a good sign that December remains on the table, with fed fund futures pricing in a 96% chance of a rate hike. Yellen also affirmed her intention to fulfill the remainder of her four-year term (until January 2018), which had been questioned following President-elect Donald Trump’s win last week.
  • Here come the bulls. With small caps, midcaps, and the Dow all at new highs, and the S&P 500 only 0.1% away — it appears some bulls are finally coming out of the woodwork. The American Association of Individual Investors (AAII) Sentiment Survey saw the number of bulls in its poll jump to 47% — the most bulls since February 2015. It also ended a record streak of 54 straight weeks with the bulls beneath 40%, trouncing the previous record of 34 straight weeks.
  • Small caps up 10 consecutive days. The Russell 2000 (RUT) is up 10 consecutive days for the first time since March 2013. It hasn’t been up 11 straight days since June 2003. Small caps are also up 13.2% the previous 10 days, for one of the best 10-day gains ever. What does this mean? Since 1987, there have been 19 other 10-day win streaks; a month later the RUT was higher by a median return of 2.8% and positive 79% of the time. In other words, it appears that large moves in a short time frame can produce continued strong gains in the near term. Today on the LPL Research blog we take a closer look at this phenomenon.
  • Housing, manufacturing, and the consumer in focus next week as investors await the OPEC meeting. While a high level OPEC meeting set for Monday and Tuesday next week, the official OPEC meeting in Vienna isn’t until November 30. Until then, investors will digest Black Friday sales figures, which have become much less important in recent years, along with data on home sales, durable goods orders, and the Markit PMI for manufacturing. The Fed will release the minutes of its November 1-2, 2016 meeting, and Fed Vice Chair Fischer will deliver a speech. Other than the key German IFO data for November, it’s a fairly quiet week for international events and data, aside from a speech by European Central Bank President Draghi early in the week.

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Friday

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