- U.S. near flat after fresh highs; ECB spurs European rally. (10:05am ET) Domestic indexes are little changed in early trading after major averages logged new record highs on Wednesday, with the Dow now within 500 points of 20,000. Nine sectors gained more than 1%; with healthcare (-0.8%) the lone decliner after comments from President-elect Trump brought scrutiny back to drug pricing practices. Overseas, Asian markets rode U.S. sentiment higher overnight; the Nikkei advanced 1.5%, though the Shanghai Composite fell modestly after mixed data out of China. Meanwhile, European stocks legged higher in afternoon trading following the European Central Bank’s (ECB) announcement to extend its quantitative easing program. Treasuries sold off on the news, pushing the yield on 10-year notes up 6 basis points to 2.41%; COMEX gold ($1172/oz.) and WTI crude oil ($50.47/barrel) also moved higher after the announcement, but gold has since retraced its gains.
- ECB policy changed. The ECB extended its quantitative easing (QE) policy this morning, but also changed the terms. The ECB will now buy bonds until December 2017, but will reduce the amount purchased from 80 billion euro to 60 billion euro beginning in April 2017. Even after this announcement, the market expects additional QE after December 2017 and is interpreting this announcement as dovish. The euro fell approximately 1% after the announcement with European bond yields and equities gaining.
- Initial claims remain near frictional lows. At 252,000 per week over the past four weeks, first time claims for unemployment insurance remain near 43+ year lows and indicate a solid labor market, keeping the Federal Reserve Bank on track to raise rates by 25 basis points next week and by a total of 50 basis points in 2017. Through year end and into the first few weeks of January 2017, the claims data are likely to be choppy and volatile as they often are around the holidays and at quarter end. Over the past 26 weeks, claims have dropped by 6,000. In the past, an increase of between 75,000 and 100,000 in claims over a 26 week period has indicated a recession, so there is clearly no such signal from claims today.
- New high for the transports. The transports finally joined the party and made a new all-time high, the first in more than two years. As we noted before the election, transports had quietly been one of the strongest groups and this has continued since the election, with the Dow Jones Transportation Average up 12.5% versus a gain of 4.8% for the S&P 500 since November 8. Additionally, with both the Dow Jones Industrial Average and Dow Jones Transportation Average making new all-time highs, you might hear about a Dow Theory buy signal. We took a look at this 100-year old indicator on the LPL Research blog last month. The bottom line is that the transports are a more economically sensitive group and also a group that has lagged for the past two years. This new leadership could be a plus for equities in general.
- New highs everywhere. It was a day full of new highs yesterday, as the Dow, S&P 500, S&P Midcap, and Russell 2000 all closed at new all-time highs. Looking at the number of issues making a new high, 108 components of the S&P 500 made new highs, the most since December 2014. Turning to the NYSE, 422 issues made new 52-week highs, the most since October 2013. The NYSE data can be skewed by interest rate sensitive instruments like preferred stocks; looking at common stocks shows 386 new 52-week highs, again the most since October 2013.
- A strange day. The S&P 500 gained 1.3% to close at a new all-time high, for the best one-day gain while also making a new high since March 2014. What was strange about the action yesterday was the CBOE Volatility Index (VIX) also gained 3.6%. Historically, the VIX and the S&P 500 tend to trade inversely. In fact, you have to go clear back to July 2009 the last time we saw the S&P 500 up this much and the VIX up more than 3%. Why was this? Odds are with the big ECB announcement pending the next day, this sparked some defensive positioning among derivatives traders.
Flow of Funds (Q3)
Eurozone: European Central Bank Meeting (No Change Expected)
China: CPI (Nov)
Japan: Economy Watchers Survey (Nov)
Consumer Sentiment and Inflation Expectations (Dec)
Click Here for our detailed Weekly Economic Calendar
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.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor