Market Update: Thursday, December 23, 2016


  • Stocks tread water as holiday mindset settles in. (10:20am ET) U.S. markets are flat in early trading, appearing likely to continue this week’s trend of little action on low volume. Yesterday’s session saw the major indexes move modestly lower; retail stocks led the Nasdaq (-0.4%) to underperformance relative to the S&P 500 (-0.2%), while telecom (+1.0%) and energy (+0.5%) led sector performance. Asian stocks were mostly lower overnight, with the Shanghai Composite dropping 0.9%; the Nikkei was closed for a holiday. European indexes are little changed in afternoon trading; the STOXX Europe 600 is up 0.1%, while Italy’s MIB (+0.8%) outperformed for the second straight day. Finally, WTI crude oil ($52.82/barrel) is down by 0.3%, COMEX gold is up slightly to $1,134/oz., and the yield on the 10-year Treasury is down 2 basis points to 2.53%.


  • European bank clarity. At least we are starting the New Year with a clean slate on some of the European bank problems. The two major firms with outstanding litigation issues, Deutsche Bank and Credit Suisse, have settled with the Department of Justice, agreeing to pay to consumers a combined $12.5 billion in fines and compensation related to the mortgage crisis in 2008. Both stocks were up early this morning, but only marginally, as the final settlement was in line with expectations, and perhaps even a little more punitive in the case of Deutsche Bank.
  • Quiet week ahead. The week between Christmas and New Year’s Day is typically a quiet one for economic data and events, and next week’s calendar fits that pattern. In the U.S., reports on manufacturing in December from the Richmond and Dallas Federal Reserve Banks, reports on home prices and pending home sales, consumer confidence, the weekly report on initial claims, and the first look at the trade deficit in November are all on tap. Overseas, aside from the November bank lending data, there is very little on the European data calendar. Japan will release data on industrial production, housing, retail sales, CPI, and employment, as it does in the last week of every month. China will release key PMI data for manufacturing on New Year’s Eve and New Year’s Day. There are no major central bank meetings or speakers scheduled for the U.S. or abroad next week.
  • How slow have things been? Volume is normally light and things are historically slow this time of year, but this year is even slow for the slow time of year. Incredibly, the S&P 500 has traded in an intraday range of less than 0.35% for the past three days. Using reliable intraday data back to 1970, this is the first time this has ever happened. Looking at all four days so far this week, every day has had an intraday range of less than 0.45%. The last time we saw that happen four days in a row was right before New Year’s Eve in 2014.
  • Here comes Santa. As we mentioned yesterday, today is the official start of the well-known Santa Claus Rally. This historically bullish time-frame for equities is the last five days of the year and the first two days of the following year. Going back to 1950[1], during these seven days the S&P 500 has been up an average of 1.4% and higher 77.3%. What is worth following closely this year though is if Santa doesn’t come. Looking at the past two years, these normally bullish seven days were red, which led to substantial drops in January at down 3.1% and 5.3%, respectively. In other words, Santa not coming was a warning sign. Be aware that these seven days haven’t been lower three consecutive years since 1946, 1947, and 1948. We took a closer look at this phenomenon early this week on the LPL Research blog.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90




New Home Sales (Nov)

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

Tracking # 1-566627