Market Update: Wednesday, January 11, 2017

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  • U.S. steady, overseas stocks rise ahead of Trump speech. (10:05am ET) U.S. equities remain in a holding pattern ahead of this morning’s press conference by President-elect Donald Trump, and as traders gear up for the start of earnings season, which kicks off Friday. Yesterday saw the S&P 500 finish unchanged with six of 10 sectors advancing; financials (+0.4%) and consumer discretionary (+0.4%) gains were offset by outsized declines in energy (-1.0%) and consumer staples (-0.6%). Overnight trading in Asia saw major indexes rise ahead of Trump’s press conference as investors anticipate comments suggesting a less-protectionist stance on foreign trade, and an uptick in global inflation is boosting commodity stocks across the region. The Nikkei rose 0.3%, and the Hang Seng jumped 0.8%; the Shanghai Composite fell 0.8% amid profit taking. European equities are up moderately in afternoon trading (STOXX 600 +0.5%); the UK’s FTSE 100 is looking to post its 12th straight gain. WTI crude oil ($51.39/barrel) is rebounding this morning after two days of losses, while COMEX gold ($1183/oz.) and 10-year Treasury yields (2.38%) are little changed.

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  • What to watch in President-elect Trump’s press conference. President-elect Trump will hold his first press conference since the election today at 11am ET. From a market perspective, we are most interested in details on the administration’s plans for trade policy, corporate tax reform (including the potential to use tax policy to encourage exports and discourage imports), and the fate of the Affordable Care Act; any commentary on infrastructure spending and financial deregulation would also be noteworthy. We see tax reform as potentially the biggest policy positive for stocks, although some of that optimism is priced in at this point, while we continue to see protectionist trade policy as the biggest policy risk, at least in the near term.
  • Could there be a post-election sell-off? With the inauguration only 10 days away, many are wondering if we could see a ‘sell the news’ type of event. Looking at all the inaugurations dating back to Eisenhower’s in January 1953[1], the S&P 500 tends to see a near-term bounce in early February, but the full month of February has been very tricky. In fact, the shortest month of the year sports the worst monthly return during a post-election year, with the S&P 500 down 1.8% on average. Additionally, we found there is more weakness after a Republican is sworn in versus a Democrat. Today on the LPL Research blog we will take a closer look at this very important question.
  • Do the first five days of the year matter? This time of year many note how the first five trading days of the year are a good indicator for how the full year will go. Although we were skeptical of this at first, it turns out there is some very compelling evidence to this argument. As we noted yesterday on the LPL Research blog, when the first five days are higher for the S&P 500, the full year is higher 81% of the time. Compare this to the full year being higher only 56% of the time when the first five days are red. Even more interesting is what happens when the S&P 500 is up more than 1% those first five days: the entire year is higher 88.5% of the time (23 of 26 years). This is meaningful as the S&P 500 was up 1.3% after five days this year.
  • How about that, a flat day. The S&P 500 closed exactly flat yesterday, for a change of 0.00 points. Now take note there are technically more decimal points after the first two, but we cut it off at only two decimal points for this study. The last time the S&P 500 had a flat day was January 3, 2008. Interestingly, the past three flat days have now taken place in the month of January with January 1997 also seeing a flat day. Going back further, there have been 10 flat days since 1980 and the last time the S&P 500 was flat two days in a row was late August 1979. Lastly, the record for flat days in a row was an incredible three in a row during April 1943. The S&P 500 is now up to 17 consecutive days without a 1% intraday range and yesterday’s flat day only adds to the tight trading range for equities

[1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1953 incorporates the performance of predecessor index, the S&P 90.

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Wednesday

  • Trump News Conference
  • Brazil: Central Bank Meeting (Rate Cut Expected)

Thursday

  • Initial Claims (1/7)
  • Yellen (Dove)
  • Harker (Hawk)
  • China: Imports and Exports (Dec)
  • Japan: Economy Watchers Survey (Dec)

Friday

Saturday

Sunday

  • Japan: Machine Orders (Nov)
  • Japan: PPI (Dec)

 

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.

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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.

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