Market Update: Thursday, January 12, 2017

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  • Global stocks mostly lower as healthcare weighs. (10:22am ET) U.S. equities are sharply lower in early trading after an up-and-down session Wednesday that saw the major indexes rebound after a midday selloff following President-elect Donald Trump’s news conference. The S&P 500 finished up 0.2%; sector performance was mixed as energy (+1.2%) and technology buoyed gains, while healthcare (-1.0%) tumbled on weakness in drugmakers and biotech shares; the selloff stemmed from Trump’s comments. Healthcare was also in focus overseas as major Asian indexes ended in negative territory; the Nikkei (-1.2%), Hang Seng (-0.5%), and Shanghai Composite (-0.6%) all fell. European markets are lower in afternoon trading, paring yesterday’s gains. Elsewhere, WTI crude oil ($52.93/barrel) continues to advance, U.S. dollar weakness is boosting COMEX gold ($1205/oz.), and 10-year Treasury yields are down 7 basis points (0.07%) to 2.31%.

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  • Claims move higher in the first week of 2017, but holiday distortions and early shutdowns of vehicle assembly plants are likely distorting the data. Initial claims for unemployment insurance rose 10,000 to 247,000 in the week ending January 7, 2017, as claims remain near the lowest level in more than 40 years. Record-cold weather in much of the nation during mid-December and some early shutdowns at auto plants likely artificially pushed claims higher in mid-December. The drop over the final few weeks of 2016 to as low as 235,000 was likely “payback” for that rise. Claims will remain subject to year-end, quarter-end, and holiday distortions for the next few weeks or so. The claims data continue to suggest that the labor market is tightening and that the Federal Reserve Bank (Fed) remains on track to do two to three rate hikes in 2017.
  • Bitcoin under investigation in China. Bitcoin, the digital currency that has gained notoriety in recent years, was back in the news yesterday as Chinese authorities announced investigations into local bitcoin exchanges. The crypto-currency was off more than 13% for the day against the dollar on the news, indicating that markets are concerned about implications for bitcoin’s biggest market (more than 90% of bitcoin trading happens in China). However we would expect a much larger drop if markets were concerned about a wholesale ban on bitcoin in China. We look at this move in more detail in today’s blog, available at lplresearch.com.
  • Strange start to 2017. We can all agree that big dip in 2016 and then huge rally in the face of two surprising votes made 2016 a year no one will soon forget. Well, 2017 has already done something we’ve never seen before, as the past three days the S&P 500 closed exactly at the lows (on Monday), closed exactly flat (on Tuesday), and closed at the high tick (Wednesday). Although this has never happened before, it does make sense considering how small the recent intraday ranges have been. In fact, the S&P 500 hasn’t traded in more than a 1% intraday range for 18 straight days, the longest such streak in more than two years.
  • No stopping the Nasdaq so far this year. After lagging the Dow and S&P 500 last year, the Nasdaq has been the leader out of the gate in early 2017. In fact, it has been green every day so far this year – that is seven for seven if you are scoring at home. The last time it did that was 2006 when it was up seven in a row, but that streak ended at seven. The all-time record to kick off a new year was 10 in a row in 1987. Additionally, the Nasdaq has made a new high five days in a row for the first time since December 1999.
  • Bumpy ride continues but healthcare value is compelling. Trump took aim at the drug industry in his press conference yesterday, sending both pharma and biotech shares lower. Policy uncertainty remains very high in healthcare, including the fate of the Affordable Care Act. However, valuations are compelling, direct congressional action targeting drug prices remains unlikely, and the impact the Trump administration can have through regulatory channels remains fairly limited. Although the group may continue to be volatile and headline risk will be very high for some time, we maintain our view that the intermediate- to long-term value in the group is compelling and suitable investors with patience may be rewarded in time.

 

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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)

 

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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.

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