Market Update: Wednesday, January 18, 2017

MarketUpdate_header

  • Domestic stocks flat; CPI and earnings in focus. (10:10am ET) The S&P 500 is unchanged in early trading as investors evaluate in-line CPI (Consumer Price Index) data and earnings reports, including those from financial bellwethers Goldman Sachs and Citigroup. The S&P will look to reverse yesterday’s 0.3% loss; financials (-2.3%) and industrials (-0.8%) led the decline as defensive sectors consumer staples (+1.4%) and utilities (+1.2%) outperformed in the first trading session of the week. Overseas, the Nikkei (+0.4%) and Shanghai Composite (+0.1%) finished higher, while in Europe, shares are little changed with the STOXX Europe 600 flat. Finally, WTI crude oil ($51.51/barrel) is off 1.9%, COMEX gold ($1214/oz.) is up 0.1%, and the yield on the 10-year Treasury note has rebounded to 2.37%.

MacroView_header

  • Higher energy prices have now pushed CPI above the Fed’s 2% target. Headline CPI rose 2.1% year over year in December 2016, accelerating from the 1.7% year-over-year gain in November 2016 and recent lows (2015) of -0.1 to -0.2% year over year. The December 2016 reading was the strongest since mid 2014. Core CPI rose 2.2% year over year in December 2016, a modest acceleration from the 2.1% increase in November. Beneath the surface, the CPI for services (two-thirds of CPI) posted a 3.1% gain over the past year–the strongest reading in more than  eight years–while the CPI for goods (one-third of CPI and largely driven by food and gasoline prices) rose 0.5% over the past year, the first year-over-year increase since mid 2014. As we approach the anniversary of the worst of the oil price declines in Q4 2015 and Q1 2016, the goods category should turn positive and drive headline inflation well above 2% in early 2017.
  • Where did the volatility go? The S&P 500 has gone 66 straight days without a 1% close lower, tying the streak from the summer of 2014. Going back 45 years, this is tied for the 10th longest streak without a 1% drop. So the S&P 500 isn’t seeing any big drops, but it is also having trouble making new high ground. Over the past month it has traded in a range of only 1.7% (using closing prices) – one of the smallest monthly ranges over the past 10 years. Additionally, the intraday ranges have been historically small as well, as the S&P 500 has now gone 21 consecutive days without a 1% daily range. That hasn’t happened since 25 in a row in late 2014. Today on the LPL Research blog we will take a closer look at the recent action on the S&P 500 and what it could mean.
  • Time for more volatility? The CBOE Volatility Index (VIX) has a long-term average near 20, yet each of the past five years has averaged below this mark. The longest streaks ever beneath the long-term average were six years in the 1990s and four years in the 2000s. In other words, this lull in volatility could be nearing the end of its run. This extended low-volatility period, coupled with economic uncertainty, increases the chances for higher volatility later this year, despite some upside growth prospects with the new administration.

MonitoringWeek_header

Wednesday

  • CPI (Dec)
  • Kashkari* (Dove)
  • Yellen* (Dove)
  • China: Property Prices (Dec)

Thursday

Friday

  • Inauguration Day
  • Harker* (Hawk)
  • U.K.: Retail Sales (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.

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

Member FINRA/SIPC
Tracking #1-573218