Market Update: Friday, January 20, 2017

MarketUpdate_header

  • U.S. up, overseas mixed ahead of inauguration. (9:50am ET) Major domestic indexes are moving higher this morning as the world prepares for a new U.S. president to be sworn into office; earnings beats from General Electric, Proctor & Gamble, and several regional banks are also in focus. Today’s move follows a choppy session on Thursday that lowered the S&P 500 by 0.4%; nine of 11 sectors fell with utilities (-0.9%) and energy (-0.7%) the laggards while industrials (+0.6%) and telecom (+0.3%) managed to buck the trend. Overseas, European stocks are trending sideways while Asian stocks finished mixed ahead of Donald Trump’s inauguration. China’s Shanghai Composite rose 0.7% after Q4 GDP data beat expectations and Japan’s Nikkei gained 0.3% on short covering; the Hang Seng (-0.7%) slipped. Elsewhere, less hawkish comments yesterday from Fed Chair Janet Yellen are spurring dollar weakness, WTI crude oil ($53.38/barrel) is up for a second day, COMEX gold ($1200/oz.) is flat, and 10-year Treasury yields (2.49%) are again moving higher after a 14 basis point (0.14%) move over the last two days.

MacroView_header

  • Post inauguration weakness? History suggests stocks may take a breather following today’s presidential inauguration. Going back to Eisenhower’s inauguration in January 1953[1], the S&P 500 has tended to see a near-term bounce into early February before selling off during the rest of the month. In fact, February has seen the worst monthly return during a post-election year, with the S&P 500 down 1.8% on average, with worse performance after a  Republican is sworn in. We tackled the subject here. Politics and seasonality aside, we would not be surprised if stocks took a pause to digest post-election gains–the S&P 500 is up 6% since Election Day.
  • Key policies to watch. Our 45th president will get right to work Monday on his aggressive agenda to reform the tax code, healthcare, financial regulations, and trade relationships (some lower-profile actions may occur today). Infrastructure spending may also get some attention in the first 100 days although it may be put on the back burner until significant progress is made on the Administration’s top priorities. We see the most potential for market-moving developments from corporate tax reform, particularly the corporate tax rate, and trade relationships, so we will watching these areas most closely in the weeks ahead.
  • Chinese GDP growth reported at 6.8% through end of December. This is slightly better than the official estimate of 6.7% growth but in line with the projected range. This is the slowest recorded expansion since 1990. Retail sales gained 10.9%, slightly better than expectations. While industrial production and fixed assets (basically infrastructure and industrial building) were both slightly lower than expected. Since no one takes these numbers at face value, why do they matter? We believe that how China reports this data says a lot about how the Chinese government views itself. A stronger-than-expected data release suggests that China is placing itself in a strong position. This may help to stabilize the yuan, but also may set the tone for trade negotiations with the Trump administration.
  • Down five in a row. The Dow was red again yesterday, now down five days in a row. What is unique about this weakness though is the Dow is down only 1.1% during this streak, making it one of the smallest five-day losing streaks ever. Other times that saw similar, small five-day losing streaks were July/August 2016, November 2006, and June 1996. In other words, what we’ve seen over the past week is historically very rare. It doesn’t stop there though, as this five-day losing streak has taken place so close to new highs. As of last night, the Dow was only 1.2% away from new highs, the closest it has been since August 2016 and November 2006. Lastly, the past two times the Dow was red five days in a row, it was red on day six (November 2016 and July 2016).

[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.

MonitoringWeek_header

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 #1-574150