Market Update: Friday, January 20, 2017


  • 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.


  • 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.



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


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