Market Update: Tuesday, January 24, 2017


  • Markets little changed as investors digest earnings reports. (10:33am ET) Stocks are slightly higher in early trading following a flurry of corporate earnings reports. The major indexes all posted modest losses to begin the week, with the S&P 500 dropping 0.3%. As measured by the S&P GICS Sector Indices, energy (-1.1%) and financials (-0.6%) led the way lower, while real estate (+0.6%) was the top performer on the day. Overnight in Asia, stocks were mostly higher with the exception of the Nikkei (-0.2%), which fell for the second straight day. European stocks are trading near flat in the afternoon session following Purchasing Managers’ Index (PMI) reports that came in near consensus; the STOXX Europe 600 is up 0.1% while Italy’s MIB is climbing 0.9% on the back of gains in financials. Finally the yield on the 10-year Treasury is up to 2.44%, WTI crude oil ($53.18/barrel) is higher by 0.8%, and COMEX gold ($1215/oz.) is down slightly.


  • Last week was volatile for fixed income with negative returns for all sectors. Strong economic data, which signaled higher inflation, led investors to shed fixed income during the holiday-shortened week. Weekly jobless claims fell to a two-month low, housing starts improved, and the core Consumer Price Index (CPI) came in at 2.2%, higher than the Federal Reserve Bank’s (Fed) target rate of 2%. The data added inflationary pressure to the market, leading all fixed income sectors to be negative for the week.
  • Treasury prices rose early, but finished the week lower in price. Treasury prices rose and yields fell on Tuesday from 2.40% to 2.33% on comments made by the incoming administration that the U.S. dollar was too strong. However, the higher prices quickly dissipated with the 10-year fading on Wednesday through Friday on stronger-than-expected economic data. The 10-year finished the week lower in price, as the yield moved from 2.40% to 2.48%.
  • Yield curve steepened for week. The 2-year Treasury was unchanged on the week, while the 10-year finished higher by 8 basis points (0.08%). This brings the 2-year to 10-year slope, a measure of the steepness of the yield curve to 1.28%. A steeper, more positive yield curve generally indicates that the market anticipates higher interest rates and more growth. As such, investors require more yield as they move longer on the yield curve. The 2-year to 30-year yield slope was also wider on the week by 0.04% to 1.84% basis points, as the 30-year Treasury bond finished higher by 0.06% to 3.05%.
  • Inflation expectations reach the 2% level. Inflation expectations, as measured by the 10-year breakeven inflation rate, rose last week from 1.95% to 2%, according to Fed economic data. The 2% level is important as this matches the Fed’s 2% inflation target. This is the highest reading year to date. Additional economic strength and improving oil prices could cause inflation to move higher.
  • Municipals credit spreads moved higher on the week. High-yield municipal bonds outperformed investment-grade municipals on the week on a total return basis; however, credit spreads as measured by the difference between the Bloomberg AAA Municipal Index and the Bloomberg Baa Index widened by 4 basis points. The Baa index finished the week at 3.78%, up from 3.67% on Tuesday. The AAA index finished the week at 2.14% up from 2.07%. This signals that buyers preferred the relative safety of higher-quality bonds, leading lower-rated bonds to move cheaper in price. We delve into municipal high yield in greater detail in this week’s Bond Market Perspectives, due out later today.
  • U.S. manufacturing off to a bright start in 2017. The PMI for manufacturing–a key and very timely gauge of U.S. manufacturing sentiment–moved to 55.1 in January 2017 from 54.3 in December 2016, exceeding the consensus expectation of a 54.5 reading. The 55.1 reading in January was the highest in two years and marked the fifth consecutive month of improvement for the index, which dipped in 2015 and 2016 as manufacturing activity related to oil production lagged.  Although manufacturing activity accounts for only about 15-20% of GDP, the January PMI data suggest that Q1 2017 GDP is off to a solid start. Q4 2016 GDP will be reported on Friday, January 27. The market is expecting a 2.2% increase in GDP after the 3.5% gain in Q3 2016.
  • The more things change, the more they stay the same. The incredible lack of equity volatility continues. Many thought the inauguration would spark some volatility, but it hasn’t. The S&P 500 has now gone 70 days in a row without closing 1% lower, the longest streak since 94 in a row in 2006. It has closed within 1.5% of the all-time high for 50 consecutive days, the longest run since 72 in a row in 1995 and 2014. Lastly, the S&P 500 hasn’t had a 1% intraday move for 25 consecutive days, tying the longest streak since late 2014.




  • Markit Mfg. PMI (Jan)
  • CBO Releases its Economic and Budget Outlook for 2017-2027
  • Eurozone: Markit Mfg. PMI (Jan)
  • UK Supreme Court Rules on Brexit/Article 50


  • Germany: Ifo (Jan)





  • Japan: Retail Trade (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.

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