Market Update: Wednesday, January 25, 2017

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  • Stocks build on Tuesday’s gains. (10:33am ET) The Dow has cleared 20,000 in intraday trading as U.S. equities follow European markets higher, adding to gains from yesterday’s session in which the S&P 500 moved up 0.7%. The advance was led by a more than 2.5% jump in materials, while telecom (-2.7%) declined amid a spike in Treasury yields; small caps handily outperformed as the Russell 2000 closed the day up 1.6%. Asian stocks finished mostly higher overnight; the Nikkei climbed 1.4% following data that showed Japan posted its first annual trade surplus in 6 years. European indexes are markedly higher in the afternoon session; the STOXX Europe 600 (+1.2%) is being led up by Spanish stocks (IBEX +1.6%). Meanwhile, the yield on the 10-year Treasury is up three basis points (0.03%) to 2.50%, and both WTI crude oil ($52.94/barrel) and COMEX gold ($1196/oz.) are lower.

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  • Nonpartisan Congressional Budget Office (CBO) releases its Budget and Economic Outlook for 2017-2027. Twice a year, the non-partisan CBO releases its outlook on the economy and budget for the next 10 years. CBO’s budget projections assume no changes to current law, and while that may not be a great assumption today given President Trump’s agenda, it does provide a good baseline. Under current law the budget deficit will move from 2.9% of GDP in FY 2017 to 5% of GDP in 2027. Over that time, the public debt-to-GDP ratio will move from 77% today to 89%. Over the next 10 years, 70% of the increase in debt is from due interest payments, Medicare and Social Security; those last two programs are driven by demographics. The report can be found here.
  • Which President was the best? The inauguration of President Trump last Friday brings up the timely question: Who was the best president ever for stocks? First off, the Dow gained 150% during President Obama’s eight years, which ranks as the 4th best out of the 19 Presidents since 1900. The largest return ever was a massive 255% jump in the Dow in just under six years under President Coolidge in the Roaring ’20s. The worst was the very next president, President Hoover, as the Dow crashed 83%. Today on the LPL Research blog we will take a closer look at this and share a chart of all equity returns under each president since 1900.
  • How low can you go? As the S&P 500 closed at another new all-time high yesterday, the CBOE Volatility Index (VIX) closed at 11.07–the lowest level since July 2014. In fact, this close is in the bottom 2% of all VIX closes since 1990. Why is the VIX so low? Realized volatility has virtually vanished, as the S&P 500 hasn’t traded in an intraday range of more than 1% for 26 consecutive days. Should the streak reach 27 days, it would be the longest such run since 1995.

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Wednesday

  • Germany: Ifo (Jan)

Thursday

Friday

Saturday

Sunday

  • 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.

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.

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