Market Update: Friday, January 27, 2017

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  • Equities flat as investors digest earnings. (10:25am ET) U.S. indexes are little changed for the second straight day as investors sift through earnings, including from Dow component and tech bellwether Microsoft. The S&P 500 slipped 0.1% yesterday, with healthcare (-0.7%) the only sector to move more than 0.4%. Several Asian indexes were closed due to holidays, but Japan’s Nikkei gained 0.3% following the Bank of Japan’s announcement that it will increase government bond purchases. European equities are modestly lower in afternoon trading with the STOXX Europe 600 lower by 0.4%. Finally, WTI crude oil ($53.23/barrel) is off by 1%, COMEX gold ($1185/oz.) is lower by 0.4%, and the yield on the 10-year Treasury note is down slightly to 2.49%.

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  • Q4 GDP just short of expectations as trade deficit widens. Real gross domestic product (GDP) posted a 1.9% annualized increase between Q3 and Q4 2016, paced by solid consumer spending (+2.5%), capital spending (+3.1%), housing (+10.2%) and a big build in inventories as manufacturing recovered. The trade deficit widened, and both government spending and inventories were a modest positive for growth. The consensus was looking for a 2.2% increase in GDP, so the report was just shy of expectations. Looking ahead, we expect GDP to post growth of around 2.5% in 2017.
  • Core durable goods orders exceed expectations. This suggests business capital spending surge will persist into early 2017. Orders for nondefense capital goods excluding aircraft posted a 0.8% increase in December 2016, exceeding expectations of a 0.2% gain. Orders in November were revised higher and now show a 1.5% increase. The November reading was originally reported as a 0.9% gain. The upward revision to November along with the better-than-expected gain in December suggests that business capital spending (which rose 3.1% in Q4) should continue to be additive to GDP growth in the first half of 2017.
  • Very busy week ahead. Several times a year, the global economic and event calendar jams up with a dozen or so high-profile events, and next week is one of those weeks. The Federal Reserve Bank, the Bank of Japan, and the Bank of England all meet, and while none is expected to change policy, it’s the first meeting of the year for each. On the political front, the U.K. Parliament will vote on whether to authorize Prime Minister Theresa May to move forward with Brexit, and later in the week, the leaders of the European Union will meet to discuss what’s next. India will release its budget for 2017-2018, and China’s markets are closed for the Lunar New Year. Next week is an extremely busy week for data with January data on Institutions for Supply Management (ISM), vehicle sales, and the January employment report. Overseas data include GDP reports in the Eurozone, India, Mexico, and Indonesia.
  • What does the doctor say? Copper is known as Doctor Copper because it is used to create electricity, and thus, demand for the metal is viewed as a gauge of the overall global economy. After lagging for much of the past five years, copper surged right around the U.S. election and is currently near a fresh 52-week high. This is significant, as it might signal a better global economy, but it is also highly correlated with emerging markets (EM). Sure enough, with copper strength this year, EM is up more than 7% year to date as per the MSCI Emerging Markets Index and continues to look nice from a longer-term perspective. Today on the LPL Research blog, we will take a closer look at ol’ Doc Copper and what it could mean for equities and the economy going forward.

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Click Here for our detailed Weekly Economic Calendar

Friday

  • GDP (Q4)
  • Durable Goods Orders and Shipments (Dec)
  • Eurozone: Money Supply and Bank Lending (Dec)

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.

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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.

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