Market Update: Monday, January 30, 2017

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  • Markets sell off ahead of Fed meeting, corporate earnings. (10:15 am ET) Stocks are down across the globe as investors await key central bank meetings this week and another string of high profile corporate earnings. The S&P 500 drifted 0.1% lower in an unremarkable session Friday; gains in healthcare (+0.8%) and telecom (+0.7%) were offset by losses in energy (-0.9%) and real estate (-0.9%). Many markets were closed Monday in Asia to mark the Lunar New Year, although Japan’s Nikkei Composite slid 0.5% as investors sought safety in the yen following President Trump’s executive order on immigration. In Europe, both bonds and stocks are lower in afternoon trading following German inflation data, which came in at the highest level in more than three years. Meanwhile, WTI crude oil ($52.76/barrel) is lower, COMEX gold ($1192/oz.) is up modestly, and the yield on the 10-year Treasury is down a basis point to 2.48%.

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  • Little upside in Q4 numbers but there are bright spots. With 169 S&P 500 companies (about 34% of the index) having reported results for the fourth quarter of 2016, year-over-year earnings growth is tracking to a 6.8% increase. Although that pace is better than the 4.3% pace in the prior quarter, the modest upside to prior (January 1, 2017) estimates is disappointing. Financials and technology results are among the bright spots, while we are encouraged by the increase–albeit modest–in overall S&P 500 estimates for the second half of 2017 that at least partly reflect policy upside and the oil rebound. This week is one of the biggest of the season with 109 S&P 500 companies slated to report fourth quarter results.

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  • Still value in value? Despite its strong 2016, there may still be some value in value. While value (based on the Russell 1000 Value Index) has lagged its growth counterpart so far in 2017, we see several reasons to like value stocks, including accelerating economic and profit growth and the better outlook for financials. But we believe the growth side has enough going for it, including a positive outlook for the technology sector and attractive relative valuations, that we suggest investors generally maintain balance across the styles. We discuss our latest style views in this week’s Weekly Market Commentary, due out later today.
  • 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 this 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. This week is an extremely busy week for data with January data on Institute for Supply Management (ISM), vehicle sales, and the January employment report. Overseas data include GDP reports in the Eurozone, India, Mexico, and Indonesia.
  • More small ranges. We’ve been talking about the slow action lately and last week was no different. In fact, the daily range for the S&P 500 on Friday was only 0.32%–which is in the bottom 1% of all daily ranges since 1970. Incredibly, Thursday was actually a smaller range. Even though the S&P 500 was down the last two days of the week, it was one of the 18 smallest two-day losing streaks (down 0.16%) since 2000. Lastly, the S&P 500 has now gone 29 consecutive days without a 1% intraday move, the longest such streak since late 1995. Today on the LPL Research blog we will take a closer look at this and what it could mean.
  • Dow 30,000? Barron’s had a cover over the weekend titled “Next Stop Dow 30,000” and as you might expect, it caused quite a stir. Many noted this cover could be a  bearish signal, as the well-known ‘magazine cover indicator’ is used as a contrarian indicator. Once something is so universally agreed upon and it makes the cover of a magazine, the trend very well could be closer to the end than the beginning. The classic example of this is the “Death of Equities” BusinessWeek cover that came out near the 1982 low in equities. Turning to the Barron’s article, what is important to note is the forecast of 30,000 by 2025 – which comes out to about a 5% annual gain, well in line with the long-term average for the Dow. So maybe this cover isn’t quite as outlandish as it might appear at first blush.

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Sunday

  • Chinese Lunar New Year; Chinese Markets Closed All Week

Monday

  • Germany: CPI (Jan)

Tuesday

  • Employment Cost Index (Q4)
  • Chicago Area PMI (Jan)
  • Eurozone: GDP (Q4)
  • Eurozone: CPI (Jan)
  • Germany: Unemployment Change (Jan)
  • UK Parliament Begins Debate on Article 50 (Brexit)
  • Japan: Bank of Japan Meeting (No Change Expected)
  • China: Official Mfg. PMI (Jan)
  • China: Official Non-Mfg. PMI (Jan)
  • India: GDP (2016)

Wednesday

  • ADP Employment (Jan)
  • ISM Mfg. (Jan)
  • Vehicle Sales (Jan)
  • FOMC Statement
  • UK Parliament Expected to Vote on Authorizing Article 50 (Brexit)
  • India: 2017-18 Budget Speech

Thursday

  • UK: Bank of England Meeting (No Change Expected)
  • China: Caixin Mfg. PMI (Jan)

Friday

  • Employment Report (Jan)
  • ISM Non-Mfg. (Jan)
  • Evans* (Dove)
  • EU Leaders Meet in Malta

 

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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