- Global markets up on earnings, ahead of Fed. (10:30am ET) U.S. indices are higher this morning, encouraged in part by better-than-expected results from tech giant Apple, an ADP employment report that came in well above consensus expectations, and a continuation of strong buying seen at the end of yesterday’s session. Traders will also be eyeing the Federal Reserve Bank (Fed) as it wraps up its first meeting of the year this afternoon; no change is expected in interest rates. The S&P 500 finished marginally lower Tuesday (-0.1%), while the Nasdaq closed flat and the Dow lagged (-0.5%). Healthcare (+1.4%) and utilities (+1.6%) saw notable strength while financials (-0.7%) underperformed. Overseas, traders are evaluating a slew of Purchasing Managers’ Index (PMI) reports. The Nikkei rebounded from early weakness to notch a 0.6% gain while many exchanges across Europe are up near 1%, boosted by upbeat corporate earnings. Elsewhere, WTI crude oil ($53.15/barrel) is up 0.7%, COMEX gold ($1201/oz.) is down 0.9%, and weakness in Treasuries has pushed the yield on the 10-year note higher to 2.51%.
- FOMC statement to be released at 2:00 PM ET today. The Fed concludes its first of eight FOMC meetings of 2017 today. The fed funds futures market is not pricing in a rate hike today. There is no press conference by Fed Chair Janet Yellen, nor is there a new set of economic forecasts or dot plots at this week’s meeting, only a statement. Fiscal policy is unlikely to get a mention. Please see this week’s Weekly Economic Commentary for details.
- Under new methodology, ADP employment report continues to suggest tightening labor market. Until recently, ADP, the nation’s largest payroll processing firm, used only its database of payroll data to make its estimate of private sector employment each month. A few years ago, ADP started adding other, publicly available data on employment to supplement its forecast. Effective as of the October 2016 report, ADP added oil prices, initial claims, consumer sentiment, and the Conference Board Leading Economic Index (LEI), so there is very little “new information” about the labor market in the ADP report. The January 2017 report found that the private sector economy created 246,000 new private sector jobs, 78,000 more than expected by the consensus of economists as polled by Bloomberg (+168,000). The December 2016 reading on ADP was essentially unrevised at +151,000. The ADP report, once a key input for making forecasts of the U.S. Bureau of Labor Statistics‘ jobs report, has faded recently as a forecasting tool, as it no longer relies on only its own, proprietary information. The U.S. Department of Labor will release the Employment Situation report on Friday, February 3. The consensus expectation is a job gain of 175,000 and an unemployment rate of 4.7%.
- Purchasing Managers Across the Globe. PMI data has come in across the globe, more or less as expected in most countries. Numbers across Europe were generally strong with Eurozone PMI at 55.2, ahead of both expectations and the previous month. In China, the PMI numbers have stayed above 50 as non-manufacturing PMI increased to 54.6. The global economy continues to expand with almost all countries participating. The one major exception is South Korea, where PMI fell to 49 from 49.4. In addition, South Korean industrial production declined 0.5% in December, worse than both expectations and November data.
- January is over and it was historically slow. The S&P 500 gained 1.8% last month, to extend the monthly winning streak to three in a row. Going back to 2012, the previous six times the S&P 500 was up three months in a row, it was up the following month. What was unique about last month was the lack of volatility. In fact, the S&P 500 traded in a monthly range (including intra-day data) of only 2.5%, which was the smallest range ever for January and puts it in the bottom 1.2% for all monthly ranges (data since 1970). Lastly, the S&P 500 hasn’t closed down 1% for three consecutive calendar months for the first time since 2006 and this was the first January since 2013 that didn’t see a 1% drop. The S&P closed at least 1% lower a record nine times in January 2016… what a difference a year makes!
- As goes January, so goes the year? Now that January is in the books, does it tell us anything about the rest of the year? A well-known trading axiom is the January barometer and it says ‘as goes January, so goes the year.’ In other words, if the S&P 500 is higher in January, then the rest of the year will be higher and vice versa if the first month is lower. Diving into the data, there does appear to be some truth to this, as the previous 40 times the S&P 500 was green in January (since 1950), the rest of the year was higher 88% of the time with an average return of 12.1%. What if January is lower? Then the rest of the year has been up only 1.2% on average and higher only 59% of the time. It is worth noting that each of the previous three years January finished lower and all three years rallied the final 11 months. Still, when January is higher (like 2017), the data would suggest potentially higher equity prices the remaining 11 months of the year. Today on the LPL Research blog we will take a closer look at the January barometer.
 Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
- 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
- UK: Bank of England Meeting (No Change Expected)
- China: Caixin Mfg. PMI (Jan)
- Employment Report (Jan)
- ISM Non-Mfg. (Jan)
- Evans* (Dove)
- EU Leaders Meet in Malta