Market Update: Thursday, February 2, 2017

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  • Stocks turn lower as Fed, corporate earnings eyed. (10:30am ET) U.S. stocks are trading modestly lower a day after the Federal Reserve Bank (Fed) left interest rates unchanged. Investors are evaluating an earnings beat from Facebook and a revenue miss from Dow component Merck. Yesterday, the Nasdaq (+0.5%) gained on strength in the tech sector (+0.7%) while the S&P 500 closed near flat as gains in healthcare (+0.7%) were offset by weakness in utilities (-1.7%), telecom (-0.7%), and consumer staples (-0.6%) on firming yields. In Asia, the Nikkei (-1.2%) and Hang Seng (-0.6%) both declined, while the Shanghai Composite remained closed for the Golden Week holiday. European shares are mixed in afternoon trading; the U.K.’s FTSE 100 is up 0.6% on weakness in the pound spurred by lower-than-expected inflation forecasts. More broadly, the STOXX Europe 600 is lower by 0.1% as European banks are down on earnings. Meanwhile, WTI crude oil ($53.87/barrel) is flat, COMEX gold ($1222/oz.) is up 1.2%, and the yield on the 10-year Treasury note is lower by 4 basis points (0.04%) to 2.44%.

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  • FOMC stands pat as expected. The Fed’s policymaking arm, the Federal Open Market Committee (FOMC), decided to keep rates unchanged at the conclusion of its two-day meeting. Here is a side-by-side comparison of the statement released yesterday versus the statement released on December 14, 2016.  Per our Outlook 2017: Gauging Market Milestones, we continue to expect the Fed to raise rates two to three times in 2017. Please see yesterday’s blog post for more details.
  • Announced layoffs drop 40% from January 2016. U.S.-based firms announced plans to lay off 46,000 workers worldwide in January 2017, a 38% drop from the 75,000 layoffs announced in January 2016. Layoff announcement in the energy sector totaled just 1,800 in January 2017, down from 20,000 a year ago. Over the past 12 months, there have been 500,000 announced layoffs, a large absolute number, but still the fewest announced layoffs in any 12-month period since the late 1990s. At the worst of the Great Recession and its aftermath, there were more than 1.6 million announced layoffs in a one-year period.
  • Productivity exceeds lowered expectations, but remains well below trend. Output per man hour, or productivity, posted just a 1.0% year-over-year increase in Q4 2016, an improvement from the 0.1% year-over-year gain in Q3 2016, but still well below the pre-Great Recession pace of 2.5-3.0% seen in the 10 years prior to 2007. Slow productivity growth combined with a slow growing labor force keeps the lid on the maximum pace of gross domestic product (GDP) growth. Prior to the Great Recession, this maximum speed, or potential GDP growth rate ran above 3%. Today, it is closer to 1.5%.
  • Should you root for the Patriots? The always popular Super Bowl Indicator claims that the Dow does better for the year if an original team from the National Football League (NFC) wins versus a team from the American Football Conference (AFC). We looked at teams currently from the NFC versus AFC (ignoring the history of the franchise) and found that when the NFC wins, the Dow has been up 10.9% versus up only 4.3% if the AFC wins. Taking it a step further, when the Patriots have been in the Super Bowl (eight previous times), the full year gain has been only 0.3% with the return actually worse after they won. We will take a closer look at this fun indicator on the LPL Research blog later today.
  • The losing streak is over. The S&P 500 ended its four-day losing streak yesterday, even though it was up by only 0.03%. The real news came from the CBOE Volatility Index (VIX), as it traded beneath the 10 level on an intraday basis for the first time in 10 years (February 2007). In fact, this was only the 17th time that has happened since 1990, which puts it in the bottom 0.25% of all days. Volatility has been limited recently, and the VIX clearly shows this. The odds favor higher volatility soon, as the VIX rarely stays this low for long. For more on our thoughts on volatility and the VIX, be sure to read this blog post from Tuesday.

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Click Here for our detailed Weekly Economic Calendar

Thursday

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

Friday

 

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.

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