Market Update: Thursday, February 9, 2017


  • U.S. stocks follow global markets higher. (10:30am ET) The S&P 500 is moving upward in early trading, continuing momentum seen in Asia and Europe. Yesterday’s session saw little change for the third straight day as the S&P closed higher by 0.1% and the Dow Jones Industrial Average lost 0.2%. Real estate and utilities both gained 0.9%, as Treasury yields fell sharply.  Japan’s Nikkei (-0.5%) bucked the trend in Asia after a Bank of Japan (BOJ) official stated that the economy was still in need of monetary support. Gains in European stocks are being led by financials as falling bond yields take a breather; the STOXX Europe 600 is up 0.6%. Meanwhile, the yield on the 10-year Treasury has rebounded to 2.37% after yesterday’s 6 basis point (0.06%) decline, WTI crude oil ($53.06/barrel) is up by 1.4%, and COMEX gold ($1237/oz.) is lower.



  • Economy likely to do well even if none of Trump’s pro-growth policies pass, but anti-growth trade and immigration policies are still a concern. With the stroke of a pen, a president can impact regulation governed by the executive branch of the federal government and have a large impact on trade and immigration policies. Trump has already loosened regulation across several industries, and more deregulation is likely on the way that should boost “animal spirits” and support economic growth. The economy was in a deep recession with a fiscal response necessary in 1981 (President Reagan passed his tax cut) and 2009 (President Obama passed his $787 billion stimulus package). Today, the economy-although not booming-is operating close to full employment and is not in immediate need of fiscal stimulus.  As we noted in our Outlook 2017, the greatest risks in Trump’s policies lie in potentially restrictive trade and immigration policies.
  • Still no signal from claims. Initial claims for unemployment insurance remained pinned to 40-year-plus lows in the latest week, and continue to suggest that the labor market is tightening. Our work has found that claims do provide a recession signal when they rise between 75,000 and 100,000 over a six-month period. Six months ago, claims were running in the 260,000 to 270,000 per week level. Over the last four weeks, claims have averaged 244,000 per week, so claims are running roughly 20,000 below six-month-ago levels and are not signaling a recession.
  • Earnings beat rate has improved nicely over the past couple of weeks. After a slow start to fourth quarter earnings season, a solid 69% of S&P 500 companies that have reported have now bested Thomson-tracked consensus estimates, pushing the year-over-year earnings growth rate for the S&P 500 to 8.3%–nicely above the 6.1% consensus growth rate as of January 1, 2017. The season is far from over (about 62% of S&P 500 companies have reported thus far), so we would expect some more upside before we are done. More on earnings is coming in our weekly update on Monday.
  • Energy poised to break earnings growth drought. It’s been two years since the energy sector produced a year-over-year gain in quarterly earnings but it is poised to do so for the fourth quarter of 2016-growth is now tracking to +1%. The sector is only about halfway done reporting, but a gain looks likely with the sector buoyed by higher oil prices. Although oil prices may be at a near-term plateau and the refining business has been difficult, we continue to expect the sector’s earnings rebound to play a big role in driving mid- to high-single-digit earnings growth for the S&P 500 in 2017.



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  • Mexico: Central Bank Meeting (Rate Hike Expected)
  • China: Money Supply and New Loan Growth (Jan)
  • China: Imports and Exports (Jan)




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