Market Update: Friday, February 10, 2017

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  • Stocks look to end week at record highs. (9:53am ET) The Dow, S&P 500, and Nasdaq all closed at record highs Thursday, and will look to do so again today as markets move up in early trading. All three indexes gained 0.6% yesterday, as the heavily-weighted financials sector (+1.4%) tracked higher with Treasury yields; small caps also outperformed with the Russell 2000 advancing 1.4% as well.  Overnight in Asia, Japan’s Nikkei jumped 2.5% as the Bank of Japan (BOJ) increased its bond purchases; other indexes in the region were modestly higher. European stocks are near their flat lines in the afternoon session (STOXX Europe 600, +0.1%), with the exception of Italy’s MIB, which is down 0.6%. Finally, Treasury yields are moving higher again, with the yield on the 10-year note up 2 basis points (0.02%) to 2.42%, WTI crude oil (+1.6%) is pushing towards $54/barrel and COMEX gold ($1230/oz.) is down 0.6%.

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  • Chinese trade expands. Data released this morning show expansion in both imports and exports when measured in both yuan and U.S. dollars; all figures were much larger than expected. The increase in exports suggests that the weaker yuan (4% decline in fourth quarter 2016) boosted exports. Although the data suggest an improving Chinese and global economy, data this time of year (given the importance of the New Year’s Holiday) can be very erratic and need further confirmation.
  • They said it couldn’t be done. For some very legitimate reasons, many oil market participants have questioned whether OPEC members would adhere to the production cuts agreed to at the November 30, 2016 meeting. OPEC members have a history of cheating. However, there has been a high degree of compliance with cuts several months into the latest agreement. Some countries, notably Saudi Arabia (still the most important country in OPEC), have actually reduced output more than they had agreed upon. This reduction has kept oil prices stable even as U.S. production has increased. This may make negotiations easier when the deal comes up for renegotiation this spring.
  • Tax reform takes center stage. One of the bigger challenges with the Trump agenda has been predicting how his administration will prioritize policy efforts. Of particular interest are the competing priorities of healthcare overhaul and tax reform. President Trump said yesterday that he will announce something “phenomenal” on taxes over the next two to three weeks, while his spokesman Sean Spicer, to the surprise of many, indicated personal tax reform will be included. The news gave stocks a lift yesterday and, although disappointment is possible, increases the likelihood that comprehensive tax reform is completed by year end, contrary to recent speculation that healthcare efforts would push tax reform into 2018.
  • Busy calendar next week includes Yellen testimony. Fed Chair Yellen’s semiannual monetary policy testimony to Congress highlights next week’s very busy economic and event calendar. In addition to Yellen, a half dozen other Fed officials are on the docket next week, as markets gauge whether or not the Fed will raise rates at its March 2017 meeting. The data due out next week on January CPI, retail sales, leading indicators, housing starts and industrial production, along with February reports on Empire State and Philadelphia Fed manufacturing and housing market sentiment, will weigh on the Fed’s decision. Overseas, Q4 GDP reports are due out in Japan, the Eurozone, Poland, and Malaysia, along with the always timely ZEW report (February) in Germany. There are no major central bank meetings next week.

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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.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

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.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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