Market Update: Wednesday, February 15, 2017

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  • Stocks pause, yield rise continues after Yellen remarks. (10:12am ET) U.S. indexes are taking a breather in early trading after yesterday’s hawkish testimony from Fed Chair Yellen spurred a rally in financial stocks (+1.2%) that helped push the S&P 500 to a fourth record high in as many days. The healthcare (+0.7%) and consumer discretionary (+0.6%) sectors also outperformed, while rate-sensitive utilities (-0.7%) and telecom (-0.1%) lagged. Overseas, stocks in Asia finished mostly higher as the Hang Seng (+1.2%) and Nikkei (1.0%) led to the upside, while the Shanghai Composite (-0.2%) and India’s SENSEX (-0.6%) fell. Financial stocks are also boosting European markets as investors pile into banks and insurance firms; the STOXX 600 is up 0.4% midday. Meanwhile, the dollar is poised for a fifth day of gains and Treasury yields continue to push higher, currently up another 2 basis points (0.02%) to 2.49%; while WTI crude oil ($53.23/barrel) and COMEX gold ($1227/oz.) are near flat.

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  • Inflation picks up. The Consumer Price Index (CPI) accelerated to 2.5% year over year in January, rising 0.6% month over month versus consensus expectations of 0.3%. Removing the volatile food and energy components, the index rose a more modest 0.3% versus expectations of 0.2%. The 2.5% year-over-year change is the highest in almost five years and continues to make the case for 2-3 Federal Reserve Bank (Fed) rate hikes in 2017.
  • Retail sales surprise to the upside. Retail sales for January surprised to the upside, confirming the improving health of U.S. consumers. Sales grew 0.4% versus expectations of a 0.1% increase, on top of a solid revision of December 2016 data from 0.6% to 1.0%. Sales growth ex-auto and gas was even stronger, rising 0.7% versus consensus expectations of 0.3%, although on top of a smaller revision for December. The strong start to the year helps set a solid, very early pace for gross domestic product (GDP) growth to accelerate in 2017 from +1.9% growth in 2016.
  • More new highs. More all-time highs were made across the board yesterday, with the Dow, S&P 500, and Nasdaq all participating. Small caps and mid caps, as measured by the Russell 2000 and Russell Midcap Index, respectively, made new highs as well. Along the way, the S&P 500 is up six days in a row for the first time since December. The past three times it was up six days in a row, it fell on day seven. The last time the S&P 500 was up seven days in a row was September 2013. The real action is coming from the Nasdaq, as it has made a record high for six straight days for the first time since late December 1999, near the end of the tech bubble. Today on the LPL Research blog we will take a look at whether or not we could be in another tech bubble.

 

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • CPI (Jan)
  • Retail Sales (Jan)
  • NAHB Housing Market Index (Feb)
  • Fed Chair Yellen’s Semiannual Monetary Policy Testimony to Congress-House

Thursday

  • Housing Starts (Jan)
  • Philadelphia Fed Mfg. Report (Feb)
  • G-20 Foreign Ministers meeting
  • Eurozone: Account of the 01/19/17 European Central Bank meeting released

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.

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.

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