- Markets look to end week on positive note. (9:55am ET) The major averages are higher in early trading, following a solid Employment Situation Report that showed an increase of 235,000 jobs and wage gains of 2.8% in February. Yesterday, a late-day rally in energy (+0.6%) helped stocks close slightly positive, this despite a continued fall in the price of oil; healthcare also climbed 0.6%, while real estate (-1.3%) was the worst performing sector. Overnight in Asia, equities were little changed with the exception of Japan’s Nikkei, which jumped 1.5% as the yen continues to weaken. European stocks are mostly higher; the STOXX Europe 600 is up 0.3% in afternoon trading following a swath of economic data releases. Finally, the yield on the 10-year Treasury sits near multi-year highs at 2.59%, WTI crude oil ($49.27/barrel) is flat, and COMEX gold (-0.3%) has fallen below $1200/oz. for the first time since January.
- Solid February jobs report keeps Fed on track to tighten. The Fed is likely to raise rates next week and at least two more times after that in 2017. The U.S. economy added 235,000 jobs in February 2017, exceeding expectations of a 200,000 increase. However, the recent booming report on ADP employment for February (+298,000) probably pushed the “whisper number” for today’s report well above the consensus of 200,000. The details of the report were solid, with a 0.1% drop in the unemployment rate to 4.7%, and an acceleration in average hourly earnings to +2.8% year-over-year from +2.6% in January 2017. The data all but cement the case for a 25 basis point rate hike by the Fed next week, and another two hikes after that in 2017 are nearly priced in by the market.
- Busy week ahead in a very busy month. As we noted in our recent Weekly Economic Commentary, March 2017 is an unusually busy month for global markets. Next week, the FOMC meeting, along with Bank of Japan and Bank of England meetings, are accompanied by an election in the Netherlands, a press conference by Chinese Premier Li and a ton of key U.S. economic data (retail sales, CPI, housing starts, leading indicators). President Trump will release his fiscal year 2018 budget document, the G-20 finance ministers meet in Germany, and the U.S. will hit its debt ceiling.
- Don’t completely ignore interest rate sensitive sectors. We continue to believe a modest allocation to real estate and/or master limited partnerships (MLP) make sense for tactical investors, especially income-oriented investors. While our macroeconomic and earnings growth outlooks-supported by this morning’s strong jobs report-continue to point to the economically sensitive sectors, fundamentals for MLPs and REITs are generally favorable and both offer diversification to the more economically sensitive areas of the equity market that we continue to like (technology, industrials and financials). We discussed real estate in our February 13, 2017 Weekly Market Commentary, and energy in our Weekly Economic Commentary on February 21, 2017.
- Weakness under the surface? Small caps were down for the sixth consecutive day for the first time since an eight-day losing streak in September 2015. Even though the S&P 500 is only 1.3% away from new highs, we have noticed a jump in new 52-week lows on the NYSE. In fact, four consecutive days have seen more 52-week lows than 52-week highs from NYSE issues, yet the S&P 500 is less than 2% away from an all-time high. July 2015 and December 2014 were the last two times that happened and both of those led to near-term corrections.
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- Employment Report (Feb)
- European Union leaders Summit in Brussels Continues
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.
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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.
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