Market Update: Wednesday, March 15, 2017

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  • Global stocks mixed as Fed decision looms. (10:26am ET) The S&P 500 is moving higher this morning as traders await this afternoon’s policy announcement from the Federal Reserve, with an interest rate hike all but a foregone conclusion, and digest a spat of economic data including consumer prices and retail sales. Yesterday saw major indexes slip as the S&P 500 lost 0.3%; 10 of 11 sectors finished lower, led down by energy (-1.1%) and industrials (-0.9%). Overseas markets are mixed as equities in Asia were mostly lower, the Nikkei and Hang Seng both shed 0.2%, though the Shanghai Composite ticked up 0.1%. Meanwhile, European stocks are up in midday trading, led by basic resources and oil stocks on the back of a rebound in WTI crude oil ($48.53/barrel) prices. Lastly, COMEX gold ($1199/oz.) continues to inch lower, and Treasury yields are down 2 basis points (0.02%) to 2.58%.

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  • Headline and core CPI above Fed’s 2% target, but for how long? The Consumer Price Index (CPI) posted a 2.7% year-over-year increase in February 2017, matching expectations, and accelerating from January (+2.5%). Core CPI (excludes food and energy) rose 2.2% from a year ago, matching expectations, and decelerating from January (+2.3%). Both readings are above the Fed’s 2% target, and help to cement the Fed’s likely 0.25% hike at today’s FOMC meeting. The headline reading has been boosted by a 15.2% year-over-year increase in energy prices, as we reached the anniversary of the January/February 2016 oil price lows of under $30 per barrel. While core CPI is likely to continue to drift higher, headline CPI is likely to level off and decelerate over the second half of 2017 assuming oil prices stay in the $50 per barrel range.
  • Q1 GDP estimates may rise on retail sales. February retail sales were largely in line, but solid upward revisions to January data will likely push up Q1 GDP estimates. Retail sales, as reported by the Department of Commerce each month, are a timely but not very comprehensive (retail sales are well under 20% of total consumer spending) look into the consumer. In February, overall sales rose 0.1% from January, matching expectations. However, January’s reading-initially reported as a 0.4% gain-was revised up to show a 0.6% increase. Core retail sales (excluding autos, building materials, and gasoline) also rose 0.1% in February, but the January reading was revised substantially higher from 0.4% to 0.8%. Core retail sales feed directly into the nondurable consumer goods portion of consumer spending.
  • Crude bounce. Crude is up after falling the previous seven days and 10 of the past 11. Record output in the U.S. has been cited as one reason for the weakness. Crude oil closed beneath its 200-day moving average on very high volume earlier this week. The 200-day moving average served as support on pullbacks in August and again in November. Will the third time be a charm again?
  • March bounce? We’ve noted before that March is the best-performing month for the S&P 500 the past 10 years, but what is interesting is most of those gains take place the second half of the month. Today on the LPL Research blog we will take a closer look at the positive seasonals in mid March and also list some of our favorite sector plays.

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Wednesday

  • Empire State Mfg. Report (Mar)
  • CPI (Mar)
  • Retail Sales (Mar)
  • FOMC Decision (Rate Hike Expected)
  • FOMC Economic Forecasts and “Dot Plots
  • Yellen Press Conference
  • General Election in the Netherlands
  • China’s Premier Li Holds Annual Press Conference

 Thursday

  • Philadelphia Fed Mfg. Report (Mar)
  • US Debt Ceiling Reinstated
  • President Trump to Release His FY 2018 Budget
  • UK: Bank of England Meeting (No Change Expected)
  • Japan: Bank of Japan Meeting (No Change Expected)

 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.

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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