Market Update: Thursday, March 16, 2017

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  • Stocks gain after Fed hikes rates. (10:09am ET) Global equity markets continue to climb this morning after the Federal Reserve raised its fed funds target rate by 25 basis points (0.25%) Wednesday afternoon, affirming its confidence in the strength of the U.S. economy and helping the S&P 500 post a 0.8% gain. A rebound in oil (+2.4%) boosted energy stocks (+2.1%) to the top of the daily leaderboard, while financials (-0.1%) was the only sector to close lower. Asian indexes also rallied as the Hang Seng jumped 2.1% and the Shanghai Composite added 0.8%, although the Nikkei eked out only a 0.1% gain. European shares are broadly higher in midday trading; the STOXX 600 is trading 0.7% higher at a fresh 15-month high as traders bid up natural resources and bank stocks likely to benefit from the reemergence of inflation. Elsewhere, WTI crude oil ($48.75/barrel) has given up early gains, COMEX gold ($1228/oz.) is trading firmly higher, and the 10-year Treasury is currently yielding 2.53%.

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  • FOMC raises rates. No surprise surrounding the 0.25% hike, but the tone of the statement, dot plots, forecasts and press conference were all less hawkish than expected. Read more in our FOMC blog from yesterday.
  • Improving economic data point to more rate hikes. Data released this morning on initial claims for unemployment insurance for the week ending March 11, housing starts for February, and Philadelphia Fed Manufacturing for March were all solid and reinforced the Fed’s view that the economy is improving. Claims remained near 43 year lows and have dropped by 19,000 over the past six months. Claims have to rise by at least 75,000 over six months to indicate a recession. The bounce in housing starts in February may have been weather related (it was unusually warm in February), but housing fundamentals remain solid despite rising mortgage rates. The March reading on the Philadelphia Fed manufacturing index was the latest in what is now a 6-month stretch that shows improving conditions in the manufacturing sector.
  • The President proposes but Congress passes. President Trump released his first budget (for FY 2018, which begins October 1, 2017) this morning. As has been the case for many decades, the President’s budget is viewed as more of a political document rather than an actual roadmap for fiscal policy, even when the presidency and Congress are controlled by the same party.
  • Japan and England leave rates alone. As expected, both the Bank of Japan (BOJ) and Bank of England (BOE) made no changes to policy settings. The BOJ maintained its commitment to overshooting its 2% inflation target and pledged to continue easing as inflation is still well below target levels. The BOE voted 8-1 to hold key rates at 0.25% and left the size of its asset purchase program at 435 billion euro ($533 billion). The BOE believes inflation should rise to its target of 2% “in the next few months.” All in all, both outcomes were viewed as non-events.
  • No curve balls in Dutch election. As expected, current Dutch PM Mark Rutte retained power. His center-right Party for Freedom and Democracy (VVD) won 33 out of 150 seats and Rutte said the win was a rejection of the wrong sort of populism. Following this election, which was considered a key barometer for the wave of European populism, the odds of Marine Le Pen winning the highly anticipated French election dropped about one percent to 29.3%.

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Click Here for our detailed Weekly Economic Calendar

 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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