- Stocks little changed following G20. (9:50am ET) Major indexes are near flat this morning as stocks search for direction amid little economic data and traders assess the impact of the weekend’s G20 summit, which ended with a whimper. This follows a quiet session on Friday in which the heavily-weighted financials (-1.1%) sector kept the S&P 500 (-0.1%) underwater. Overseas, Asian markets were mixed overnight with the Shanghai Composite (+0.4%) and Hang Seng (+0.8%) moving higher while stocks in India and South Korea finished lower; the Nikkei was closed for a holiday. Europe is mostly lower midday with the STOXX 600 down 0.2%, though off session lows. Elsewhere, WTI crude oil is retracing Friday’s gains, COMEX gold is ticking higher as the dollar continues to weaken, and 10-year Treasury yields are unchanged at 2.50%.
- Housing data, Fed speakers highlight the week ahead. This week, we get some key data points on housing, with existing home sales on Wednesday and new home sales on Friday. We also get data on manufacturing with both durable goods orders and Markit’s Manufacturing Purchasing Managers’ Index (PMI) on Friday. Nine Fed members, including four voting members (Yellen, Dudley, Evans, and Kashkari) are lined up to speak this week, providing an opportunity for further insight on last week’s rate hike.
- Industrial production flat, but manufacturing improving. Industrial production was flat in February, missing expectations of 0.2% growth, although a 0.2% upward revision to January provided an offset. Utility production held the overall industrial production number down after another warm month, but manufacturing production rose 0.5%, topping expectations of 0.4%, a meaningful beat given it came on top of a 0.3% upward revision to January’s data. The gains provide further evidence of a strengthening rebound in manufacturing already being signaled by the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) and several regional manufacturing indexes.
- Leading indicators remain strong. The Conference Board’s Leading Economic Index (LEI) rose 0.6% in February, topping consensus expectations and matching similarly strong gains in December and January. The largest positive contributor for the month was the ISM new orders index, reflecting recent gains in manufacturing. The index accelerated to a 3.1% gain year over year, its highest growth rate since August 2015. The LEI continues to point to a low chance of a recession in the next year. We take a closer look at this important indicator today on the LPL Research blog.
- In the spirit of March Madness, we have compiled our “Sweet 16” for the stock market. Specifically, we have identified 16 keys-many of them policy related-for stocks for the rest of 2017 and assessed their implications for the stock market. While the path for several policy-related areas is uncertain, we still expect a solid year for stocks in 2017-potentially even slightly above our S&P 500 target of mid-single-digit gains depending on the exact policy path. Look for a deeper dive into four of these 16 keys to the market in our “Final Four” next week.
- Big bounce for small caps. The Russell 2000 (RUT) was up 1.9% last week, which was the largest weekly gain of the year for small caps and the best weekly bounce since early December. This is a nice change, as small caps have lagged most of 2017 after an 8.4% gain during the fourth quarter of last year. In fact, year to date, the RUT is up only 2.5% versus 6.2% for the S&P 500. Many have blamed the recent underperformance on investor skepticism on how quickly tax cuts and infrastructure spending will be implemented. At the same time, some weakness after the huge fourth quarter rally is perfectly normal.
 We expect mid-single-digit returns for the S&P 500 in 2017 consistent with historical mid-to-late economic cycle performance. We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.
- Evans (Dove)
- Dudley (Dove)
- Existing Homes Sales (Feb)
- New Home Sales (Feb)
- Yellen (Dove)
- Kashkari (Dove)
- Kaplan (Hawk)
- Eurozone: Consumer Confidence (Mar)
- Japan: Nikkei Mfg. PMI (Mar)
- Durable Goods Orders and Shipments (Feb)
- Markit Mfg. PMI (Mar)
- Eurozone: Markit PMI (Mar)
- China: PBOC’s Zhou Speech