Market Update: Wednesday, March 22, 2017

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  • U.S. equities extend losses after worst day of year. (10:10am ET) Major indexes are down this morning after falling more than 1% yesterday for the first time in more than five months; the Nasdaq was off 1.8% Tuesday while the S&P 500 slid 1.2% and the Dow lost 1.1%. Strength in the Treasury market sent the S&P financials sector (-2.9%) reeling and boosted utilities (+1.4%), the only sector to gain ground. Materials (-1.7%), industrials (-1.5%) and the heavily-weighted technology (-1.5%) sector also underperformed. Asian markets followed suit overnight, led down by the Nikkei (-2.1%); losses were more muted in the Hang Seng (-1.1%) and Shanghai Composite (-0.5%). Europe’s STOXX 600 (-0.6%) is continuing to slide after shedding half a percent in the prior session; bank stocks are among the region’s worst performers, along with materials amid weakness in the oil patch as WTI crude oil ($47.66/barrel) continues to drop. Elsewhere, COMEX gold ($1249/oz.) is up slightly after the yellow metal gained 1% yesterday, and the yield curve continues to flatten, with the yield on the 10-year Treasury down five basis points (0.05%) to 2.38%.

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  • Evidence of ACA timetable’s importance. Tuesday’s selloff revealed the importance of Republican efforts to complete at least the first stage of the healthcare reform overhaul, highlighted in this week’s Weekly Market Commentary. Markets have priced in an optimistic policy path (the S&P 500 is up 10% since Election Day) and want the GOP to promptly get to the core of its economic agenda. Our Washington sources still suggest something gets done this spring, though odds of a later start for corporate tax reform, a lengthier tax legislative process, or a scaled down version, have risen. Some market takeaways include: 1) volatility is normal at this stage of the cycle and may present opportunities (the S&P 500 has not experienced a 5% pullback since the Brexit vote in June 2016); 2) the recent small-to-large cap and value-to-growth rotations may continue until policy uncertainty abates, 3) financials may see increased near-term volatility due to their sensitivity to Washington policy; and 4) infrastructure spending plans are getting pushed back further and may weigh on industrials near term.
  • Finally, a one-percent drop. The S&P 500 finally closed down one percent yesterday for the first time since October 11, 2016. The 109 trading days without a one-percent drop was the longest streak since 110 in early 1995. During the incredible streak, the S&P 500 gained 11.1% and this was only the thirteenth time since 1928[1] that the S&P 500 made it at least 100 days or more in a row without a one-percent close lower. The good news is the median return a month after one of these streaks ends is a 3.4% gain. A year out, the average return jumps to more than a 15% gain. Today, on the LPL House of Charts and Twitter, we will take a closer look at these long streaks and what happens when they are over.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.
  • The worst day of the year. The S&P 500 fell 1.2% yesterday, which was the worst day of the year and the worst one-day drop since October 11. It was even worse for small caps and financials, as both fell more than 2.5%. To put things in perspective, the S&P 500 is still only 2.2% away from its all-time high. The Nasdaq actually made a new intra-day all-time high in the morning, before closing more than two percent from the intra-day highs. You have to go clear back to March 7, 2000 for the last time that happened. Still, be aware that the average worst day of the year for the S&P 500 going back 50 years has been -3.7%. In fact, this is currently the smallest loss on the worst day of the year ever for the S&P 500.

 

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  • China: PBOC’s Zhou Speech

 

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.

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