Market Update: Wednesday, March 29, 2017

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  • Stocks mixed, Brexit triggered. (10:07am ET) U.S. equities are little changed this morning as traders reassess yesterday’s rebound following a string of losses; the S&P 500 found its footing after a shaky start as investor optimism returned following upbeat consumer confidence data. All eleven sectors moved higher, with a reflation theme driving Treasury weakness that pushed financials (+1.4%), industrials (+1.1%), and materials (+1.1%) to the top, while rate-sensitive utilities (+0.1%) and telecom (+0.2%) stocks lagged. Overseas, European stocks are near flat, but off earlier lows after the U.K. formally triggered divorce proceedings from the European Union. Asian markets were mostly higher overnight amid a relatively quiet session, feeding off Tuesday’s strength in U.S. stocks. The Nikkei (+0.1%) and Hang Seng (+0.2%) rose, while the Shanghai Composite (-0.4%) fell modestly. Meanwhile, WTI crude oil ($48.54/barrel) is up ahead of U.S. supply data, COMEX gold is moving lower as the dollar strengthens, and the yield on 10-year Treasuries continues to tick lower, currently at 2.39%.

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  • The sound of the starting gun. The U.K. has now formally announced its intention to leave the European Union (EU) under Article 50 of the Treaty of Rome. The two-year clock is now running for the U.K. and EU to agree on the terms of the divorce. While this seems like a long time, we point out that it has taken the U.K. nine months just to make the formal announcement. One important point that bears repeating: the default trading relationship between the EU and the U.K. is governed by the World Trade Organization, the same rules that cover the U.K.’s trade with the U.S., China, Japan, and most other countries.  At this point, the formal announcement of what has been in the works for months is hardly market-moving news. However, we continue to watch the currency markets as we believe these will be the most sensitive to fundamental underlying economic changes as a result of Brexit.
  • Consumer confidence still rising. The Conference Board’s Consumer Confidence Index rose sharply in March, accelerating to its highest level since December 2000 and handily topping consensus expectations. Both the current situation and expectations components exhibited strength, with internal data on job availability and income expectations both showing improvement. Thus far, consumer and business spending has failed to match rising confidence measures, but the potential for confidence to lead to increased economic activity continues to support our expectation of gross domestic product (GDP) growth near 2.5% in 2017.
  • April showers for stocks? After posting its longest winning streak in 30 years during February, the Dow followed it up in March with its longest losing streak since 2011, which it snapped in style with its biggest one-day gain this month. Had the Dow fallen yesterday it would have marked the longest losing streak since 1978. That may sound dramatic, but keep in mind that the 1.9% decline during the streak was the shallowest drop over an eight-day losing streak since WWII. Later today on the LPL Research blog, we will take a look at what April might have in store for the markets.

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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.

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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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