Market Update: Thursday, April 6, 2017

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  • Equities look to regain footing. (10:35am ET) After a volatile session yesterday which saw stocks gap higher, only to fall throughout the afternoon following the release of last month’s minutes from the Federal Reserve’s (Fed’s) policy meeting, U.S. indexes are slightly higher this morning. The S&P 500 closed down 0.3% Wednesday, with the bulk of losses seen in the heavily-weighted financial sector (-0.7%); real estate (+0.2%) and utilities (+0.5%) were the only sectors to advance. Overnight, Asian markets followed U.S. stocks mostly lower; the Nikkei lost 1.4% though the Shanghai Composite managed a 0.3% gain. European equites are little changed late in the session; the STOXX Europe 600 is lower by 0.1%. Meanwhile, WTI crude oil ($51.60/barrel) is higher for the third straight day, COMEX gold ($1255/oz.) is climbing modestly, and the yield on the 10-year Treasury note is down to 2.33%.

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  • Fed minutes rattle markets. The Federal Reserve released the minutes from the March 14-15 meeting yesterday and there were many highlights, but two themes stood out. First, the minutes stated that participants were beginning to discuss the gradual reduction of the Fed’s $4.5 trillion balance sheet, though no final decision was made. The second theme, although not explicit in the minutes, centered on language that some Fed participants are concerned about equity valuations. Equity markets moved lower and Treasury yields were higher following the news, but as is often the case, the initial move may have been overdone. The 10-year Treasury yield recovered later in the day, closing just one basis point (0.01%) higher at 2.36%, while equity markets opened higher heading into Thursday’s session.
  • Weekly jobless claims see another decline. Data released this morning on initial jobless claims for the week ending April 1 showed a continued decline in the number of people seeking unemployment benefits. The decrease in claims to 234,000 from the prior week’s revised 259,000 again bested analysts’ expectations and continues to point toward a tightening labor market. This marks the 109th straight week the figure has come in below 300,000, a key threshold generally associated with a healthy labor market.
  • Private sector still growing, but slowing. Last week Caixin (a private sector data source focusing on small- and mid-sized companies in China, as opposed to the larger companies which are largely state owned or controlled) released its manufacturing PMI, which showed growth, but at levels below expectations. Overnight Caixin released services data suggesting the same thing. This indicator, and keep in mind this is only one indicator, suggests that Chinese economic expansion peaked at the beginning of 2017 and has been slowing since then.
  • Chinese stocks rose 13.2% in Q1 as fears of a “hard landing” abated and the economy continued to expand. The yuan has traded in a very tight range as the government has largely attempted to stabilize the currency, in part to avoid being labeled “currency manipulator” by the Trump administration. The two Presidents meet this afternoon (Thursday) with meetings and events tonight and tomorrow as well. Major items for the agenda are; trade – specifically the U.S.-China trade deficit; cross border investment opportunities; and North Korea.
  • Big reversals in equities. The S&P 500 was up more than 0.75% at its peak yesterday, before a big reversal in the afternoon. In the end, the S&P 500 closed 1.1% beneath its intraday peak for the second largest intraday reversal this year (March 21, 2017 was larger). Small caps were hit harder, as the Russell 2000 reversed more than two-percent from its peak and has now dropped three days in a row with two of those days down more than one-percent. This is only one day, but reversals like this can be meaningful, so we will watch future developments very closely.

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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.

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