Market Update: Tuesday, April 18, 2017


  • Stocks give up some of Monday’s gains. (10:41am ET) After a solidly higher session yesterday, U.S. markets are slightly lower in early trading today with the Dow weighed down heavily by Goldman Sachs which is off 4.3%. The S&P 500 gained 0.9% to open a busy week of earnings; financials (+1.8%) led the way higher on the back of a steeper yield curve and ahead of key earnings reports this morning. Overnight, stocks in Asia closed on a mixed note; the Hang Seng (-1.4%) notably underperformed in its first session following the long weekend. European markets are markedly lower late in the afternoon session, the UK’s FTSE has dropped 1.6% amid strength in the pound as Prime Minister Theresa May has called for a snap election in June that could give her more negotiating power during the Brexit process. Meanwhile, WTI crude oil ($52.68/barrel) is near flat, COMEX gold ($1288/oz.) is lower by 0.3%, and Treasuries are recouping all of Monday’s losses with the yield on the 10-year Note now down to 2.21%.


  • Treasury prices were higher on the week. The flight to higher-quality U.S. Treasury bonds continued last week, led by increased geopolitical risk in Syria and North Korea. Risk-off sentiment helped intermediate maturities outperform the long end of the yield curve with the 5-year yield lower by 0.15% and the 10-year yield lower by 0.14%, while the 30-year was lower by 0.11%. The 10-year closed the week at a 2.23%, the year to date low yield for this spot on the curve. We take a deeper look at yield moves and our outlook for rates the rest of the year in this week’s Bond Market Perspectives, due out later today.
  • The yield curve flattened to its lowest level year to date. The Treasury yield curve remains flat as the 2-year to 10-year slope, a measure of the steepness of the yield curve, ended the week at 1.03%, flatter by 0.06% from the prior week. This is the flattest the curve has been all year and 0.25% tighter than the wide spread of 1.28% in February as investors flock to Treasuries to minimize risk. The 2-year to 30-year yield slope ended the week at 1.68%, flatter by 0.04% from the prior week.
  • Inflation expectations are at year-to-date lows. The 10-year breakeven inflation rate finished the week lower from 1.94% to 1.92% according to Federal Reserve Economic Data. This is the lowest spread year to date as investors are driving the yields on nominal Treasury bonds lower, thus driving the breakeven lower.
  • Lower German bonds yields continue. The 10-year German bund is performing well month to date with yields lower by 0.24%. Geopolitical risk in Syria and North Korea added to the demand for German bunds. The latest spread between the U.S. Treasury 10-year and its German equivalent is 2.04% in favor of the U.S. bond.
  • Municipal bonds performed well on the week, but moved less than Treasuries. The 10-year part of the municipal yield curve is lower in yield by 0.40% on the month, 0.08% on the week. The sector performance has been driven by inflows of $1.63 billion (week ending 4/12 data) which is the largest weekly inflow since October 2009 (Lipper data). The inflows have been taking advantage of higher yields after the post-election sell-off. High yield municipals, led by longer duration, have outperformed most fixed-income sectors year to date with the Bloomberg Barclays High Yield Index returning 5.33%.
  • Housing starts weak, but permits point to upside. Housing starts declined sharply in March, falling to an annualized 1.21 million versus an upwardly revised 1.30 million in February, missing consensus estimates, but year-over-year numbers remain strong. Permits, which tend to act as the better leading indicator, rose to 1.26 million from an upwardly revised 1.22 million in April, topping consensus. Confidence among homebuilders also remains high, according to yesterday’s release of the National Association of Homebuilder’s Housing Market Index for April. While homebuilding is only a small part of the economy, it can provide important feedback on consumer strength. The overall housing picture continues to remains positive, supported by a strong labor market and tight inventory, although higher interest rates may be creating a bit of a headwind.
  • Do government shutdowns really rattle markets? With the potential for a government shutdown at the end of the month if Congress fails to pass a spending bill, what impact could it have on U.S. equities? Today on the LPL Research blog we take a look at how markets have reacted during similar situations in the past for clues about what might happen to your clients’ portfolios if the post office, national parks, and other government services (temporarily) shut down later this month.


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