Market Update: Thursday, June 8, 2017

MarketUpdate_header

Yesterday’s Market Activity

  • Stocks largely in “wait and see” mode but end positive on late-day boost. S&P 500 +0.18%, Dow +0.18%, and Nasdaq +0.36%. Few were willing to make big moves one way or the other ahead of Thursday’s barrage of potentially market-moving developments, though initial reaction to Comey’s testimony late in the session pushed the major averages into the green.
  • Bearish inventory data punished energy. WTI crude oil fell 5.1% after an unexpected crude and gasoline inventory build in the government’s weekly petroleum report. Energy sector lost 1.4% while no other sector lost more than 0.1%.
  • Rates rose, boosting financials. Financials topped Wednesday’s sector rankings with a nearly 1% gain as the 10-year Treasury yield rose 0.03% to 2.18%.

Overnight & This Morning

  • Stocks marginally higher in early trading as initial reaction to Comey testimony has been positive. The ECB announcement and impending U.K. election are influencing early trading. It can turn quickly but the positive open is encouraging.
  • ECB stays accommodative as expected. The central bank indicated it expects rates to remain at current levels for an extended period of time (dropping statement that rate cuts were possible). At the same time the ECB reiterated that it would increase the size or duration of its bond-buying program if the economic data deteriorates. U.K. stocks down slightly. Euro and British pound are weaker. Q1 2017 gross domestic product (GDP) in Eurozone +0.6% (not annualized), better than expected (+0.5%).
  • Treasuries are selling off a bit this morning, sending the 10-year yield up 0.02% to 2.20%.
  • Crude oil malaise continues. Not seeing any bounce after yesterday’s sharp decline. Buying opportunity may soon emerge in energy but we suggest patience.
  • Asian markets mixed overnight. Japan’s Nikkei fell 0.4% after Japanese GDP rose 1% annualized in Q1 2017, below expectations. Our 2% is Japan’s 1% as that economy continues to struggle to drive faster growth. Hang Seng and Shanghai Composite both up modestly. Solid Chinese trade data.
  • Another reminder of heightened geopolitical risk. North Korea fired a series of short-range missiles.
  • Jobless claims of 245K were slightly above consensus (240K). Still nowhere near levels that would suggest any deterioration in the labor market.

 

MacroView_header

Key Insights

  • Big day. Investors will dissect Comey’s testimony, the European Central Bank (ECB) policy announcement, and U.K. election results over the next 12 hours or so in what the media is calling “Super Thursday.” Based on Comey’s testimony released Wednesday afternoon, the market’s confidence in the Trump administration’s ability to enact its agenda may rise. We expect Theresa May’s Conservative Party will win today’s U.K. election (initial results due out after U.S. market close) and strengthen her position. And ECB policy remains very accommodative but the next move is tighter, not easier.
  • Trump agenda on track? On the margin, markets have increased the odds that the Trump administration will be able it implement a meaningful portion of its agenda, though confidence is still not very high. Early 2018 remains our base case timetable for tax changes; timing remains dependent on healthcare efforts.
  • Sense of urgency in Washington, D.C.? Continued skepticism around the White House agenda is evident in recent market performance, including small cap and financials underperformance, dollar weakness, falling interest rates and the flattening yield curve. It’s tough to assign odds, but we see a reasonable possibility of a positive surprise, given Republicans’ need for a win and the amount of agreement on taxes.
  • Bullish global trends. U.S., developed international, and emerging markets (EM) equity benchmarks remain above their upward sloping 50- and 200- day moving averages, a positive signal for U.S. equities over the next 6-9 months.

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Thursday

  • Germany: Industrial Production (Apr)
  • UK: General Election, 2017
  • ECB: Draghi
  • Japan: Machine Tool Orders (May)
  • China: CPI & PPI (May)

Friday

  • Wholesale Sales & Inventories (Apr)
  • France: Industrial Production (Apr)
  • UK: Industrial Production (Apr)
  • UK: Trade Balance (Apr)
  • China: Money Supply and New Yuan Loans (May)

 

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.

 Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

 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.

 This research material has been prepared by LPL Financial LLC.

 To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

 Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

 Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

 Member FINRA/SIPC
Tracking # 1-614396