Market Update: Friday, June 16, 2017

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Yesterday’s Market Activity

  • Stocks fell slightly Thursday. S&P 500 Index -0.2%, Nasdaq (-0.5%) and Russell 2000 (-0.5%) fared worse. Weakness stemmed from political uncertainty, slightly more hawkish than expected communication from the Federal Reserve (Fed).
  • Defensive sectors mostly led. Industrials (+0.7%) topped rankings, but more lightly weighted defensive sectors outperformed; utilities (+0.6%), real estate (+0.5%) particularly strong. Resources were biggest decliners.
  • Strong dollar weighed on international equities; MSCI EAFE (-1.5%) and EM (-1.0%) indexes both underperformed the U.S. major averages.
  • Oil below $45/bbl., down 0.7% on ongoing inventory concerns, dollar strength
  • Treasuries fell, 10-year Treasury yield +0.02% to 2.16%
  • Initial jobless claims fell 8k from prior week to 237K. Empire State Manufacturing Index, Philadelphia Fed Index better than expected, industrial production missed.

Overnight & This Morning

  • Stocks dip at the open. S&P 500 -0.2%. Nothing out of Washington, D.C. moving broad markets, though drug pricing executive order garnering attention (details below).
  • European equity markets higher, led by U.K. and France, both up 0.7%. Financials appeared to like Greek debt agreement.
  • Asian markets ended mixed. Bank of Japan (BOJ) decision to leave rates unchanged, maintain asset purchase program helped (details below). Nikkei +0.6%, Hang Seng +0.2%, Shanghai Composite -0.3%.
  • Treasuries little changed. 10-year yield ~2.16%
  • U.S. dollar down overall, but up versus the yen
  • Oil (+0.6%) is recovering from year-to-date lows but still down for the week
  • Today’s data calendar includes housing starts and permits (both missed expectations), consumer sentiment, weekly oil & gas rig counts

 

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Macro Notes

  • Executive order on drug pricing expected soon. Though not necessarily unexpected, the order may trigger volatility in drug stocks today. Healthcare has somewhat quietly-produced the second best sector return year to date (+13.6%), and we still like the sector on valuations and expect modest government impact on prices, but are watching political developments, including Senate reform efforts closely.
  • BOJ maintains current stimulus plan. The BOJ dovishly held rates unchanged overnight, and despite acknowledging improved economic conditions, maintained policy support in the form of $720bn of securities purchases per year. The central bank upgraded its assessment of private consumption for the first time in six months, signaling confidence in the Japanese economy. The announcement supported Japanese stocks overnight and put some pressure on the yen.
  • Week ahead. Housing data and the leading economic indicators in the U.S. will get some attention (June 19-23) in what is otherwise a slow data week. Look for global purchasing managers’ surveys in Europe, Japan, and the U.S. to get some attention later in the week.

 

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Click Here for our detailed Weekly Economic Calendar

Friday

  • Housing Starts (May)
  • Building Permits (May)
  • Eurozone: New Car Registration (May)
  • Eurozone: CPI (May)
  • Russia: GDP (Q1)
  • Bank of Russia: Key Rate Decision
  • China: New Loan Growth and Money Supply (May)

 

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