Market Update: Monday, June 19, 2017

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Last Week’s Market Activity

  • Stocks little changed Friday. Intra-market moves were in focus, particularly ~3% difference between energy (+1.7%) and consumer staples (-1.0%)
  • Consumer staples slide. Grocers weighed after Amazon-Whole Foods acquisition proposal announced.
  • European markets rose on news that Greece would receive next tranche of aid, ebbing political risk. MSCI EAFE +1.1% Friday.
  • Treasuries yields down to 2.16% after housing starts, building permits, consumer sentiment miss estimates.
  • Mixed week for broad averages. Dow (+0.5%), S&P 500 (+0.1%), Russell 2000 (-1.0%). Industrials (+1.7%) topped sector rankings, technology (-1.1%) fell most.

Overnight & This Morning

  • U.S. following Europe higher on market-friendly outcome French election, which strengthened Macron’s mandate for economic reforms.
  • WTI crude oil ($45.11/bbl.) holding Friday’s gains after -2.4% last week.
  • European markets applaud French election outcome. European Stoxx 600 Index +0.9% midday, led by Paris’ CAC (+1.2%); Brexit talks underway in Brussels.
  • Asian markets also higher. MSCI Asia Pacific Index +0.6%, China up on pending MSCI decision (expected Tuesday) to include country’s shares in its global indexes. Nikkei +0.6%, Hang Seng +1.2%, Shanghai Composite +0.7%.
  • Treasuries down, 10-year yield up slightly to 2.18%.

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Key Insights

  • Our 2017 S&P 500 Index forecast is not a bearish call. Some have raised the question, why own stocks here if the S&P 500 is already at our year-end target return for the year of 6-9%? First, we expect cyclical sectors and smaller cap stocks to fare better than the S&P 500 in the second half; second, we believe dips will provide opportunities for gains; and third, fiscal policy is a wildcard that could potentially push stocks ahead of our forecast.
  • Earnings estimates have stayed resilient. Estimates have held firm over the past month and still reflect near 10% earnings growth over the next 12 months. As we noted in our newly released Midyear Outlook 2017 publication, we expect earnings gains to support stocks in the second half of the year. Policy has the potential to drive additional earnings gains in 2018 that may begin to be priced in during late 2017, offering upside potential to our forecast.

Macro Notes

  • Beware the ides of June? As we’ve noted before, the second half of June tends to see some seasonal equity weakness. Breaking it down further, last week was option expiration for the month of June and the week after this event (this week) has historically been very weak. In fact, going back 14 years this week has been higher only once for the S&P 500, and that was in 2013. Going back to 2000, this week has been higher only three times, making it the least likely week of the year to be higher.

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Click Here for our detailed Weekly Economic Calendar

Monday

Tuesday

  • Germany: PPI (May)
  • BOJ: Minutes of Apr 26-27 Meeting
  • China: Conference Board China LEI (May)

Wednesday

 Thursday

  • LEI (May)
  • Eurozone: Consumer Confidence (Jun)
  • Japan: Nikkei Japan Mfg. PMI (Jun)

 Friday

  • Markit Mfg. & Services PMI (Jun)
  • New Home Sales (May)
  • France: GDP (Q1)
  • France: Markit France Mfg. & Services PMI (Jun)
  • Germany: Markit Germany Mfg. Services PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. & Services PMI (Jun)
  • Russia: GDP (Q1)
  • Canada: CPI (May)

 

 

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