Market Update: Friday, June 23, 2017


Yesterday’s Market Activity

  • U.S. stocks essentially flat, led by healthcare (+1.0%), which extended weekly performance leadership as Senate Republicans released Affordable Care Act overhaul plans. Biotech sector +1.3%, bringing weekly gain to ~10%.
  • Energy stocks stabilized as WTI crude oil +0.5% to $42.75/bbl.
  • COMEX Gold rose (~$1250/oz.) after five-day selloff, 10-year Treasury yield fell 2 basis points (0.02%) to 2.14%.

Overnight & This Morning

  • Asian stocks mostly positive as MSCI Asia-Pacific Index had its first weekly gain in three. Shanghai Composite rose as MSCI’s addition of A shares to its global indexes outweighed concerns about regulatory crackdown, increasing scrutiny on cross-border deals. Nikkei had slight gains on yen weakness.
  • Europe slipped again. Poised to end week lower as food and beverages fell. Gilts led sovereign bonds lower.
  • Pound rose ($1.27), paring weekly decline vs. dollar.
  • As Brexit negotiations continue, approval growing from Germany’s Merkel toward U.K.’s May.
  • Euro is up ($1.11) vs. dollar.
  • Commodities – WTI oil is steady; headed for fifth straight weekly decline on oversupply concerns.
  • Natural gas firming as production stabilized following Tropical Storm Cindy.
  • U.S. stocks up slightly as oil ($42.95/bbl.) stabilizes.
  • Dollar lower vs. major currencies, yield on 2-year Treasury ~1.34%.
  • New home sales forecast +3.7% in May from April, which saw decline >10.0%.



Key Insights

  • Financials – After the close yesterday, the Federal Reserve (Fed) released results of its stress tests, designed to show how the largest banks would perform under periods of extreme duress in the U.S economy. Thirty-four of the largest U.S. banks cleared the minimum thresholds for capitalization levels. Since 2008, the largest U.S. banks have added more than $750 billion in common equity capital, with a focus on more reasonable leverage, often including an emphasis on safer and less profitable businesses. In recent years, the banks have essentially figured out the process in order to succeed.
  • Next week, a more important report comes out for shareholders of the largest banks. The Fed will release its Comprehensive Capital Analysis and Review, which indicates whether banks can increase dividends and buy back shares. Given yesterday’s results, it appears that banks will be able to free up more than $100 billion to return to shareholders.
  • Treasury Secretary Steven Mnuchin has proposed a less onerous review process going forward, including less frequent stress tests, exempting highly capitalized banks, and removing some of the toughest hurdles. In addition, changes in the Fed’s regulatory leadership, as well as the potential for a shift in the composition of the Fed’s Board of Governors next year, indicate the potential for increased lending.
  • Our view remains favorable for the financials sector, considering valuations, dividends & buyback prospects, and improved net-interest margins from a steeper yield curve.



Click Here for our detailed Weekly Economic Calendar


  • 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)


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.

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