Market Update: Monday, July 17, 2017

MarketUpdate_header

Last Week’s Market Activity

  • S&P 500 Index +0.5% on Friday as central bank support, broad earnings optimism helped offset weak economic data.
  • Soft retail sales, consumer inflation drove Treasuries higher (10-yr yield at 2.32%), pressured U.S. dollar, drove gold ($1227/oz.) up 0.8%.
  • Crude (+1.0% to $46.54/bbl.) rose for fifth straight session, following strong International Energy Agency (IEA) global demand outlook.
  • S&P 500 posted largest weekly gain (+1.4%) since late May. Federal Reserve (Fed) Chair Janet Yellen’s less hawkish testimony, technology sector gains offset ongoing Washington, D.C. concerns, mixed response to big banks’ earnings, soft data including retail sales.

Overnight & This Morning

  • S&P 500 up marginally (+0.1%) as earnings season kicks into higher gear.
  • European stocks also with small gains midday. U.K. +0.3% but modest losses for German DAX (-0.3%).
  • Chinese stocks lower. China’s Shanghai Composite -1.4% despite strong data as crackdown on excessive leverage continues. Hang Seng +0.3%.
  • Japan government left 2017 gross domestic product (GDP) forecast unchanged at 1.4%.
  • 10-year Treasury yield lower by 2 basis points (-0.02%) to 2.31% following last week’s soft inflation data, less hawkish Fed; U.S. dollar mixed, gold +0.5%.
  • Oil little changed, holding last week’s gains, going for six-day win streak.
  • Today’s economic calendar: New York Empire Manufacturing survey. Meanwhile, Republicans continue to work on healthcare bill.

 

MacroView_header

Key Insights

  • This week marks the first busy week of earnings season with 70 S&P 500 companies reporting second quarter results. We expect another solid quarter of potentially double-digit earnings gains overall and for the market reaction to results to be generally positive.
  • China financial crackdown to continue. Strong overnight data coupled with the government’s ongoing crackdown on excess financial leverage highlight the challenge for the Chinese stock market, though the data provide a positive global read-through. We continue to favor emerging market equities.

Macro Notes

  • Earnings season gets underway. With the first 30 company results in (most with May quarter ends), S&P 500 companies are tracking to an 8.1% year-over-year increase, marginally above the 8.0% growth rate expected as of June 30, 2017 (Thomson data). As we wrote in last week’s Weekly Market Commentary, we would not be surprised by another double-digit growth rate for the second quarter, though below last quarter’s 15% pace. Following Friday’s big bank reports, financials have produced a 6.6% upside surprise, above last quarter’s 5.5% upside surprise. Look for our weekly earnings season dashboard starting on Monday, July 24.
  • Nasdaq up six in a row. With the Dow and S&P 500 both closing at their 25th new high of 2017, the Nasdaq just missed out on a new high. Still, the tech-heavy index gained for the sixth consecutive day, the longest win streak since seven in a row in late May 2017. Also, it was higher all five trading days of last week for the first time since May 2017 and December 2016 before that.
  • Official Chinese GDP growth was 6.9%, slightly ahead of the 6.8% growth expected. The biggest change from expectation was in industrial output, which rose 7.6%, vs. expectations of 6.5% growth. What matters in China, just as much as the number itself, is how the Chinese government will react to it. This data, combined with statements coming from a government meeting on the financial sector, suggests the government will continue to crack down on excess leverage in the financial markets. The People’s Bank of China (its central bank) was also tasked with taking a broader role in economic risk management. Chinese stocks were down 1.5% overnight on this news, while commodities such as copper rallied on reports of greater industrial production.
  • Global growth expectations have improved since December. Stronger-than-expected international growth has pushed the Bloomberg-surveyed consensus forecast for global growth in 2017 up from 3.1% in December 2016 to 3.4% as of the most recent reading. Some caution for the second half is merited, with global economic surprises moving toward neutral, weighed down by weakness in the U.S. and the OECD’s Composite Leading Indicator weakening modestly for major economies in aggregate, but still showing stable growth momentum. Stronger international growth has provided a positive economic backdrop for the U.S. economy so far in 2017 and may help U.S. growth push forward in the second half of the year if the Trump administration and Congress can make progress on pro-growth policy initiatives.
  • Checking in on European technicals. Last week, we noted that emerging markets continue to look nice from a technical perspective, and today on the LPL Research blog we will take a closer look at Europe, specifically the Euro STOXX 50 Index. This index is like the Dow for Europe and is nearing a potentially major change in trend.
  • Chinese data and earnings highlight the week. Chinese data (GDP, retail sales and industrial production), U.S. housing data (housing starts and homebuilder sentiment), Eurozone inflation, and the Bank of Japan’s interest rate decision highlight this week’s economic calendar, in addition to the first wave of earnings reports.

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Monday

  • China: Property Price Index (Jun)

Tuesday

  • Import & Export Price Index (Jun)
  • NAHB Housing Market Index (Jul)
  • US Treasury Total Net TIC Flow (May)
  • UK: CPI (Jun)
  • UK: Retail Price Index (Jun)
  • Eurozone: CPI (Jun)
  • Germany: ZEW Survey (Jul)

Wednesday

  • Housing Starts (Jun)
  • UK: Inflation Report Hearings
  • BOJ: Interest Rate Decision
  • BOJ: Monetary Policy Statement
  • Japan: Machine Tool Orders (Jun)
  • Japan: Trade Balance (Jun)
  • Japan: Imports & Exports (Jun)

Thursday

  • Philadelphia Fed Business Outlook (Jul)
  • Leading Index (Jun)
  • Eurozone: Current Account Balance (May)
  • UK: Retail Sales (Jun)
  • Eurozone: Consumer Confidence (Jul)
  • ECB: Deposit Facility Rate (Jul 20)
  • ECB: Main Refinance Rate (Jul 20)
  • ECB: Marginal Lending Facility (Jul 20)
  • BOJ: Kuroda
  • Japan: All Industry Activity Index (May)

Friday

  • UK: Public Sector Net Borrowing (Jun)
  • Canada: CPI (Jun)
  • Canada: Retail Sales (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.

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.

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 # 1-625936