Market Update: Monday, July 24, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Stocks near flat Friday but S&P 500 (+0.5%), Nasdaq (+1.2%) both rose for the week with help from a good start to earnings season, continued support from global central banks, which put some downward pressure on rates, U.S. dollar. Friday’s marginal decline ended Nasdaq’s 10-session win streak.
  • Friday’s 2.5% drop in WTI crude oil weighed on energy, down 2.1% for the week, while tech strength propelled the sector to its first new high in 17 years.
  • Strong Treasuries meant strong utilities. 10-year Treasury yield -9 basis points (0.09%) on the week to 2.32%, sending utilities up 2.6%.

Overnight & This Morning

  • U.S. stocks little changed as with focus on earnings, central banks, Republicans’ last-ditch healthcare reform effort.
  • Treasuries flat, U.S. dollar up slightly vs. euro ($1.166), down slightly vs. yen (¥110.8) and sterling ($1.303). Latest U.S. dollar weakness increasingly getting Wall Street’s attention.
  • Europe mixed to lower, with U.K. FTSE (-1.1%) an outlier to the downside. Eurozone manufacturing PMI at 56.8, a good absolute number but behind forecast and previous period. Services PMI came in as expected at 55.4. Appears Germany responsible for most of that weakness.
  • Asia mostly higher, though Japan (-0.6%) an exception. Yen strength weighing on Japanese exporters. Nikkei PMI 52.2, down from previous of 52.4.
  • Oil higher as global oil ministers assess efficacy of production agreement in “OPEC-plus” meeting.
  • IMF left 2017 global growth forecasts unchanged, revised U.S. down; Europe, China up.
  • Today’s economic calendar includes preliminary U.S. “flash” purchasing manager’s index (PMI) from Markit, existing home sales data.

 

MacroView_header

Key Insights

  • Huge earnings week with 190 S&P 500 companies reporting. Generally, in recent months, when investors have been more focused on the micro (corporate profits) rather than the macro (Washington, D.C.), stocks have fared better. Still, we still expect D.C. to help earnings in 2018 by delivering tax reform, as discussed in this week’s Weekly Market Commentary.
  • The declining U.S. dollar is beginning to negatively impact foreign stocks. Since last Thursday, when the European Central Bank issued what was perceived to be somewhat hawkish comments, the euro has increased 1.5%, the German DAX Index has declined 3%, and the French CAC 40 Index is down about 2.5%. We see a similar, though not as extreme, pattern in Japan, where then yen has appreciated 1.3% in the past few days, while Japanese stocks have declined 1%.The US dollar has declined 8.2%, as measured by the DXY index, since the beginning of the year. This has benefited investors who have held international assets, as the value of the holdings in dollar terms has increased. However, major export oriented countries like Japan and Germany do not want to see the dollar fall too far, too fast, as it may make their exports less competitive. Recent stock market activity suggests the market may becoming more sensitive to this issue.

Macro Notes

  • Pivot to Tax Reform? In this week’s Weekly Market Commentary, we share our updated thoughts on tax reform’s prospects and some implications for the healthcare sector following the latest healthcare developments in Washington, D.C. We continue to believe a tax deal gets done in early 2018 that will provide a nice boost to corporate profits and help support stock valuations.
  • Financials and tech strength drive solid earnings upside. With just 20% of S&P 500 companies having reported results, second quarter 2017 earnings are tracking +9.6% year over year, 1.6% ahead of June 30 estimates. Beat rates for both earnings (74%) and revenue (70%) are above average. The majority of the upside has been driven by financials and technology, although energy is still expected to make the biggest contribution to growth for the quarter. Despite a slight dip in estimates (-0.4%) since quarter end, consensus still reflects a roughly 10% year-over-year increase over the next four quarters.
  • Get ready for Focus. Today on the LPL Research blog we preview Focus 2017! One week from today we will be at our flagship conference which runs from Sunday, July 30 to Wednesday, August 2. Our CEO Dan Arnold and Managing Director and Chief Investment Officer Burt White will present on the main stage to 6,000 people, along with other big-name presenters. While the rest of the Research team will take part is smaller breakout sessions, along with a Morning Call each morning.
  • Small losses are all the rage. The S&P 500 Index closed down 0.04% on Friday, which has been the norm lately – consistently small losses. In fact, the past four times the S&P 500 fell, all four times were by less than -0.10%. That hasn’t happened since a streak of five in January 1995. Last, nine of the past 14 red closes were by less than -0.10%.

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Monday

  • Markit Mfg. & Services PMI (Jul)
  • Existing Home Sales (Jun)
  • France: Markit France Mfg. & Services PMI (Jul)
  • Germany: Markit Germany Mfg. & Services PMI (Jul)
  • Eurozone: Markit Eurozone Mfg. & Services PMI (Jul)
  • BOJ: Minutes of Jun 15-16 Meeting
  • Japan: Composite of Business Cycle Indicators Leading & Coincident Indexes
  • China: Conference Board LEI (Jun)

Tuesday

Wednesday

  • New Home Sales (Jun)
  • FOMC Rate Decision
  • UK: GDP (Q2)
  • South Korea: GDP (Q2)

Thursday

Friday

  • GDP (Q2)
  • Core PCE (Q2)
  • France: GDP (Q2)
  • France: CPI (Jul)
  • Germany: CPI (Jul)
  • UK: Nationwide House Prices (Jul)
  • Eurozone: Consumer Confience (Jul)
  • Canada: GDP (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 # 1-627961