Market Update: Thursday, August 10, 2017

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Yesterday’s Market Activity

  • Another slow session. Stocks down early amid North Korea concerns, but late-day buying mitigated losses for straight day. S&P 500 -0.04%, Dow -0.2%, Nasdaq -0.3%.
  • Treasuries gain, 10-year Treasury yield -2 basis points (0.02%) at 2.25%.
  • Mixed day for sectors as consumer staples (+0.2%), healthcare (+0.1%) led; consumer discretionary (-0.6%), telecommunications (-0.8%) lagged.
  • Bounce in metals as COMEX gold (+1.3%), silver (2.9%) both up. Industrial metals gained on spike in aluminum (+3.2%); copper (+0.5%) continued to move to new multi-year highs.

Overnight & This Morning

  • U.S. stocks lower to start session. North Korean tensions still in focus. S&P 500 -0.7%.
  • Overseas markets lower as well. Europe (STOXX 600 -0.6%), Asia (Hang Seng -1.1%, Nikkei -0.1%, Shanghai Composite -0.4%).
  • Japanese machine orders disappointing, missing expectations and prior month orders.
  • Treasuries finding a bid as safe haven assets move higher; 10-year yield 2.23%.
  • WTI crude (1.1%) back above $50/bbl. following U.S inventory data. Crude stockpiles fell sharply vs. expected gain, but gasoline stockpiles rose vs. expected draw.
  • Metals higher across the board. Gold (+0.6%), silver (+1.7%) up nicely; industrial metals led by a big jump in nickel (+4.0%).
  • On today’s economic calendar, weekly jobless claims at 244k, slightly higher than expected 240k; producer price index for July (-0.1%) below expectations of +0.2%.

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Key Insights

  • Investors taking North Korea worries in stride as equity markets once again rebounded from early losses to close marginally lower. The logical question is: how can the market continue to ignore the major geopolitical worries? First and foremost, the global economy continues to improve thanks to strong earnings. The S&P 500 Index is set to post back-to-back double-digit quarterly earnings growth for the first time since 2011, while developed and emerging markets earnings have also been solid. Last, the market has historically ignored geopolitical tensions. A recent NY Times article noted that out of 11 major geopolitical events examined by InvesTech Research, only two – the German invasion of France in May 1940, and Japan’s bombing of Pearl Harbor in December 1941 – led to market losses over one-week, three-month, and one-year periods.
  • The U.S. Department of Labor is proposing a delay in the fiduciary rule by 18 months, pushing it back to July 1, 2019 from January 1, 2018. This is the latest turn in the fiduciary rule, and we will continue to monitor this important development.

Macro Notes

  • Headlines are still dominated by fears of war on the Korean peninsula. Despite this, Korean stocks were only down 40 basis points (0.4%) overnight, and down 1.6% since tensions really began to increase. The won lost 60 basis points (0.6%) against the dollar overnight, but it’s losses are about 1.5% since the latest phase of the showdown began. Japanese stocks were largely unchanged as the Japanese yen strengthened slightly overnight. Overall, while there may be some selling on the margins, it appears that neither the Asian currency or stock markets are in panic mode.
  • European stocks were down across the board overnight. Traditional defensive sectors like utilities and telecommunications were relative outperformers, but still were in the red in midday trading. It was a light day for data; though French industrial production was modestly disappointing, the industrial production for the U.K. exceeded expectations. It’s also worth noting that the volume earlier this week was especially light, even by summer standards.
  • International earnings season is typically a week or two behind the U.S. However, we are getting a pretty clear picture of how Q2 is shaping up. In Europe, with about 76% of companies reporting, earnings have been up 18.5%, better than expectations of 14.8% growth, and leading analysts to increase their expectations for the rest of this year and next year. Almost all Japanese corporations have reported, and the 23% increase is far better than the 8% expected. Japanese earnings, while impressive, can be misleading, as many companies have few analysts providing estimates and are coming off a disastrous 2016, during which aggregate earnings declined. Emerging markets are less than 40% through the quarterly earnings cycle. Thus far, the 9.8% growth rate is below estimates of 12.1%, but many major companies have yet to report. As with European stocks, analysts have also been increasing expectations for growth through the end of this year and into 2018.
  • The calmest three weeks ever for equities. You would never know it by reading the headlines, but the S&P 500 is in the midst of the calmest three-week period ever. In fact, during the past 15 trading sessions it has closed between 0.3% and -0.3% every single time. That has never happened in the history of the S&P 500 and the previous record was 10 back in 1969. Today on the LPL Research blog we will take a closer look at this phenomena.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

  • PPI (Jul)
  • Monthly Budget Statement (Jul)
  • France: Industrial & Mfg. Production (Jun)
  • Italy: Trade Balance (Jun)
  • UK: Industrial & Mfg. Production (Jun)
  • UK: Trade Balance (Jun)
  • UK: NIESR GDP Estimate (Jul)

Friday

  • CPI (Jul)
  • Germany: CPI (Jul)
  • France: CPI (Jul)
  • Italy: CPI (Jul)
  • Russia: GDP (Q2)

 

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