Market Update: Wednesday, August 16, 2017

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Yesterday’s Market Activity

  • Stocks little changed. Easing geopolitical tensions in North Korea, overseas gains, some strong data (retail sales, homebuilder sentiment, New York manufacturing) contributed to early gains that evaporated as the session progressed.
  • Mixed sector leadership. Defensives (staples, utilities) led, up ~0.5%; tech (0.3%), financials (+0.2%) also outperformed. Earnings weighed on consumer discretionary (-0.9%).
  • Treasuries weaker across the curve, 10-year yield +4 basis points (+0.04%) to 2.27%.
  • U.S. Dollar Index up 0.5%. Particularly strong vs. yen (+0.9%).
  • Oil little changed ahead of inventory data. COMEX Gold (-0.9% to $1278/oz.) remains under pressure on shift away from save havens, firming dollar.

Overnight & This Morning

  • U.S. stocks slightly higher. Continued unwinding of North Korea-attributed declines, delayed reaction to positive U.S. data likely at play, though no obvious driver.
  • Gains in Europe helping U.S. sentiment. STOXX 600 +0.7%, led by France CAC (+1%). European gross domestic product (GDP) +0.6% as expected.
  • Asian stocks mostly higher amid reports of unwinding short positions tied to the North Korean conflict. Hang Seng +0.9%; Shanghai, Nikkei little changed.
  • Treasuries slightly weaker, 10-year yield up to 2.28%. U.S. dollar up marginally.
  • Commodities – WTI crude oil slightly higher after private inventory data Tuesday night showed bigger-than-expected drawdown, but gasoline stocks rose, gold -0.3%.
  • Today’s economic calendar includes government data on oil inventories, housing starts, mortgage applications, in addition to the FOMC minutes (2 p.m. ET).

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Key Insights

  • Good day for Fed-watchers. Minutes from the July 25-26 Federal Open Market Committee (FOMC) meeting are due out this afternoon. The Federal Reserve (Fed) is not expected to signal a rate hike in September (markets pricing in near zero probability) but insight into the central bank’s plans for balance sheet reduction and its reaction to recent weaker inflation data will be of interest to market participants. A December rate hike remains well within the realm of possibility, a move advocated by New York Fed President Dudley this week.

Macro Notes

  • Do transports matter? The weak action lately in transports has many wondering if this is a potential warning sign for the broader markets. The big worry stems from August 1, when the Dow closed at a new 52-week high and transports closed at a new 52-week low relative to the Dow. This rare combination also took place ahead of the 1973-1974 bear market, the 1987 crash, and the tech bubble in 2000. Today on the LPL Research blog we will take a closer look at this phenomena to see what it could mean.

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