Market Update: Tuesday, September 19, 2017


Yesterday’s Market Activity

  • U.S. stocks hit new record highs (again). No notable drivers as traders await Fed policy meeting. Dow (+0.3), S&P 500 Index (+0.2%) hit new highs; Nasdaq (+0.1%).
  • Financial sector led, bond proxies utilities, REITs lagged on rising Treasury yields.
  • NYSE trading volume below average (98.6%) with positive breadth (details below).
  • U.S. dollar halted two-day drop, hit two-month high vs. yen; 10-year Treasury yield +2 basis points (0.02%) to 2.23%.
  • CommoditiesCOMEX Gold -1.0% to $1310/oz.; WTI crude oil flat at ~$50/bbl.; industrial metals mostly up, copper +0.5%.

Overnight & This Morning

  • Asian stocks mostly lower, with trading levels subdued ahead of Fed meeting; Nikkei (+2.0%) the exception after being closed on Monday. Hang Seng -0.4%, Shanghai Composite -0.2%.
  • European stocks near flat but off worst levels after Bank of England’s Mark Carney’s comments that interest rate hikes would be gradual. DAX lagged (-0.1%) despite upbeat sentiment on current and future conditions in ZEW survey. STOXX Europe 600 flat, FTSE 100 +0.2%.
  • U.S. indexes opened near flat with all eyes on Fed.
  • Treasuries higher with 10-year yield -2 basis points (0.02%) to 2.21%.
  • Commodities – WTI crude oil (+0.7%) back above $50/bbl; COMEX gold ticking higher near $1312/oz; copper (-0.1%) slightly lower.


Key Insights

  • Though stocks are reaching new records, investors are likely to be in somewhat of a holding pattern the next couple days as the Federal Reserve (Fed) meets. Though no rate hike is expected, further details and a timeline for balance sheet reduction are expected to be announced. Looking farther out, a pickup in volatility over the balance of the year is quite possible as third quarter earnings season will be kicking off in the next few weeks; and policy risks remain through year end, both monetary and fiscal. However, we continue to suggest sticking to your long-term investment plan.
  • Welcome to the second largest bull market. Last week, the bull market that started in March 2009 moved ahead of the bull market from 1949 to 1956 to officially make it the second largest bull market gain since World War II. The current gain of 270% is second only to the 417% gain seen during the bull market of the 1990s. Today on the LPL Research blog we will take a closer look at the history of long bull markets.

Macro Notes

  • Active week in fixed income. Rates moved meaningfully across the yield curve last week, with longer-term yields pressured higher as markets repriced fears related to Hurricane Irma’s impact and a downtick in North Korea related tensions. The 10-year Treasury rose by 15 basis points (0.15%), while the 30-year rose by 10 basis points (0.10%). Short term interest rates were pushed higher as well, with the 2-year rising by 12 basis points (0.12%), leaving the yield curve slightly steeper on the week.
  • Inflation expectations moved higher last week, helped by the most recent Consumer Price Index report that beat consensus expectations. Oil, another driver of inflation expectations, was also up more than 5% on the week. The rise in inflation expectations also impacted the outlook for a December rate hike, with Fed fund futures currently pricing in a 58% chance of a hike in December.
  • Longs still dominate Treasury futures market. When netted out, there remains a significant net long position in the Treasury futures market. Although net positioning indicates that traders believe Treasury yields may fall, it can be a good contrarian indicator, as it was earlier in 2017. If rates continue to rise, you could see owners of these contracts sell to avoid further losses, which could exacerbate an upward move in rates. Though such an unwind could push yields higher, we continue to believe that the yield advantage of Treasuries relative to German bunds and Japanese government bonds may continue to keep rates lower than they otherwise would be.
  • Corporate bond spreads tighter on the week. Investment-grade corporates had a healthy rally from a spread perspective. It was still a challenging week overall for the sector, with the Bloomberg Barclays Aggregate Credit Index returning -0.5% due to the overall rise in rates and its long duration profile, but the spread tightening is a good sign of confidence and reflective of equity market strength and belief in corporate America. High-yield spreads tightened as well, ending the week at 3.6%.
  • All eyes on Fed for balance sheet reduction details. The Fed is widely expected to announce balance sheet reduction timing specifics in its September meeting, which begins today. In this week’s Bond Market Perspectives, we talk about what that means, how it will work, and what could happen. We also discuss how the makeup of the Fed could change, how that could affect policy, and the effect that other central banks could have in easing the liquidity crunch that many fear balance sheet normalization will have. Abe’s snap election and Bank of Japan policy meeting. Japan is bracing for the possibility of a “snap” election announcement at the end of this week when Prime Minister Abe returns to Japan after his visit to the U.N. Abe’s popularity in Japan has waxed and waned over time, but he is riding high on his handling of the North Korean issues, and he is expected to use this to shore up his political power at home. Also, the Bank of Japan meets Thursday, and while no formal change to policy is expected, the market is looking for any clues as to future policy. Japan is now the only major central bank that does not appear to be discussing tightening monetary policy.
  • Market breadth is still quite strong. One of our favorite technical indicators is the advance/decline (A/D) line. This is simply a ratio of how many stocks go up versus down each day on a specific exchange. We’ve found that the A/D line can be a warning sign for pending weakness, or a sign there is significant underlying strength. Well, yesterday we saw new all-time highs on the NYSE, Dow, NYSE common stock only, S&P 100, S&P MidCap 400, and S&P SmallCap 600 A/D lines. That suggests to us there is still significant strength to this bull market.
  • The win streak continues. The Dow closed green again, making it seven straight gains, the longest since 10 in row that ended in August. Additionally, it closed at a new all-time high for the fifth straight day. Incredibly, the Dow has had all-time closing-high streaks of 12, nine, and now five days so far in 2017. The S&P 500, meanwhile, closed at its 35th new high this year, nearly double the 18 from last year, and the most since 53 in 2014.
  • Welcome to the party microcaps. The Russell Microcap Index closed at a new all-time high yesterday for the first time since July 3. To put that in perspective, the S&P 500 made 11 new highs over that timeframe. Meanwhile, the Russell 2000 (small caps) is still 0.6% away from its first new high since July 25. Small caps have lagged much of this year on a combination of disappointment over the speed of tax reform and the consolidation of huge gains from the second half of 2016. Should small- and microcaps begin to lead, this could be another positive sign for equity bulls.


Click Here for our detailed Weekly Economic Calendar


  • Housing Starts & Building Permits (Aug)
  • Import & Export Price Index (Aug)
  • Current Account Balance (Q2)
  • Eurozone: Current Account (July)
  • Germany: ZEW Survey (Sept)
  • Eurozone: ZEW Survey (Sept)
  • Japan: Money Flow (Q2)
  • Japan: Trade Balance (Aug)
  • Japan: Imports & Exports (Aug)


  • MBA Mortgage Applications (Sept 15)
  • Existing Homes Sales (Aug)
  • FOMC Rate Decision
  • Yellen (Dove)
  • Germany: PPI (Aug)
  • UK: Retail Sales (Aug)
  • New Zealand: GDP (Q2)
  • BOJ: Policy-Balance Rate
  • BOJ: Monetary Policy Statement



  • Markit US Manufacturing & Services PMI (Sept)
  • Williams (Dove)
  • George (Dove)
  • Kaplan (Hawk)
  • France: GDP (Q2)
  • France: Markit France
  • France: Manufacturing & Services PMI (Sept)
  • Germany: Markit Germany
  • Germany: Manufacturing & Services PMI (Sept)
  • Eurozone: Markit Eurozone
  • Canada: CPI (Aug)


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