Market Update: Wednesday, September 27, 2017

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Market Recap

  • Major domestic indexes flat. Action largely concentrated outside of equity markets after Yellen’s hawkish commentary. S&P 500 Index flat, Dow flat, Nasdaq +0.1%.
  • Technology bounced back from Monday selloff; energy, telecommunications lagged.
  • Treasuries finished lower with yields +2 basis points (0.02%) on the 10-year note to 2.24%.
  • NYSE volume light at 87.2% of 30-day average, breadth positive (1.3:1).
  • Commodities – WTI crude down (-0.5%) to $51.94/bbl., COMEX gold dipped (-1.0%) to $1299/oz.
  • Focus remains largely on tax reform blueprint release. Rumors state plan is now targeting a 20% corporate tax rate, down from current 35%.

Overnight & This Morning

  • U.S. stocks slightly higher after flat action yesterday; S&P 500 opened +0.2%.
  • Stocks in Asia mixed overnight, shaking off Yellen’s hawkish comments. Nikkei -0.3%, Shanghai Composite flat, Hang Seng +0.5%.
  • European markets higher late in trading. STOXX Europe 600 +0.4%. Euro lower yet again, making a one-month low versus dollar.
  • Oil flat after recent rally; WTI crude up >20% since summer lows. Trading ~$52/bbl.
  • Metals mixed as well, copper +0.1%, COMEX gold -0.7%, silver -0.1%.
  • 10-year Treasury yield jumped +5 bps (0.05%) to 2.29% on the heels of hawkish Yellen comments.
  • Multiple Fed speakers today; Minneapolis President Kashkari, St. Louis President Bullard, Governor Brainard and Boston President Rosengren on the docket.

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Key Insights

  • Federal Reserve (Fed) Chair Janet Yellen came off hawkish in Cleveland. Yellen warned that the Fed should be wary of tightening too gradually, and this was widely interpreted as being hawkish. As a result, according to the Chicago Mercantile Exchange’s FedWatch, the odds of a December rate hike jumped to 81% from 71% before the speech. Four more Fed members have speeches today, so it is expected that the debate on inflation and future rate hikes will continue. We still believe that a December hike is more likely than not.

Macro Notes

  • The least volatile September ever? This month has been calm by historical standards, which is similar to what we’ve been seeing all year in 2017 really. The average daily intraday closing range on the S&P 500 (from high to low) has been less than 0.4%. Should this average hold over the next few days, it would be the least volatile September on record (back to 1970 and reliable intraday data); however, it is important to remember that October has historically been the most volatile month. Today on the LPL Research blog we will take a closer look at this phenomena.
  • Tax reform due out today. The draft, due sometime today, is expected to propose a target corporate tax rate of 20%, well below the current 35% but above President Trump’s desired 15% level; as well as full expensing of capital investments (though it would revert after five years), cutting the top tax rate for small business from 39.5% to 25%, doubling the standard deduction, and eliminating the deduction for state and local taxes. After the bell, President Trump is in Indiana and is expected to discuss the plan in detail.
  • Crude in a bull market. It is official, earlier this week WTI crude oil moved into a bull market – up 20% from the summer lows. Increased optimism over global supply and demand has sparked much of the rally. This has helped energy stocks, which in turn has helped value stocks outperform growth so far in September. The International Energy Agency said global demand growth was very strong in Q2, up 2.4% year over year.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

MBA Mortgage Applications (9/22)

Durable Goods Orders (Aug)

Core Capital Goods Orders (Aug)

Pending Home Sales (Aug)

Bullard (Dove)

Rosengren (Hawk)

France: Consumer Confidence (Sept)

Germany: Retail Sales (Aug)

Eurozone: Money Supply (Aug)

China: Current Account Balance (Q2)

 

Thursday

Personal Consumption Core Price Index (PCE) (Q2)

Weekly Jobless Claims (9/23)

GDP (Q2)

Wholesale Inventories (Aug)

Kansas City Fed Manufacturing Activity Index (Sept)

George* (Hawk)

Fischer* (Dove)

Germany: Consumer Confidence (Oct)

Germany: CPI (Sept)

Eurozone: Consumer Confidence (Sept)

UK: Consumer Confidence (Sept)

Japan: Jobless Rate (Aug)

Japan: CPI (Aug)

Japan: Retail Sales (Aug)

China: Caixin China Manufacturing PMI (Sept)

 

Friday

Personal Income and Spending (Aug)

PCE Core Price Index (Aug)

Chicago PMI (Sept)

U of Mich. Consumer Sentiment (Sept)

Harker* (Hawk)

UK: GDP (Q2)

France: CPI (Sept)

France: PPI (Aug)

Germany: Unemployment Change (Sept)

UK: Current Account Balance (Q2)

UK: Money Supply (Aug)

Italy: CPI (Sept)

Eurozone: CPI (Sept)

Canada: GDP (July)

ECB: Draghi

BOE: Carney

IMF: Lagarde

Japan: Vehicle Production (Aug)

Japan: Housing Starts (Aug)

China: Manufacturing & Non-Manufacturing PMI (Sept)

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.

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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.

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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.

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