Market Update: Thursday, October 5, 2017

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Market Recap

  • Stocks traded in a narrow range as a variety of events vied for investors’ attention. Dow +0.1%, S&P 500 Index +0.1%, Nasdaq +0.04% inched higher to record levels; Russell 2000 Index -0.3%.
  • Exchange volume ~85% of 30-day average; NYSE, Nasdaq breadth negative.
  • Sector performance mixed. Utilities, REITs led; financials lagged with a modest decline.
  • 10-year Treasury unchanged at 2.33%, hovered near 200-day moving average.
  • Commodities – WTI crude oil slipped -1.0% to $49.98/bbl., COMEX gold ticked higher (+0.3% to $1278/oz.) as the dollar weakened.
  • Domestic economic data remained strong as both ISM Non-Manufacturing and Manufacturing Indexes climbed at fastest pace in over a decade.

Overnight & This Morning 

  • Domestic markets open slightly higher; building on another record close. S&P 500 +0.2%
  • European markets shrug off Catalan independence risk as more aggressive options begin to appear less likely. STOXX Europe 600 -0.1%.
  • Subdued performance in Asia; Chinese, South Korean markets remain closed for national holidays. Nikkei flat.
  • 10-year Treasury yield +1 basis point (0.01%) to 2.34%.
  • Commodities – WTI crude partially recouped losses (+0.3%) to $50.20/bbl., gold holding near flat at $1279/oz. Industrial metals up slightly; copper near flat.
  • Jobless claims below consensus (260k vs. 265k expected) as hurricane impacts appear to fade.
  • Puerto Rico’s government in the spotlight as a pending shutdown looms in the absence of congressional emergency funds by month end.

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Key Insights

  • Emerging markets growth unlikely to be derailed by the Fed. Emerging markets (EM) stocks and currencies have rallied significantly this year as persistently low inflation suggested the Federal Reserve (Fed) would not be as aggressive as global investors originally feared, but as plans for the Fed’s balance sheet reduction surfaced and Fed Chair Janet Yellen emphasized a path of gradual rate hikes, the U.S. dollar gained strength and began to pressure EM currencies and stocks. However, historical comparisons suggest that even if the Fed were to raise rates 4 times in the next 15 months, which may be questionable, it need not be a death knell for EM currencies and stocks. Even though the MSCI Emerging Markets Index has climbed by more than 20% this year, the gains have been driven largely by improvements in corporate earnings expectations. Consequently, valuations are not much different from where they were at the end of 2016, and they remain lower than that of most developed market equities. Considering solid economic and earnings growth, emerging markets have the potential to enjoy healthy gains in 2018.

Macro Notes

  • Yet another green day, but little movement. Yesterday, the S&P 500 closed higher for the seventh consecutive day, but again did it in a muted fashion. In fact, not one of the seven days saw a gain of more than 0.5%; 1971 was the last time there was a seven-day win streak with similar small gains each day.
  • Where to invest in October. October is historically one of the most volatile months of the year, but that doesn’t mean there won’t be opportunities. In fact, yesterday on the LPL Research blog we looked at which sectors have tended to outperform during this month.
  • Another look at new highs. The S&P 500 closed at another new high yesterday–its fifth in a row and number 42 of the year. Considering there have been 191 trading days so far in 2017, 22% of all the days have closed at a new high. Going back in history, only 1964 (25.7%) and 1995 (35.6%) finished the year with more new highs as a percentage of all days.
  • Win streaks end. The STOXX Europe 600 closed fractionally lower yesterday, ending an impressive nine-day win streak. That was the longest win streak since the summer of 2015. The longest win streak ever was a 12-day win streak in 1987. Turning to small caps, the Russell 2000 Index finally fell as well, ending an eight-day win streak, the longest since a record 15 in a row after the U.S. election last November. One streak that is alive and well is the S&P 500’s 17-day streak of closes within 0.5% of the previous day’s close, the longest such streak since 1969.
  • LPL Advisors on Twitter. We’re excited to share some of our favorite recent tweets from LPL Advisors highlighting LPL Research’s publications, charts, and commentaries. Check out our recent Top Tweets blog, and join our daily discussions via @LPLResearch.

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Click Here for our detailed Weekly Economic Calendar

Thursday

  • Cahllenger Job Cuts (Sept)
  • Weekly Jobless Claims (Sept 30)
  • Trade Balance (Aug)
  • Factory Orders (Aug)
  • Durable Goods Orders (Aug)
  • Cap Goods Shipments & Orders (Aug)
  • Williams (Dove)
  • Harker (Hawk)
  • George (Hawk)
  • ECB: Account of the Monetary Policy Meeting

Friday

  • Change in Nonfarm, Private, & Manufacturing Payrolls (Sept)
  • Unemployment Rate (Sept)
  • Average Hourly Earnings (Sept)
  • Average Weekly Hours (Sept)
  • Labor Force Participation & Underemployment Rates (Sept)
  • Wholesale Sales & Inventories (Aug)
  • Consumer Credit (Aug)
  • Bostic (Dove)
  • Dudley (Dove)
  • Kaplan (Hawk)
  • Bullard (Dove)
  • Germany: Factory Orders (Aug)
  • Italy: Retail Sales (Aug)
  • Japan: Leading Index (Aug)

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.

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