Market Update: Wednesday, October 18, 2017

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Market Recap

  • Domestic indexes finished mixed as large caps outperformed small caps. S&P 500 Index +.01%, Dow +0.2%, Nasdaq flat, Russell 2000 -0.3%.
  • Breadth negative on NYSE (1.4:1), another low volatility-low volume day (~84% of 30-day average).
  • Healthcare (+1.3%) led on potential for a bipartisan bill reinstating insurance subsidies; financials, consumer staples, industrials lagged as markets prepare to digest the influx in earnings results.
  • 10-year Treasuries held flat, finishing at 2.30%; U.S. dollar slightly stronger across the board.
  • Industrial production bounced back into positive territory slightly outperforming expectations, but manufacturing, while turning positive, disappointed. The data overall supported the broad picture of continued steady economic growth.
  • WTI crude oil finished higher (+0.3%) after inventories showed unexpectedly large draw, COMEX gold dipped (-1.2% to $1288/oz.) in response to dollar strength.

Overnight & This Morning 

  • U.S. stocks open up +0.1% as earnings reports continue to roll in.
  • Asian markets mixed overnight; Nikkei (+0.1%) advanced for the 12th straight session; Shenzhen (-0.4%), Hang Seng (+0.1%), as China’s President Xi gave three-hour address to Communist Party Congress–continuing to tighten his hold on power; this meeting takes place every five years.
  • Equities in Europe are higher midday; STOXX Europe 600 +0.4%; Spain’s IBEX (unchanged) lagged amid Catalan tensions.
  • Treasury prices slightly lower, 10-year yield +3 basis points (0.03%) to 2.33%.
  • Commodities – WTI crude (+0.7%) is back above $52/bbl., metals broadly lower–gold (-0.4%), copper (-0.2%).
  • Today’s economic calendar – September housing starts; Fed’s October Beige Book; Fed Presidents Dudley, Kaplan will speak.

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Key Insights

  • Fed chair announcement on November 3. President Trump will announce his choice for chair of the Federal Reserve (Fed) on November 3 before departing for an 11-day trip to Asia. The short list is current chair Janet Yellen, current Fed Governor Jerome Powell, National Economic Council director Gary Cohn, economist John Taylor, and former Fed Governor Kevin Warsh. President Trump could go outside that list, but the chances of that are significantly lower than they once were. Powell’s star has been rising as the stability candidate, but the president and Taylor were reported to have had a strong rapport at their meeting last week. Of these candidates, Taylor and Warsh are clearly the most hawkish and the most likely to have a market impact if selected, with the bias being toward a stronger dollar and increased rate hike expectations.

Macro Notes

  • Time for healthcare to shine? Well-received earnings and the reported agreement between Republican Senator Alexander of Tennessee and Democratic Senator Patty Murray of Washington to potentially reinstate the ACA subsidies eliminated by President Trump’s executive order last week drove the sector to a market-leading 1.3% advance on Tuesday. Though the deal still faces hurdles to get through Congress and to the President’s desk, prospects appear favorable. We believe the combination of attractive valuations and the solid outlook for healthcare spending overall sets the stage for potential further gains, despite the sector’s 22% year-to-date advance.
  • The long-term technical patterns for copper remain bullish. One commodity that continues to move higher and exhibit bullish price momentum is copper. Today on the LPL Research blog, we take a look at another asset class that benefits when copper moves higher.

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Click Here for our detailed Weekly Economic Calendar

 Wednesday

Thursday

  • Philadelphia Fed Mfg. Report (Oct)
  • Leading Economic Index (Sep)
  • UK: Retail Sales (Sep)
  • Japan: All Industry Activity Index (Aug)
  • Japan: Machine Tool Orders (Sep)

 Friday

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