Market Update: Monday, November 6, 2017

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Market Recap

  • Stocks up again amid tax bill focus, tier 1 economic data, key earnings. S&P 500 Index +0.3%, Dow +0.1%, Nasdaq (+0.7%) posted its record 63rd new closing high of 2017.
  • Sector returns mixed. Key earnings helped technology top sector list, biotechnology drove healthcare strength; financials lagged.
  • Negative breadth on NYSE (1.1:1) despite green day amid ~avg. volume.
  • 10-year note little changed, yielding 2.33%; dollar mostly higher.
  • Commodities WTI crude oil +2.0%, COMEX gold -0.7%, industrial metals mixed to higher.
  • Economic data- Headline nonfarm payrolls figure underwhelmed (+261k vs. +310k consensus), wages flat, unemployment rate dipped 0.1% to 4.1% (lowest since 12/2000); Institute of Supply Management services better than expected in Oct. (60.1 vs. 58.5 consensus).

Overnight & This Morning 

  • Domestic markets opened near flat with few directional drivers, final week of heavy earning’s releases kicks off.
  • European equities mixed; STOXX Europe 600 flat, Germany’s DAX +0.2%, France’s CAC 40 -0.2%, Spain’s IBEX -0.3%.
  • Asian markets also mixed following Trump’s trade commentary. Nikkei, Hang Seng flat, KOSPI -0.3%, Shanghai Composite +0.5%.
  • 10-year Treasury higher; yields down ~1 basis point (0.01%) to 2.32%.
  • Commodities- WTI crude oil continues climb up (0.5%) to $55.9/bbl., gold inching higher (0.2%) to $1272/oz. Mixed industrial metals performance.

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Key Insights

  • Master limited partnership (MLP) weakness appears overdone. The Alerian MLP Index has lost 9% in 2017 year to date, well behind the S&P 500 Index’s 17.5% return and even the energy sector’s 6.3% loss. More recent performance is particularly surprising given the nearly 30% rally in crude oil prices since late June. In an environment where more investments have started to look stretched, MLP is one group that has lagged behind and could offer potentially more upside than the broad market. In today’s Weekly Market Commentary, we discuss reasons why the group has struggled and make the case that it may be due for a turnaround. Over time, we expect the market to recognize the value in the group.

Macro Notes

  • Another good earnings week. With over 80% of S&P 500 company results now in the books, third quarter S&P 500 earnings are tracking to an 8% year-over-year increase, 1.2% above the prior week. Excluding the hurricane-riddled financials sector, growth jumps to an impressive 11%. Energy and technology have generated the most upside to expectations, are contributing more than 80% of the S&P 500’s overall growth, and have seen estimates for the next three quarters rise. Forward earnings estimates for the S&P 500 have fallen just 0.2% since reporting season began, well above average, at least partly reflecting some tax policy lift in addition to the favorable overall macro environment. This week 49 S&P 500 companies will report third quarter results.

  • Tax reform will move forward, but not in a straight line. We continue to believe that Republicans in Congress are highly motivated to get a tax reform bill passed, but that the legislative process will be challenging and timeline expectations must be realistic. A completed bill by Christmas is highly unlikely, and the House would have to pass their version of the bill by Thanksgiving to keep it in play. We would consider a vote in the House on their version of the bill by Christmas solid progress, keeping it on track to find its way to the President’s desk in the first half of 2018 and possibly in the first quarter. Look for the initial draft of the Senate version of the bill to be quite different from the House version. The most difficult part of the process will likely be reconciling the House and Senate versions, which takes place behind closed doors once the individual versions are passed. We take a closer look within our Weekly Economic Commentary, due out later today.
  • Two more records for 2017. This year will be remembered for a strong bull market amid historically low volatility. Today on the LPL Research blog we will take a look at two more records: the first being the Nasdaq, which has closed at a new all-time high 63 times this year, the most ever for one calendar year; and the second being the S&P 500, which hasn’t closed down 0.5% for an amazing 43 consecutive trading sessions, the longest since the mid-’90s.
  • Make that eight in a row. The S&P 500 closed higher for the 8th consecutive week last week, as did the Dow; while the Nasdaq closed green six weeks in a row. Turning to the S&P 500, this is the first eight-week win streak since late 2013 and only the fifth going back the past 20 years. It closed higher the following week only once out of the previous four times, but a month later it was higher all four times. We will take a closer look at this on the blog tomorrow.

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Click Here for our detailed Weekly Economic Calendar

Monday

  • MBA Mortgage Delinquencies (Q3)
  • Mortgage Foreclosures (Q3)
  • Germany: Factory Orders (Sept)
  • France: Markit France Services PMI (Oct)
  • Germany: Markit Germany Services PMI (Oct)
  • Eurozone: Markit Eurozone Services PMI (Oct)
  • Eurozone: Sentix Investor Confidence (Nov)
  • Eurozone: PPI (Sept)
  • China: Foreign Reserves (Oct)

Tuesday

  • JOLTS Job Openings (Sept)
  • Consumer Credit (Sept)
  • Quarles* (Hawk)
  • Germany: Industrial Production (Sept)
  • Italy: Retail Sales (Sept)
  • Eurozone: Retail Sales (Sept)
  • Bank of Canada: Poloz
  • BOJ: Outright Bond Purchase
  • BOJ: Funo
  • China: Imports & Exports (Oct)
  • China: Trade Balance (Oct)

Wednesday

  • MBA Mortgage Applications (Nov 3)
  • France: Trade Balance (Sept)
  • BOJ: Summary of Opinions at Oct 20-21 Meeting
  • Japan: Leading Econmioc Index (Sept)
  • Japan: Core Machine Orders (Sept)
  • China: CPI & PPI (Oct)
  • Japan: Current Account Balance (Sept)
  • Japan: Trade Balance (Sept)
  • Japan: Economic Watchers Survey (Oct)

Thursday

  • Weekly Jobless Claims
  • Wholesale Sales & Inventories (Sept)
  • Germany: Trade Balance (Sept)
  • Germany: Imports & Exports (Sept)
  • UK: Industrial Production (Sept)
  • UK: Trade Balance (Sept)
  • UK: Nat’l Institute of Economic & Social Research GDP Estimate (Oct)
  • ECB: Economic Bulletin
  • ECB: Villeroy de Galhau
  • Japan: Money Supply (Oct)
  • Japan: Tertiary Industry Index (Sept)
  • China: New Loan Growth & Money Supply (Oct)

Friday

  • Monthly Budget Statement (Oct)
  • of Michigan Sentiment (Nov)
  • France: Industrial Production (Sept)
  • Italy: Industrial Production (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.

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.

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