Market Update: Wednesday, November 8, 2017

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Market Recap

  • Major indexes little changed after slipping from early highs. Traders turned defensive with little economic news and lackluster earnings releases. S&P 500 Index flat, Dow flat, Nasdaq -0.3%.
  • Financials, consumer discretionary sectors weighed; defensive sectors (utilities, consumer staples) moved higher.
  • Negative breadth on NYSE (1.4:1) amid above-avg. volume (~113%).
  • Dollar generally higher, though weaker vs. euro; 10-yr. yield unchanged at 2.31%.
  • Commodities WTI Crude oil dipped slightly (-0.2% to $57.24/bbl.), COMEX gold -0.4% to $1277/oz., industrial metals broadly lower.
  • Economic data- Job Openings and Labor Turnover Survey supported the picture of a strong labor market.

Overnight & This Morning 

  • U.S. stocks continue moving sideways amid little data, as earnings season winds down.
  • Europe slightly lower; German gross domestic product estimates were in line (DAX flat), earnings getting attention. STOXX Europe 600 -0.2%.
  • Asia mixed to flat following similar U.S. result Tuesday. Trump’s Asian tour stop in China kept traders mostly sidelined (Shanghai Composite +0.1%). Nikkei -0.1%, Hang Seng -0.3%.
  • 10-yr. Treasury (2.31%), dollar (-0.06%) little changed.
  • Commodities- oil weakness continuing (-0.7% to $56.82/bbl.), gold rebounding +0.7% to $1285/oz., industrial metals moving lower.
  • Economic data- Weekly MBA Mortgage Applications Index unchanged from prior week. U.S./China trade deficit widened more than expected to $40 billion in October vs. expected $38.2 billion.

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Key Insights

  • Flurry of tax headlines as legislative process begins in earnest. We expected this process to be messy, and messy is what we’re getting. Added to the table on the Senate side: a one-year delay in the 20% rate and full repeal of the state and local tax deduction. And on the House side, there’s discussion of putting a repeal of the ACA individual mandate back in play.Here’s the math: Republicans need to keep the deficit impact of the bill under $1.5 trillion over 10 years. The cuts add up to about $5.8 trillion according to some estimates. That means Republicans need to eliminate about $4.3 trillion of loopholes and current tax breaks, which is the more challenging part of the process. Our view is that these kinds of headlines are part of the nature of the process. Some of it is genuine debate, some of it is establishing negotiation positions, some of it is grandstanding for political cover before ultimately going along with the bill. We view growing skepticism as an opportunity to add some asset classes sensitive to tax reform at a more reasonable price.
  • The Federal Reserve’s new regulatory czar, Andrew Quarles, sent industry-friendly signals on bank regulation in his first comments since being sworn in. We think financials are among the sectors most likely to benefit from President Trump’s approach to regulation and see upside for the sector looking into 2018.

Macro Notes

  • Off-year election night a modest victory for Democrats, warning shot for Republicans. Off-year elections are more about an opportunity for temperature taking than any real shift in political power. Democrats posted a solid win in the Virginia gubernatorial election and an easy, and expected, win for governor in New Jersey. Neither win meaningfully changed the script of reasonable chances that Democrats will take the House in 2018, but taking the Senate remains unlikely due to the mix of Democrats and Republicans up for election. Eyes now turn to the Alabama Senate election in December.
  • A year since the U.S. Election. It has been a year since President Trump won the election and we’ve seen one of the least volatile equity markets ever; not to mention there have been solid gains with the S&P 500 up 21% over the past year. Going back to 1950*, this ranks as the fifth best one-year return after an election. President Clinton’s second-term was the best and President George W. Bush’s first-term was the worst. We took a closer look at this on the LPL Research blog.

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Click Here for our detailed Weekly Economic Calendar

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.

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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.

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