Market Update: Wednesday, November 15, 2017

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Market Recap

  • Domestic markets finished lower across the board. Tax reform headlines slowed ahead of House vote, market fundamentals appear intact despite slight pullback. S&P 500 Index -0.2%, Dow -0.1%, Nasdaq -0.3%.
  • Utilities, consumer staples led markets; energy lagged on >2% WTI crude oil drop.
  • 10-year Treasury closed near flat for third straight session; yields -2 basis points (-0.02%) to 2.38%.
  • NYSE breadth negative (1.5:1); exchange volume in-line with 30-day average.
  • Commodities WTI crude oil pulled back after downwardly revised demand growth (-2.36% to $55.42/bbl.), COMEX gold strengthened (+0.2% to $1280/oz.), industrial metals broadly lower.
  • Economic data- Headline (+0.4% month over month) and core (+0.4% month over month) producer prices topped expectations (+0.1% and +0.2%, respectively). Year-over-year (+2.8%) growth at highest since 2012.

Overnight & This Morning 

  • U.S. stocks lower in early trading, adding to yesterday’s losses.
  • European equities lower again, bond prices rising. The Euro STOXX 50 (-0.7%) lower for 8th straight session. DAX -1.0%, CAC 40 -0.5% midday.
  • Asia sold off on commodity slide, global risk-off sentiment. Japan Q3 GDP +1.4% quarter over quarter annualized, up seven quarters in a row. Nikkei -1.6%, Hang Seng -1.0%, Shanghai Composite -0.8%.
  • Treasuries bouncing on defensive play, 10-year yield -5 basis points (0.05%) to 2.34%.
  • Commodities- Oil woes continuing (-1.1% to $55.07/bbl.), gold +0.7% to $1289/oz.), industrial metals mixed.
  • Economic data- Consumer inflation data in line (+0.2%), retail sales (+0.2%) beat on auto strength (+0.1% expected).

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Key Insights

  • Inflation showing signs of life. Yesterday’s Producer Price Index (PPI) report for October showed a surprising uptick in inflation at the wholesale level, with prices rising year over year to their highest levels since February 2012. Meanwhile, October’s Consumer Price Index (CPI) was lower than September’s hurricane-boosted headline but met expectations on the back of price increases for shelter, medical care, and used vehicles. The core year-over-year number (which excludes food and energy) came in slightly higher than expected. Rising producer costs are often passed along to consumers over time, and for this reason PPI has historically been seen as a leading indicator of future CPI levels. The comparison is imperfect due to the different methodologies and weightings in the two indexes, but it will be interesting to see if the stronger PPI trend starts to show up in CPI inflation in the coming months. Either way, the latest inflation data is likely to please the Federal Reserve, and helps to support the case for a widely expected rate hike in December.

Macro Notes

  • More worries. The list of near-term worries continues to increase. From junk bonds weakening, to the length of time without a modest correction. Today on the LPL Research blog we list 10 concerns that have our attention.
  • Make that 50. The S&P 500 has officially gone 50 trading days without closing down 0.5%. This is the longest streak since 1968. The longest ever was 85 days in late 1965. We’ve stated many times how historically non-volatile the action has been in 2017 and this is yet another way to show this.
  • Which sectors win from tax reform? Recently released tax reform proposals from both the House and Senate are being scrutinized by politicians, investors, and corporations alike. As the bill works its way through Congress, many changes are likely, but on the LPL Research blog we looked at which equity sectors are likely to benefit most from a lower corporate tax rate.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

  • Philadelphia Fed Mfg. Report (Nov)
  • Import & Export Price Indexes (Oct)
  • Industrial Production & Capacity Utilization (Oct)
  • Eurozone: CPI (Oct)
  • BOE: Carney

Friday

  • Housing Starts & Building Permits (Oct)
  • Canada: CPI (Oct)
  • ECB: Draghi

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