Market Update: Wednesday, January 10, 2018

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Market Recap

  • Stocks’ run continued Tuesday; S&P 500 Index (+0.1%) posted sixth straight gain amid broad risk-on sentiment. Dow +0.4%, Nasdaq +0.1%, Russell 2000 -0.1%.
  • Sector performance mixed with rate-sensitive stocks among the biggest movers; financials +0.7%, telecommunications -1.8%, REITs -1.2%, utilities -1.0%.
  • Treasuries mostly lower with yield curve steepening as the 10-yr. yield added 6 basis points (+0.06%) to end at 2.55%.
  • NYSE breadth negative despite overall gains, volume approached 30-day avg. (~95%).
  • Commodities: WTI crude oil spiked to >3 yr. high (+2.0% to $62.93/bbl.), COMEX gold -0.4% to $1315/oz., industrial metals mixed.
  • Lackluster economic data failed to dampen risk taking; JOLTS job openings (+5,879k) below consensus (+6,025k), prior month (+5,925k); NFIB Small Business Index missed expectations (104.9 vs. 107.5).

Overnight & This Morning

  • U.S. equities opened soundly lower, as 2018 win streak looks to come to an end. Follows news overnight of Chinese officials considering tapering of U.S. Treasuries.
  • Asian markets finished mixed. Rising bond yields cited for causing pause on recent stock advance. Nikkei -0.3%, Shanghai Composite +0.2%, Hang Seng +0.2%.
  • European stocks mixed, but off session lows. STOXX Europe 600 -0.2%, Germany DAX -0.6%, CAC 40 -0.2%, FSTE 100 +0.5%.
  • Treasury yields run higher; 10-yr. yield +4 basis points (+0.04%) to 2.59%.
  • Commodities: Oil continuing to rise (+0.7%) to ~$63.42/bbl., gold higher as well (+0.5% to ~$1320/oz.), industrial metals mostly higher.
  • Economic releases: U.K. industrial production figures came in above expectations (0.4% vs. 0.2%).

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Macro Notes

  • China may reduce or halt U.S. Treasury purchases. After building up its stake in U.S. Treasuries during 2017, China’s central bank is mulling over the idea of reducing or even halting purchases of U.S. government debt after an official review of the country’s foreign exchange reserves, the world’s largest at roughly $3.1 trillion. Though it’s unclear whether the People’s Bank of China will adopt the recommendations from government officials, the news helped push the yield on the benchmark 10-year note past 2.50% for the first time since March of last year. Some are speculating that the move could in part be tied to trade tensions with the United States, and the change in policy would come just as the United States prepares to boost its debt supply as the Federal Reserve reduces its balance sheet and fiscal deficits expand. It should be noted that China’s backing away from the Treasury market would likely not have a significant impact on the overall yield curve unless it were to liquidate holdings over a relatively short period, which it is not expected to do.
  • Keep your portfolio warm during January. January has certainly brought record-breaking cold weather to the Northeast, while the market continues its hot streak. But should the market cool off this month, seasonal analysis could help your portfolio stay warm. Today on the LPL Research blog, we look at which sectors and industries have historically outperformed during January.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • MBA Mortgage Applications (Jan 5)
  • Import & Export Price Indexes (Dec)
  • Wholesale Inventories (Nov)
  • Evans (Dove)
  • Bullard (Dove)
  • France: Industrial Production (Nov)
  • UK: Industrial Production (Nov)
  • UK: Trade Balance (Nov)
  • UK: National Institute of Economic and Social Research GDP Estimate (Dec)
  • Bank of Italy: Monthly Report “Money & Banks”
  • BOJ: Outright Bond Purchase

Thursday

Friday

  • CPI (Dec)
  • Core CPI (Dec)
  • Retail Sales (Dec)
  • Business Inventories (Nov)
  • Rosengren (Hawk)
  • France: CPI (Dec)
  • Italy: Industrial Production (Nov)

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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