Market Update: Friday, January 19, 2018

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Market Recap

  • Major domestic indexes finished lower. Lack of clear economic drivers behind decline, but potential for government shutdown cited as possible catalyst; Dow -0.4%, S&P 500 Index -0.2%, Nasdaq flat.
  • Telecommunications and technology outperformed. Utilities and energy–despite oil continuing to hold above the $60/bbl. mark–lagged.
  • Negative market breadth (NYSE 2.6:1, Nasdaq 1.7:1), volume remained above average (~117% of 30-day avg.).
  • Treasury yields trekked higher; 10-yr. yield +3 basis points (+0.03%) to 2.62%.
  • Commodities: WTI crude oil held near flat (-0.3% to $63.79/bbl.), COMEX gold softened -0.9% to $1327/oz., industrial metals finished mixed.
  • Economic data: Crude oil inventories posted its ninth weekly drawdown; pace of drawdown increased from -4.9 million barrels to -6.9 million barrels week over week.

Overnight & This Morning

  • Stocks open higher despite rising concerns over potential government shutdown. House passed stopgap bill Thursday night, but Senate hurdles remain.
  • Europe heading towards third weekly gain ahead of German vote on Sunday to decide whether coalition talks between Social Democratic Party, Chancellor Merkel’s conservative party will progress. STOXX Europe 600 +0.5%, DAX +1.0%, CAC 40 +0.5%.
  • Asia capped off strong week with more gains; upbeat economic data out of China on Thursday remained a tailwind. Shanghai Composite +0.4%, Hang Seng +0.4%, Nikkei +0.2%.
  • Treasury yields firm with 10-yr. note holding near 2.62%.
  • Commodities: oil -1.3% to ~$63/bbl., gold +0.6% to ~$1334/oz., industrial metals mixed.
  • Economic calendar is light today with the University of Michigan Sentiment (94.4) coming in below consensus (97.0) and prior reading (95.9).

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Macro Notes

  • Government shutdown possible, but will it matter for markets? The last stopgap spending bill was passed on December 21, 2017, and extended funding for the Federal government until today, January 19, 2018. The House of Representatives passed another short-term funding measure last night, which would fund the government through February 16, 2018. However, support is more questionable in the Senate, which will continue to debate the bill today. A last minute deal to avoid a shutdown could still happen, but even if it doesn’t, the good news for investors is that government shutdowns have historically been a non-event for markets, as outlined in our recent blog. However, that won’t stop the ongoing conversations from generating headlines.
  • Is Strong Builder Sentiment Bullish or Bearish for the Industry? The latest data on the National Association of Home Builders Market Index remained near multi-decade highs. Is this bullish sentiment reading telling of strong momentum and continued growth for the industry? Or, is it an extreme contrarian condition which increases the likelihood for a trend reversal? Today on the LPL Research blog, we investigate.

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Friday

  • U. of Michigan Sentiment (Jan)

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