Market Update: Tuesday, February 6, 2018


Market Recap

  • U.S. equities continued sell-off. Move downward brought the S&P 500 Index’s performance to near flat for the year. Narrative for possible negative catalysts remains unchanged; concerns about valuations, rates, politics, and volatility all potential drivers. S&P 500 -4.1%, Dow -4.6%, Nasdaq -3.8%, Russell 2000 -3.6%.
  • Large drops among all equity sectors; risk-off utilities (-1.7%), REITs (-2.7%) outperformed; financials (-5.0%)–hurt by regulatory concerns–and healthcare (-4.5%) the most notable laggards.
  • Market breadth broadly lower; NYSE (-8.6:1), Nasdaq (-7.8:1); NYSE trade volume well above 30-day avg. (~147%).
  • Treasuries strengthened across the board; 10-yr. note -11 basis points (-0.11%) to 2.73%.
  • Commodities: WTI crude oil, hurt by increased supply from the U.S., closed down -2.5% to $63.81/bbl., COMEX gold held firm (0.25% to $1340/oz.), industrial metals mostly higher.
  • Economic data: Light domestic economic calendar, non-manufacturing ISM beat the consensus (59.9 vs. 56.2). Eurozone PMI composite data beat expectations as well (58.8 vs. 58.1).

Overnight & This Morning

  • Equity drop continues at the open; volatility persisting though declines not attributed to panic selling.
  • European stocks off session lows, but remain well under water midday. STOXX Europe 600 -2.4%, DAX -2.5%, CAC 40 -2.8%, FTSE 100 -1.5%.
  • Asian indexes followed suit; Nikkei (-4.7%) down as much as 7% at one point, rebounding yen helped stem losses; Shanghai Composite -3.4%, Hang Seng -5.1%.
  • Treasury prices slightly lower. 10-yr. note yield +3 basis points to 2.74%.
  • Commodities: Oil sliding ~1.3% to $63.30/bbl., gold gains muted (+0.1% to $1338/oz.), industrial metals falling.
  • Economic data: U.S. trade deficit greater than expected (-$53.1b vs. -$52.0b), above prior reading (-$50.4b).


Macro Notes

  • Is this the start of a major correction? With a record 15-month win streak for the S&P 500 on a total return basis still alive as of the end of January 2018, there is little doubt that market participants have been spoiled by the lack of volatility and upward bias in equities. The past week has been a harsh reminder that pullbacks do happen and although it is never fun when it happens, remember that this is a normal part of investing and illustrates why having a plan in place ahead of such pullbacks is so important. The positive takeaway, and why we believe a buying opportunity for suitable investors may be emerging, is that fundamentals continue to support the economy and corporate profits, thus the bullish case for equities. As we explained in our recent Weekly Market Commentary, Melt-Up or Melt-Down?, market breadth was healthy heading into this sell-off, credit spreads remain tight, and earnings are quite strong. Could this weakness continue? Absolutely. But, we do not believe this is the start of a new major bear market; more a potentially healthy shakeout of weak hands.
  • Tough first day on the job. Yesterday was Jerome Powell’s first day as Fed chair, and the S&P 500 dropped 4.1%, marking the worst daily drop since August 2011. We also saw the largest jump ever for the CBOE Volatility Index (VIX) up 115%, closing above 37 for the first time since August 2015. The Dow closed down 1,175 points, which was the largest point drop ever. However, to put things in perspective, it was only the 112th largest percentage drop ever (since 1896). Some streaks ended as well, as the S&P 500 finally corrected 5% for the first time in 404 days (the longest ever), while the S&P 500 turned negative year to date for the first time in 403 days (fifth longest ever). Technically, the S&P 500 also closed beneath its 50-day moving average for the first time since last August.
  • Treasury yields uptrend still intact, despite risk-off tone on Monday. Yields fell meaningfully across the interest rate curve on Monday, a healthy sign that Treasuries are still the sought after safe-haven* asset during risk-off scenarios. Despite this decline, the broad uptrend in yields continues its move started in late 2017, which was exacerbated on Friday with a stronger-than-expected wage growth print. Rising Treasury yields over the last week have led to a steepening of the yield curve, as rate hike expectations have kept the front end of the yield curve more tethered than the long end. In this week’s Bond Market Perspectives, we look into the rise in yields, and some factors that suggest that the move may pause, or even reverse slightly, in the future.


Click Here for our detailed Weekly Economic Calendar


  • Trade Balance (Dec)
  • Germany: Factory Orders (Dec)
  • China: Foreign Reserves (Jan)


  • Germany: Industrial Production (Dec)
  • France: Trade Balance (Dec)
  • Italy: Retail Sales (Dec)
  • ECB: Nuoy
  • Japan: Leading Index (Dec)
  • China: Imports & Exports (Jan)


  • Germany: Trade Balance (Dec)
  • Germany: Imports & Exports (Dec)
  • ECB: Publishes Economic Bulletin
  • ECB: Weidmann, Velleroy, Mersh, Praet
  • BOE: Bank Rate
  • Bank of Mexico: Overnight Rate
  • Japan: Money Supply (Jan)
  • China: CPI & PPI (Jan)


  • Wholesale Sales & Inventories (Dec)
  • France: Industrial Production (Dec)
  • Italy: Industrial Production (Dec)
  • UK: Industrial Production (Dec)
  • UK: Trade Balance (Dec)
  • UK: NIESR GDP Estimate (Jan)
  • Canada: Unemployment Rate (Jan)
  • Bank of Russia: Key Rate


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.

*US treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit and market risk. They are guaranteed by the US 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.

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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