Market Update: Friday, February 9, 2018

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Market Recap

  • Stocks hit again. U.S. equities sharply lower Thursday, as selling in the final hour drove the S&P 500 Index (-3.6%) into correction territory. Dow -4.2%, Nasdaq -3.9%, Russell 2000 -2.9%.
  • All sectors closed lower. Financials (-4.5%), technology (-4.2%) the laggards, utilities (-1.2%) outperformed.
  • NYSE breadth was firmly negative as decliners outnumbered advancers 12.7:1.
  • Treasuries held firm; 10-yr. yield +1 basis point (0.01%) to 2.85% as the flight to safety was offset by deficit, inflation concerns.
  • Commodities: WTI crude oil lower by >2% to $60.40/bbl., COMEX gold (+0.5%) benefited from risk-off sentiment.
  • Economic data: Weekly jobless claims came in at 221K vs. 232K expected.

Overnight & This Morning

  • Stocks opened higher. U.S. markets up ~1% in early trading following news that Congress passed a two-year budget deal early this morning (details below).
  • Asian markets ended the week broadly lower. Nikkei -2.3% despite Prime Minister Abe saying that global volatility could discourage Bank of Japan from raising rates; Hang Seng -3.1%, Shanghai Composite -4.1%.
  • Europe in the red late-day despite largely positive industrial production numbers. STOXX Europe 600 -1.7%, DAX -0.4%, CAC 40 -0.5%.
  • Treasuries rallying, 10-yr. note yield -3 basis points (0.03%) to 2.82%; curve slightly flatter.
  • Commodities: Oil slide continues, sitting just above $60/bbl., gold unchanged at $1319/oz.
  • Economic data: Calendar is light today, December Wholesale Inventories (consensus 0.2%) will be released at 10:00 a.m. ET.

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Macro Notes

  • Government shuts down, then reopens. Congress failed to pass a continuing resolution to extend government funding before the midnight deadline on February 8, though it was able to pass a bill early in the morning. So after a five-and-a-half hour closure, the shutdown ended. The bill that was passed authorized more than $300 billion in additional spending over the next two years, but only funds government agencies through March 23, opening up the potential for yet another budget showdown toward the end of March. However, as our recent Timely Topics, “What do Government Shutdowns Mean for Investors” publication explains, government shutdowns have historically been a non-event for markets. We will discuss the spending bill in more detail later today on the LPL Research blog.
  • The correction is here. The S&P 500 is officially in a correction, as it has pulled back 10% for the first time since early 2016. Since 1950, on average there have been about three 5% pullbacks a year, one 10% correction a year, and one 20% bear market decline every seven years. Also, this is the first time in history the S&P 500 went from a new high to a correction in 9 days or less.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
  • The volatility continues. Global equity markets fell again yesterday, with the S&P 500 down 3.8%. Over the past 5 days the S&P 500 has lost 8.5%, marking the worst 5-day stretch since August 2015. To put things in perspective, the S&P 500 pulled back 2.8% (peak to trough) all of last year–the second smallest intra-year pullback ever. Two separate days this week saw larger pullbacks.

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Click Here for our detailed Weekly Economic Calendar

Friday

  • 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

 

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