Market Update: Tuesday, February 13, 2018

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Market Recap

  • Domestic equities closed broadly higher, partially recouping losses from worst weekly decline since 2016. S&P 500 Index +1.4%, Dow +1.7%, Nasdaq +1.6%, Russell 2000 +0.9%.
  • Materials led sector performances; technology, energy outperformed as well. REITs, utilities lagged despite closing higher for the day.
  • Treasuries continued to soften. 10-year yield +3 basis points (0.03%) to 2.86%.
  • NYSE breadth positive (2.8:1), trading volume fell back in line (101% of 30-day average).
  • Commodities: WTI crude oil (+0.2% to $59.32/bbl.) slightly higher as supply worries persist (details below), COMEX gold +0.7% to $1324.20/oz., industrial metals mostly lower.
  • Economic data: Domestic infrastructure plan released, which calls for $200 billion in federal spending with hopes for an additional $1.3 trillion from state, local, and private investment.

Overnight & This Morning

  • U.S. equities open lower; focus remains on short volatility trading unwind and upward pressure on interest rates.
  • European stocks off session lows. U.K. headline inflation held at 3% in January; core accelerated to 2.7% from 2.5%, both above expectations, pushed the pound higher. FTSE 100 flat, STOXX Europe 600 -0.1%, DAX -0.1%.
  • Asian markets mostly tracked Monday’s U.S. gains, with Japan an exception. Nikkei -0.6% as the yen surged to five-month highs vs. the dollar; Shanghai Composite +1.0%, Hang Seng +1.3%.
  • Treasury yields edged lower; 10-year yield -3 basis points to 2.83%. Focus on deficit spending, inflation figures due out tomorrow.
  • Commodities supported by a weaker dollar. Oil -0.3% at $59.10/bbl., gold +0.5% to ~$1329/oz., copper +1.8%. U.S. Dollar Index -0.4%.
  • Economic releases: NFIB Small Business Optimism better than expected, near record high (106.9 vs. 105.3 consensus, 104.9 prior, 107.5 all-time high in November 2017). Percentage saying now a good time to expand at all-time high (32%).

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Macro Notes

  • Oil slide continues after OPEC ups global production forecast. In its monthly oil market report, released yesterday, the Organization of the Petroleum Exporting Countries (OPEC) increased its forecast for crude supply by 1.4 million barrels per day (BPD) vs. last month’s estimates; the forecast for demand increased by 60,000 BPD. The increase in its supply forecast is driven almost entirely by U.S. production, which in November topped 10 million BPD for the first time since 1970 and is expected to surpass Saudi Arabia’s production levels this year. This comes on the heels of a rebound in U.S. stockpiles, which had been declining the past few weeks.
  • Why own bonds? With yields remaining low relative to history, and the possibility of price headwinds for bonds if rates continue to rise, some investors are asking why they should even bother owning bonds. However, stock market volatility in recent weeks has served as a reminder of the diversification benefit of bonds, even in the face of rising rates. In this week’s Bond Market Perspectives, due out later today, we take a look at how bonds have performed during periods of equity market weakness (both recent and historical).

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Click Here for our detailed Weekly Economic Calendar

Tuesday

  • National Federation of Independent Business Small Business Optimism (Jan)
  • UK: CPI & PPI (Jan)
  • Japan: GDP (Q4)
  • Japan: Machine Tool Orders (Jan)

Wednesday

  • CPI (Jan)
  • Core CPI (Jan)
  • Retail Sales (Jan)
  • Business Inventories (Dec)
  • Eurozone: GDP (Q4)
  • Germany: GDP (Q4)
  • Italy: GDP (Q4)
  • Eurozone: Industrial Production (Dec)
  • Japan: Core Machine Orders (Dec)
  • Japan: Industrial Production and Capacity Utilization (Dec)

Thursday

  • Empire State Mfg. Report (Feb)
  • PPI (Jan)
  • Philadelphia Fed Mfg. Report (Feb)
  • National Association of Home Builders Housing Market Index (Feb)
  • Total Net TIC Flows (Dec)
  • Eurozone: Trade Balance (Dec)

Friday

  • Import & Export Price Index (Jan)
  • Housing Starts & Building Permits (Jan)
  • of Mich. Sentiment (Feb)
  • China: New Loan Growth and Money Supply (Jan)

 

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.

This research material has been prepared by LPL Financial LLC.

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