Market Update: Tuesday, March 27, 2018

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Daily Insights

  • 10-Year Treasury remains in recent range. Both 2-year and 10-year Treasury yields moved higher as last week’s Federal Reserve (Fed) meeting neared, but ultimately remained within their recent ranges for the week. The 2-year yield fell after the Fed’s latest dot plots showed an expectation of three rate hikes in 2018 (some market participants had expected it to show four). The 10-year yield inched lower following the Fed meeting but fell further as equities saw weakness on Thursday and Friday, illustrating the diversification benefit of bonds as the S&P 500 Index fell 5.93% for the week while the Bloomberg Barclays U.S. Aggregate Bond Index held up with a 0.03% gain.

  • Is LIBOR OIS Spread Widening a Concern? The spread between the London Interbank Offering Rate (LIBOR) and the Overnight Indexed Swap (OIS) has widened to its highest level since 2008, grabbing headlines but in our view not portending anything ominous at this point. LIBOR tracks the rates charged for short-term loans between banks, while OIS tracks closer to the fed funds rate. We believe the recent move is worth monitoring, though it’s likely more technical in nature and not an indication of problems in the banking sector. We discuss this topic in more detail in this week’s Bond Market Perspectives, due out later today.

  • Now that’s a bounce. Stocks had a huge bounce after fears over a full blown trade war calmed. Yesterday’s 2.7% gain for the S&P 500 marked its best day since late August 2015. Additionally, the index found support right at its 200-day moving average. This trendline has provided support multiple times since mid-2016. Incredibly, this is now the fourth longest streak above the 200-day moving average since World War II. We take a look at this interesting phenomena today on the LPL Research blog.

  • Latest on trade. There were no notable developments yesterday in U.S.-China trade negotiations; however, it was noted that Chinese officials are working to finalize new regulations by May that would allow foreign financial groups to take major stakes in securities companies. Additionally, Beijing has offered to buy more U.S. semiconductors in an effort to reduce its $375 billion annual merchandise trade surplus.

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Tuesday

Wednesday

  • MBA Mortgage Applications (Mar 23)
  • GDP (Q4)
  • Advance Goods Trade Balance (Feb)
  • Wholesale Inventories (Feb)
  • Retail Inventories (Feb)
  • Pending Home Sales (Feb)
  • Germany: Consumer Confidence (Apr)
  • France: Consumer Confidence (Mar)
  • Italy: Industrial Sales & Orders (Jan)
  • UK: Consumer Confidence (Mar)
  • UK: Lloyds Business Barometer (Mar)
  • China BOP: Current Account Balance (Q4)
  • Japan: Retail Sales (Feb)

Thursday

Friday

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The prices of small cap stocks are generally more volatile than large cap stocks.

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