Market Update: Monday, April 2, 2018

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Daily Insights

  • China announces retaliatory tariffs. China announced tariffs on 128 U.S. products with a focus on the agricultural sector in response to the recently imposed U.S. steel and aluminum tariffs. The size of the tariffs put into place recently by the U.S. remains very small compared to recent fiscal stimulus, but further escalation is still a concern. The U.S. will soon be announcing details on additional tariffs on China in response to intellectual property violations.

  • Quarterly win streak ends at nine for the S&P 500. The S&P 500 Index slipped 0.8% during the volatile first quarter that saw the index suffer its first 10% correction since early 2016. Weakness was driven by several factors, including Federal Reserve rate hike fears, which were sparked by evidence of wage pressures and the change in leadership at the central bank; and escalating trade tensions with China. The unwinding of the short volatility trade, softening economic data, and late quarter technology sector weakness also played a role. Winners in the quarter included: growth, small caps, technology, consumer discretionary, and emerging markets. We recap the first quarter equity market in greater detail in this week’s Weekly Market Commentary, due out later today. A preview will be available on the LPL Research blog early this afternoon.

  • Market fundamentals remain favorable. The down quarter does not necessarily mean fundamentals have deteriorated. While risks associated with protectionist U.S. trade policy should be acknowledged, we continue to expect economic growth to accelerate this year, in large part due to the effects of the new tax law, which should give earnings a significant boost. We continue to see double-digit returns for the S&P 500 for the year, reflected in our year-end fair value S&P 500 target of 2,950-3,000.*

  • Inflation, GDP, earnings in focus in April. Inflation will be a key data point to watch in April, as market participants continue to gauge the likelihood of four rate hikes in 2018 rather than three. The first estimate of gross domestic product (GDP) for the first quarter of 2018 will also be released toward the end of the month, with consensus expectations currently at 2.5% in a quarter that has historically seen weaker growth than the rest of the year. However, markets might be most focused on earnings season, which will unofficially launch on April 13 when several large banks report. We provide greater detail on all three key events in this week’s Weekly Economic Commentary.

 

*LPL Research’s S&P 500 Index total return forecast of 8–10% (including dividends), is supported by a largely stable price-to-earnings ratio (PE) of 19 and LPL Research’s earnings growth forecast of 8–10%. Earnings gains are supported by LPL Research’s expectations of better economic growth, with potential added benefit from lower corporate tax rates.

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Monday

  • Markit Mfg. PMI (Mar)
  • Construction Spending (Feb)
  • ISM (Mar)
  • Japan: Vehicle Sales (Mar)
  • Japan: Monetary Base (Mar)

Tuesday

  • Wards Vehicle Sales (Mar)
  • Germany: Retail Sales (Feb)
  • Italy: Markit ADACI Italy Mfg. PMI (Mar)
  • France: Markit France Mfg. PMI (Mar)
  • Germany: Markit Germany Mfg. PMI (Mar)
  • Eurozone: Markit Eurozone Mfg. PMI (Mar)
  • UK: Markit UK Mfg. PMI (Mar)
  • Russia: GDP (Q4)
  • Japan: Nikkei Japan Services PMI (Mar)
  • China: Caixin China Services PMI (Mar)

Wednesday

Thursday

  • Challenger Job Cuts (Mar)
  • Weekly Jobless Claims (Mar 31)
  • Trade Balance (Feb)
  • Bostic (Dove)
  • Germany: Factory Orders (Feb)
  • Italy: Markit ADACI Italy Services PMI (Mar)
  • France: Markit France Services PMI (Mar)
  • Germany: Markit Germany Services PMI (Mar)
  • Eurozone: Markit Eurozone Services PMI (Mar)
  • UK: Markit UK Services PMI (Mar)
  • Eurozone: PPI (Feb)
  • Eurozone: Retail Sales (Feb)
  • RBI: Repurchase Rate (Apr 5)
  • ECB: Monetary Policy Meeting Accounts

Friday

 

  • Change in Non-farm, Private & Manufacturing Payrolls (Mar)
  • Unemployment Rate (Mar)
  • Average Hourly Earnings (Mar)
  • Average Weekly Hours (Mar)
  • Labor Force Participation & Underemployment Rates (Mar)
  • Consumer Credit (Feb)
  • Germany: Industrial Production (Feb)
  • Japan: Leading Index (Feb)

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

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