Market Update: Tuesday, May 1, 2018


Daily Insights

  • The Federal Reserve (Fed) meeting starts today. The Federal Open Market Committee’s latest meeting begins today, and a statement will be issued following the meeting at 2:00 p.m. ET tomorrow. (There will not be a post-meeting press conference or updated economic forecasts following this meeting.) Fed fund futures aren’t completely discounting the possibility of a rate hike tomorrow, putting the odds at 36%; however, we believe the Fed is likely to wait until the June 12-13, 2018 meeting for their next move.

  • Personal consumption expenditures (PCE) inflation nearing Fed target. The Fed’s favored measure of inflation, core PCE, was released yesterday, showing an increase of 0.2% month over month, or 1.9% year over year. This is much closer to the Fed’s 2% target than last month’s 1.6% reading, though at least some of the move was due to an easy comparison to last March (which saw PCE inflation decrease by 0.2% month over month). The moderate increase in inflation in recent months has led to a slight increase in the market’s rate hike expectations, with fed fund futures markets now evenly split between two and three more rate hikes (for a total of three or four) in 2018. This debate will go on, but it is important to remember the bigger picture–the fed funds rate at 1.75% remains low relative to history (average is 5.25% since 1971, and 3.67% since 1985) and is unlikely to cause major problems for the economy regardless of whether we get a total of three or four rate hikes this year.

  • The search for income continues. The yield on the 10-year Treasury note briefly topped 3% last week, before falling back slightly. 3% is a key psychological level for the market, though it isn’t that much different than the 2.8% to upper 2.9% range it has held since early February. The recent rise in Treasury yields has also led to higher yields in other areas of the bond market, a potential benefit for those who are seeking income. We discuss the impact of the recent rise in rates for the broader bond market, and go into more detail about income-oriented sectors in this week’s Bond Market Perspectives, due out later today.

  • The worst six months. As we discussed on the LPL Research blog yesterday, the dreaded “Sell in May” period kicks off today, as the S&P 500 Index historically has done worse during the next six months than any other six-month stretch–up only 1.5% on average and higher 63.2% of the time. What is important to note though is that when the S&P 500 has been above its 200-day moving average and the previous six months (the best six months of the year) are higher (like 2018), the average return jumps to 3.3% with gains 70.2% of the time.


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  • Markit Mfg. PMI (Apr)
  • ISM Mfg. PMI (Apr)
  • Nikkei Japan Svcs. PMI (Apr)






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