Market Update: Tuesday, June 5, 2018

MacroView_header

Daily Insights

  • Italian politics dictated market action last week. Yields on Italian government debt spiked last week as investors grew nervous that the country’s populist government would attempt to pull Italy from the European Union. Yields in economies that investors perceived as more secure, like the U.S. and Germany, fell dramatically as investors flocked to safe havens. Although the market may have overreacted in the short term, the episode did well to highlight country-specific risk and the diversification benefits high-quality fixed income can add to a portfolio, as U.S. Treasuries performed well amid the global, risk-off sentiment. In this week’s Bond Market Perspectives, due out later today, we take a deeper dive into the market’s reaction to Italy and its implications for investors.

  • Treasury futures remain at historic net short levels. The positioning indicates market participants believe yields will move higher. However, this has been an important counter-cyclical indicator, as profits (or losses) on these positions can lead to buying Treasury futures to close them out, leading to a decline in interest rates over the short term. The U.S. 10-year yield advantage to Germany also hit new highs, but this may persist, or even increase, should downside risk in Europe become more pronounced, which could further hamper the European Central Bank’s ability to raise interest rates. However, all else equal, we still believe that foreign demand could be a factor that keeps Treasury yields at lower levels than they may otherwise be.

  • Eurozone sees continued weak data. The Eurozone services PMI dropped to 53.8 in May, from 54.7 in April. Although growth remained solid, the rate of expansion hit an 18-month low. This continues a recent string of disappointing economic data out of Europe, although it is worth noting that the UK services PMI hit a three-month high. For more on our thoughts on Europe, be sure to read this week’s Weekly Market Commentary.

  • More new highs across the board. Yesterday saw continued strength under the surface. In fact, the Russell 2000, Russell Microcap, technology sector, and Nasdaq all closed at new all-time highs. Not to be outdone, various advance/decline lines made new highs as well including: the S&P MidCap, Nasdaq 100, NYSE, NYSE common stock only, S&P 100, S&P small cap, and S&P 500. We continue to be quite impressed with overall market breadth and the health of the bull market.

  • Trump presidency hits 500-day mark. Depending on who you ask, President Trump has probably been either a complete success or utter failure over his first 500 days in office, but what does the market think? We’ll crunch the numbers today on the LPL Research blog.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Tuesday

  • Markit Svcs PMI (May)
  • Italy: Markit Svcs PMI (May)
  • France: Markit Svcs PMI (May)
  • Germany: Markit Svcs PMI (May)
  • Eurozone: Markit Svcs PMI (May)
  • UK: Markit Svcs PMI (May)

Wednesday

  • Trade Balance (Apr)
  • China: Foreign Reserves (May)

Thursday

  • Eurozone: GDP (Q1)
  • Japan: Current Account Balance (Apr)
  • Japan: GDP (Q1)
  • China: Trade Balance (Mar)
  • China: Imports & Exports (Mar)

Friday

  • Wholesale Inventories (Apr)
  • Germany: Industrial Production (Apr)
  • France: Industrial Production (Apr)

 

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.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

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.

All performance referenced is historical and is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured.  These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

For Public Use – Tracking # 1-736896 (Exp. 6/19)