Market Update: Friday, June 22, 2018

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Daily Insights

  • LEI continues to support a strong economy. The Leading Economic Index (LEI) jumped 0.2% in May, after being up 0.4% each of the past two months. Although it was expected to be up 0.4% this time around, it still shows an improving economy. This index comprises 10 components (e.g., jobless claims, factory orders, and confidence) to show a picture of future economic health. This is one of Five Forecasters that we use as a warning sign for a pending economic slowdown, and fortunately we see little reason to expect a recession over the next 12 months. Year over year, this index is up +6.1%, well above the negative year-over-year signal that has preceded every recession going back to the early 1970s.

  • OPEC agrees to boost production. After two days of meetings, OPEC and its allies have agreed to increase production by ~1 million barrels/day starting in July; however, given constraints on some members’ abilities to pump more crude, analysts expect the an increase will likely be in the 600k-800k range. While the headlines suggest oil prices would be pressured lower, both WTI crude oil and Brent crude oil are up more than 1.5% this morning as forecasts from the IEA show that supply will still likely fall short of demand, and Saudi Arabia’s Energy Minister suggested no one should expect to see an “immediate flood” of oil.

  • Banks pass stress tests. Round one of the Federal Reserve’s (Fed) required testing for banks deemed “systemically important” to determine how they’d fare under severe economic conditions showed all 35 institutions received a passing grade for required capital minimums; though a few firms cleared the hurdle by a relatively small margin. Next week’s second (and final) round of testing, in which regulators scrutinize banks’ capital plans, will be more eagerly anticipated by investors as they gauge whether any of the banks’ plans to boost dividends and/or buybacks could have to be pared down in order get a signoff from the Fed. Overall, the results suggest U.S. financial institutions remain in good shape.

  • Dow down 8 days in a row. The Dow finished red again yesterday, matching the longest losing streak since March 2017. You have to go back to early 1978 for the last time it was down 9 days in a row. Although this sounds bad, the good news is that returns tend to be quite strong in the near-term after long losing streaks. In fact, since 1982, the Dow has been higher every single time three months after an 8-day or more losing streak ends (6 for 6). You can read more of our thoughts on this streak on the LPL Research blog here.

  • Make that 500. The Dow might be down 8 days in a row, but yesterday it officially closed above its 200-day moving average for the 500th consecutive day. This is the longest such streak since 1987 and one of the longest ever. This is yet another way of showing how rare and persistent this bull market has been the past few years. Although this streak will eventually end, the good news is various technicals we follow remain strong and this bull market likely has plenty of life left.

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Friday

  • Markit Mfg. PMI (Jun)
  • France: GDP (Q1)
  • France: Markit Mfg. PMI (Jun)
  • Germany: Markit Mfg. PMI (Jun)
  • Eurozone: Markit Mfg. PMI (Jun)

 

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