Market Update: Thursday, September 20, 2018

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Daily Insights

  • New LPL Market Signals Podcast. On our latest LPL Research podcast, due out later today, Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick reflect on their memories of the financial crisis, and discuss the changes in today’s market landscape 10 years later. Please join our discussion on social via #LPLMarketSignals.

  • Global risk appetite increases. Investors around the world are diving back into risk. The MSCI All-Country World Index has climbed 7 of the last 8 days, reflecting a recovery in international stocks after emerging markets’ currency turmoil and trade tensions weighed down global markets. Increased global optimism has lifted the Dow, which tracks shares of larger, multinational U.S. companies, to within 1% of its all-time closing high reached in January.

  • 10-year yield surges higher. Higher risk appetite has boosted longer-term yields as investors pivot to stocks from government bonds (leading to lower Treasury prices and higher yields). The 10-year yield has closed above 3% for three straight days for just the second time since July 2011. The 10-year yield is also within 3 basis points (0.03%) of crossing its seven-year closing high (reached in May). We expect the 10-year yield to finish the year between 2.75% and 3.25%*, so longer-term yields may have limited short-term upside from these levels.

  • Peeling back the onion on developed foreign equity valuations. On the surface, MSCI EAFE Index valuations look compelling. The index is trading at a 20% discount to its average forward price-to-earnings ratio (PE) based on data back 1995 (according to FactSet). However, Japan is driving that discount with the MSCI Japan Index trading at a more than 40% discount to its 23-year average while Europe’s trades at a slight premium. We continue to believe Japan offers a better investment opportunity than Europe, with Abe’s re-election last night lending further support, though economic growth is slowing in both regions and we continue to favor U.S. and emerging market equities over developed foreign (as noted in our latest Portfolio Compass released yesterday).

  • China cuts tariff rates. China plans to cut tariff rates with the majority of its trading partners as soon as next month (as previously pledged). This move, coupled with pledges to increase foreign ownership of financial firms in China, highlights some areas of compromise in U.S.-China talks and indicates a better tone for negotiations than recent media reports suggest. In other news, U.S. and Canadian trade officials meet today ahead of the upcoming deadline to secure NAFTA 2.0 in time for Mexico’s outgoing President to sign it by the end of the month or the first week of October.

  • OECD lowers global growth projections. Today, the Organization for Economic Cooperation and Development (OECD) lowered its global growth forecast to 3.7% through the end of 2019, down from its March projection of 3.9%. The OECD highlighted increasing downside risks to the global economy in explaining its lowered forecast, including narrowing growth in major global economies and higher uncertainty around monetary policy normalization and trade restrictions.

  • Main Street’s positive outlook. While concerns about tariffs and accelerating inflation continue to appear, Main Street has kept a positive outlook on the U.S. economy. On today’s LPL Research blog, we update our proprietary Beige Book Barometer for the Federal Reserve’s (Fed’s) September Beige Book, a survey that reflects business conditions across firms in the Fed’s 12 districts.

LPLResearch-Monitoring-the-Week-Ahead

Click Here for our detailed Weekly Economic Calendar

Thursday

Friday

  • Eurozone Markit PMI (Preliminary, Sep)
  • Markit U.S. Manufacturing PMI (Preliminary, Sep)


IMPORTANT DISCLOSURES

*Additional descriptions and disclosure are available in the Midyear Outlook 2018: The Plot Thickens publication

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 company names noted herein are for educational purposes only and not an indication of trading intent or a solitication of their products or services. LPL Financial doesn’t provide research on individual equities.

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

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.

Index data obtained via FactSet

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