Market Update: Thursday, October 18, 2018

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Daily Insights

  • New LPL Market Signals Podcast. On the latest episode of the LPL Market Signals Podcast, listen to LPL Financial Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick discuss signs for strong third-quarter earnings and a potential year-end rally following the stock drop.

  • Fed minutes strike hawkish tone. Minutes from the September meeting painted a very positive view of the economy and indicated Federal Reserve (Fed) officials intend to continue hiking interest rates given the group’s expectation for the economic expansion to continue at a healthy clip amid labor market strength and firm inflation. In fact, most anticipate pushing rates above longer-term neutral levels in an effort to prevent the economy from overheating, a scenario seen as one in which inflation could persist above acceptable levels and “possibly contribute to a buildup of financial imbalances.” Stocks lost some momentum and Treasury yields ticked higher following the release, but rising rates on the heels of economic growth have historically been a tailwind for stocks, not a headwind.

  • China stocks, yuan fall as government looks to buoy sentiment. China’s Shanghai Composite tumbled 3% overnight to near four-year lows while the yuan dipped below August levels, a closely-watched threshold that had not been seen since early-2017. Weakness in the yuan followed an announcement from U.S. officials that they would not label China a currency manipulator, a move some interpreted as a green light for officials to let the currency fall further vs. the dollar. However, investor anxiety heightened over the government’s efforts to shore up economic growth in the face of the trade spat with the U.S., the expanded use of shares being posted as margin collateral-now representing 11% of China’s market-and concerns over mounting debt that are being compounded by the impact of rising interest rates. Expect a series of government data out tomorrow, including third quarter gross domestic product, foreign direct investment, industrial output, and retail sales, to be closely monitored for indications of the extent to which the government’s balancing act is working.

  • The calendar is a bull’s best friend. After six straight months of equity gains for the S&P 500 Index and one of the least volatile quarters ever, the historically volatile October is living up to its name. However, history also suggests that the majority of stock gains in midterm years, the best-performing year of the four-year Presidential cycle, tend to come in the last couple months. We’ll take a closer look later today on the LPL Research blog.

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Thursday

Friday

  • Existing Home Sales (Sept)
  • Baker Hughes U.S. Rig Count (Oct)


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