Last Week’s Market Activity

• Stocks near flat Friday but S&P 500 (+0.5%), Nasdaq (+1.2%) both rose for the week with help from a good start to earnings season, continued support from global central banks, which put some downward pressure on rates, U.S. dollar. Friday’s marginal decline ended Nasdaq’s 10-session win streak.
• Friday’s 2.5% drop in WTI crude oil weighed on energy, down 2.1% for the week, while tech strength propelled the sector to its first new high in 17 years.
• Strong Treasuries meant strong utilities. 10-year Treasury yield -9 basis points (0.09%) on the week to 2.32%, sending utilities up 2.6%.

Overnight & This Morning

• U.S. stocks little changed as with focus on earnings, central banks, Republicans’ last-ditch healthcare reform effort.
• Treasuries flat, U.S. dollar up slightly vs. euro ($1.166), down slightly vs. yen (¥110.8) and sterling ($1.303). Latest U.S. dollar weakness increasingly getting Wall Street’s attention.
• Europe mixed to lower, with U.K. FTSE (-1.1%) an outlier to the downside. Eurozone manufacturing PMI at 56.8, a good absolute number but behind forecast and previous period. Services PMI came in as expected at 55.4. Appears Germany responsible for most of that weakness.
• Asia mostly higher, though Japan (-0.6%) an exception. Yen strength weighing on Japanese exporters. Nikkei PMI 52.2, down from previous of 52.4.
• Oil higher as global oil ministers assess efficacy of production agreement in “OPEC-plus” meeting.
• IMF left 2017 global growth forecasts unchanged, revised U.S. down; Europe, China up.
• Today’s economic calendar includes preliminary U.S. “flash” purchasing manager’s index (PMI) from Markit, existing home sales data.

Key Insights

• Huge earnings week with 190 S&P 500 companies reporting. Generally, in recent months, when investors have been more focused on the micro (corporate profits) rather than the macro (Washington, D.C.), stocks have fared better. Still, we still expect D.C. to help earnings in 2018 by delivering tax reform, as discussed in this week’s Weekly Market Commentary.
• The declining U.S. dollar is beginning to negatively impact foreign stocks. Since last Thursday, when the European Central Bank issued what was perceived to be somewhat hawkish comments, the euro has increased 1.5%, the German DAX Index has declined 3%, and the French CAC 40 Index is down about 2.5%. We see a similar, though not as extreme, pattern in Japan, where then yen has appreciated 1.3% in the past few days, while Japanese stocks have declined 1%.The US dollar has declined 8.2%, as measured by the DXY index, since the beginning of the year. This has benefited investors who have held international assets, as the value of the holdings in dollar terms has increased. However, major export oriented countries like Japan and Germany do not want to see the dollar fall too far, too fast, as it may make their exports less competitive. Recent stock market activity suggests the market may becoming more sensitive to this issue.

Macro Notes

• Pivot to Tax Reform? In this week’s Weekly Market Commentary, we share our updated thoughts on tax reform’s prospects and some implications for the healthcare sector following the latest healthcare developments in Washington, D.C. We continue to believe a tax deal gets done in early 2018 that will provide a nice boost to corporate profits and help support stock valuations.
• Financials and tech strength drive solid earnings upside. With just 20% of S&P 500 companies having reported results, second quarter 2017 earnings are tracking +9.6% year over year, 1.6% ahead of June 30 estimates. Beat rates for both earnings (74%) and revenue (70%) are above average. The majority of the upside has been driven by financials and technology, although energy is still expected to make the biggest contribution to growth for the quarter. Despite a slight dip in estimates (-0.4%) since quarter end, consensus still reflects a roughly 10% year-over-year increase over the next four quarters.

• Get ready for Focus. Today on the LPL Research blog we preview Focus 2017! One week from today we will be at our flagship conference which runs from Sunday, July 30 to Wednesday, August 2. Our CEO Dan Arnold and Managing Director and Chief Investment Officer Burt White will present on the main stage to 6,000 people, along with other big-name presenters. While the rest of the Research team will take part is smaller breakout sessions, along with a Morning Call each morning.
• Small losses are all the rage. The S&P 500 Index closed down 0.04% on Friday, which has been the norm lately – consistently small losses. In fact, the past four times the S&P 500 fell, all four times were by less than -0.10%. That hasn’t happened since a streak of five in January 1995. Last, nine of the past 14 red closes were by less than -0.10%.

Click Here for our detailed Weekly Economic Calendar

Monday

• Markit Mfg. & Services PMI (Jul)
• Existing Home Sales (Jun)
• France: Markit France Mfg. & Services PMI (Jul)
• Germany: Markit Germany Mfg. & Services PMI (Jul)
• Eurozone: Markit Eurozone Mfg. & Services PMI (Jul)
• BOJ: Minutes of Jun 15-16 Meeting
• Japan: Composite of Business Cycle Indicators Leading & Coincident Indexes
• China: Conference Board LEI (Jun)

Tuesday

• Case-Schiller US Home Price Index (May)
• Conference Board Consumer Confidence (Jul)
• Richmond Fed Report (Jul)
• Germany: Ifo (Jul)

Wednesday

• New Home Sales (Jun)
• FOMC Rate Decision
• UK: GDP (Q2)
• South Korea: GDP (Q2)

Thursday

• Durable Goods Orders (Jun)
• Capital Goods Shipments & Orders (Jun)
• Wholesale Inventories (Jun)
• Advance Goods Trade Balance (Jun)
• Chicago Fed National Activity Report (Jun)
• Germany: Retail Sales (Jun)
• Eurozone: Money Supply (Jun)
• BOJ: Summary of Opinions at Jul 19-20 Meeting
• Japan: CPI (Jun)
• Japan: Jobless Rate (Jun)
• Japan: Retail Sales (Jun)

Friday

• GDP (Q2)
• Core PCE (Q2)
• France: GDP (Q2)
• France: CPI (Jul)
• Germany: CPI (Jul)
• UK: Nationwide House Prices (Jul)
• Eurozone: Consumer Confience (Jul)
• Canada: GDP (May)

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC
Tracking # 1-627961

After a rough June, technology has come roaring back with the S&P 500 Information Technology Index finally clearing its March 2000 peak and the tech-heavy Nasdaq Composite Index up 10 days in a row for the first time since early 2015. The obvious question is: Can this potentially continue? We think so.

First things first; it took the S&P 500 Information Technology Index 4,354 days to clear its March 27, 2000 closing high, but it finally did on Wednesday, July 19. Here’s the catch. Per Ryan Detrick, Senior Market Strategist, “Some might think because tech is at new highs this means we are in a bubble, but we would disagree. Tech is 42% away from a real high if you factor in inflation, meaning there still could be plenty of room to run. Not to mention earnings are strong and valuations are still modest, a recipe for higher longer-term prices in our book.”

Tech has been strong recently, but on a longer-term basis relative to the S&P 500 Index, it took years to get over the tech bubble hangover. As the chart below shows, tech isn’t as extended as it might seem and could continue to be a major driver of equity gains.

Last, yesterday (July 20) the Nasdaq closed in the green for the tenth day in a row. This is significant, as history would suggest near-term strength could continue. In fact, since 1980, the Nasdaq has gained 2.6% on average during the month following a 10-day win streak versus an average monthly return of 1.0%. Looking at this same period, three months later things became more normal. Over the next several weeks though, the bulls could still be in charge.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

Stock investing involves risk including loss of principal.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S.-based common stocks listed on the NASDAQ stock market. The index is market-value weighted. This means that each company’s security affects the index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. It is not possible to invest directly in an index.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The S&P Information Technology Index is comprised of stocks primarily covering products developed by internet software and service companies, IT consulting services, semiconductor equipment and products, computers and peripherals, diversified telecommunication services, and wireless telecommunication services.

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.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC

Tracking #1-627624; Exp. 07/17