Market Update: Friday, May 26, 2017

MarketUpdate_header

Yesterday’s Market Activity

  • S&P 500, Nasdaq hit new record highs, Dow tied its record close, originally set March 1. It is the 19th record close for the S&P this year, already exceeding 2016 count. Major U.S. equity indexes up six consecutive days, wiping out last Wednesday’s losses.
  • Investors rallying around solid profits, improved economic readings, and still accommodative monetary policy on a global scale
  • Consumer discretionary (+0.9%) led sectors, with electronic retail and streaming video providing underlying strength

Overnight & This Morning

  • Stocks in Asia mostly flat; Japan’s Nikkei and Australia’s ASX fell.  Energy producers led weakness as commodity currencies retreated
  • Japanese yen inched higher vs U.S. dollar as Japan Consumer Price Index (CPI) (+0.4%) rose for a fourth consecutive month in April, yet still well below the Bank of Japan’s (BOJ’s) 2.0% target
  • European shares down fractionally (Euro Stoxx 600 -0.5%)
  • Pound sterling weakened as polls show Tories lead over Labour has narrowed to just five points with two weeks to go before election
  • Most sovereign bonds rose, with 10-year Bund yield down 0.02% to 0.34%
  • Euro up slightly, to $1.22
  • Commodities – WTI crude oil stabilized +0.5% to $49.00/bbl., paring first weekly decline this month; COMEX gold ($1266/oz.) rose, copper (-0.2%) retreated from a three-week high
  • U.S. markets slightly lower in early trading, dollar weakening slightly while Treasuries nudge higher; yield on the 10-year below 2.25%
  • Q1 GDP better than expected, led by consumption, though durable goods orders less than forecast (-0.7%)

 

MacroView_header

Key Insights

  • OPEC and oil prices. The energy sector (-1.8%) pulled back yesterday along with oil prices (WTI -4.8%) on disappointment that the announced Organization of the Petroleum Exporting Countries (OPEC) cuts (March 2018) were not deeper than hoped; clearly, another example of buy the rumor, sell the news. There continue to be concerns about U.S. shale production escalating despite OPEC as the U.S. is the new swing producer. We remain Neutral on the energy sector, and expect oil prices to be $50-55/barrel at best over the next 12 months.
  • FOMC minutes. Minutes from Federal Open Market Committee (FOMC) meeting on Wednesday stated monetary policymakers were comfortable that Q1 gross domestic product (GDP) weakness was transitory. However, the market reacted with the a rallying 10-year Treasury (yields fell) and dollar weakness, suggesting the market does not share the Federal Reserve’s (Fed’s) outlook. It’s conceivable that June will be the last rate hike of 2017.

Macro Notes

  • Durable goods orders decline but see large upward revisions. Durable goods orders fell in April, but there was some good news behind the headline numbers. New orders declined 0.7%, better than expectations of a 1.0% decline, but March saw a sizable upgrade from +0.7% to +2.3%. Orders ex-transport were more disappointing, seeing a 0.4% decline versus expectations of a 0.4% increase, but March also saw a solid upward revision from -0.2% to +0.8%, more than offsetting the miss. Shipments of nondefense capital goods ex-air, which flow directly through to GDP as business spending, fell 0.1%. While the report was negative, it was a smaller reset than expected after four consecutive months of gains.
  • Q1 GDP sees meaningful upward revision. The economy grew 1.2% in the first quarter of 2017, better than the initial estimate of 0.7% and well ahead of consensus expectations of +0.8%. The upgrade was helped by a more positive picture of business investment, which had already posted a strong quarter, and a slightly better picture of consumer spending. The upgrade alleviates some concerns of economic slowing in the first quarter and increases the likelihood of a June rate hike.
  • Day 100 is in the books. The S&P 500 Index traded for the 100th day of 2017 yesterday. For the year it is up 7.9% and has made 19 new all-time highs. That is the most all-time highs as of day 100 since 1999. What does a good start to the year mean? Since 1950[1], there were 23 other years the S&P 500 Index was up 7.5% or more as of day 100 and the rest of the year it was higher 20 of those times with an average return of 9.0% the rest of the year. The full year return those 23 years was 23.4%.

    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Friday

  • GDP (Q1)
  • Personal Consumption (Q1)
  • Durable Goods Orders (Apr)
  • Capital Goods Shipments & Orders (Apr)
  • Italy: Business Confidence in the Mfg. Sector (May)
  • Italy: G7 Leaders Meet in Sicily

Saturday

  • BOJ: Kuroda

 

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.

Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

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.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

 Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

 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 # 1-612234

 

The Skeptic’s Guide to Sustainable Investing

Asset growth in sustainable investments, a term that refers to strategies that attempt to augment traditional financial analysis with analysis of additional factors such as environmental, social, and governance (ESG) practices, has been strong in recent years, with U.S. assets under management totaling more than $8.7 trillion in 2016, or nearly one out of every five dollars under professional management.[1] However, even with recent growth, there are still some broad misconceptions about these types of strategies, two of which we address below:

  • Sustainable investing methods haven’t changed over time.

Sustainable investing strategies actually have evolved, and the changes may surprise those who haven’t looked at the space in some time. Many investors associate sustainable investing with socially responsible investing (SRI), which avoids investments in companies or industries on the basis of moral values and standards. However, SRI is just one strategy among many. The term sustainable investing also includes several other strategies outlined in the infographic below

  • Sustainable investing constrains the investment universe, potentially leading to lower returns.

This is a common concern about sustainable investing that may keep some investors away from the strategy. However, sustainable investing has evolved from its SRI roots to incorporate other strategies, including ESG investing, which focuses on finding companies that are best in class in this area rather than using an exclusionary approach. The idea is that by selecting companies with stronger ESG practices, investors may be able to avoid legal, reputational, and other risks that could lead to financial losses. Our recent Thought Leadership publication, Sustainable Investing, begins with examples of such situations.

Sustainable investing is not a new concept, and we understand the trepidation that some investors feel regarding the term. Although exclusionary approaches have worked well for some, we recognize they are not for everyone. Our main goal in bringing this topic back to the forefront is to ensure that investors and their advisors are aware of the evolving nature of the space, and that it may be worth a second looknot only for those who want to align their investments with their values, but also for investors who are concerned that ESG factor risks could turn into financial challenges for companies.

IMPORTANT DISCLOSURES

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.

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.

Sustainable Investing is subject to numerous risks, chief amongst them that returns may be lower than if the advisor made decisions based only on investment considerations.

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 # 1-611818  (Exp. 05/18)

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] Source: LPL Research, US SIF Foundation, 2016

Market Update: Thursday, May 25, 2017

MarketUpdate_header

Yesterday’s Market Activity

  • S&P 500 at new record high, relatively muted bond market reaction following Fed minutes. Dow, Nasdaq rose 0.4%, S&P 500 up 0.25% to new record close of 2404.39.
  • Market shrugged off Moody’s China downgrade. News caught few investors off guard.
  • No clear trend in sector performance. Defensive sectors among top performers, but materials led, telecom was the biggest laggard among S&P sectors. Utilities, real estate outperformance could signal some market participants expect economic growth pause to continue, bond yields to stay low.
  • Oil weaker ahead of OPEC meeting. WTI crude oil ($51.36/bbl.) slipped 0.2%, breaking a five-day win streak. Dollar, COMEX gold slightly lower, 10yr Treasury down 0.01% to 2.27%
  • Existing home sales fell 2.3% month-over-month in April to 5.57 million annualized; Bloomberg forecast 5.65 million, down from March’s downwardly revised 5.70 million rate. The median existing-home price, unsold inventory ticked up. Separate report from Federal Housing Finance Agency showed home prices up month over month and year over year.

Overnight & This Morning

  • U.S. equity markets up slightly with no clear catalyst. S&P 500 +0.3%
  • Mixed session in Europe, though major indexes all near flat late in the session.
  • Asian markets rose overnight, tracking yesterday’s U.S. gains, Hong Kong’s Hang Seng (+0.8%), China’s Shanghai Composite (+1.4%) up notably, evidence China debt downgrade did little to shake confidence in the region.
  • Oil lower despite OPEC news. News of nine month extension to Organization of the Petroleum Exporting Countries (OPEC) production cut agreement was expected, therefore not helping prices (-0.6% below $51/barrel).
  • New claims for unemployment insurance remain near multi-decade lows, indicating continued strength for the job market. Other economic data on the docket include U.S. trade, and U.K and Spain final Q1 gross domestic product (GDP), Japan Consumer Price Index (CPI). Earnings reports continue to straggle in globally.

 

MacroView_header

Key Insights

  • June rate hike still looks like a go. The Federal Open Market Committee (FOMC) minutes yesterday afternoon indicated that the committee views the first quarter economic slowdown as transitory, supporting a hike in June and potentially one more before year end. At the same time, guidance on Federal Reserve (Fed) balance sheet normalization was more gradual than some envisioned, providing something for both the hawks and the doves.
  • Healthcare waiting game. Yesterday’s scoring of the House healthcare plan (the AHCA) by the Congressional Budget Office (CBO) highlights the tough political road ahead for Republican’s “repeal and replace” efforts. Concerns healthcare reform may be pushed aside this summer because it is too politically difficult may be causing some speculation that tax reform comes sooner and is scaled down. Now we wait for a Senate proposal, which will look very different form the House version and will probably not be brought to a vote for several months. Healthcare-and the ongoing 2018 budget process-are both very important for markets because of the implications for tax reform which still is probably not much better than a 50/50 shot at getting done by year end in our view.

Macro Notes

  • Fixed income market reaction to FOMC minutes was restrained, with Treasury yields fairly quiet along the yield curve. The Fed indicated a slightly more gradual approach to balance sheet tapering than some investors envisioned, leading to slight declines in longer-term Treasury yields and a decent day for high-quality fixed income. Solid results for the 5-year Treasury auction also provided strength. The FOMC indicating that they view first quarter economic slowdown as transitory helped confirm the markets’ expectation for a June rate hike. Lower-quality fixed income performed well amid equity market strength.
  • Goods deficit widens. Preliminary estimates indicated the U.S. trade deficit in goods widened an April, missing consensus expectations of a slight improvement. Vehicle and consumer goods exports were the main sources of weakness. The report is a negative for second quarter GDP and may indicate some weakening in global consumer demand, but the impact is likely to be limited.

 

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Thursday

Friday

  • GDP (Q1)
  • Personal Consumption (Q1)
  • Durable Goods Orders (Apr)
  • Capital Goods Shipments & Orders (Apr)
  • Italy: Business Confidence in the Mfg. Sector (May)
  • Italy: G7 Leaders Meet in Sicily

Saturday

  • BOJ: Kuroda

 

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.

Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

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.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

 Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

 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 # 1-611860