Wage Data Bucks the Inflation Narrative

Financial markets are desperately looking for direction these days.

One issue rattling markets is the constant debate over the state of inflation. Inflationary pressures have accelerated this year, but over the past month, investors have braced for the threat of deflation. As shown in the LPL Chart of the Day, breakeven rates, or the difference between the yields of nominal Treasuries and those of Treasury Inflation-Protected Securities (TIPS), plunged last month. The 2-year breakeven rate is now sitting near a 16-month low.

Continue reading

Market Update: Fri, Dec 7, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

Are we forming a triple bottom? Yesterday’s reversal occurred at significant support for the S&P 500 Index, marking the third time since October that stocks have tried and failed to close below 2630. This, combined with a number of elevated sentiment indicators, increases the odds of stocks moving higher in our view. Later today on the LPL Research blog, we take a closer look at whether yesterday may have been the final washout in the bottoming process.
Continue reading

Market Update: Thurs, Dec 6, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

Stocks sliding again as bottoming process continues. After the 3-4% selloff Tuesday, the S&P 500 Index continues to slide in early trading. We view this morning’s action as progress toward a stock market bottom, and we could see enough fear today to set the stage for the next rally based on prior support levels, breadth, volume, put option activity, and other sentiment indicators suggesting a potential washout. While news that Chinese telecom provider Huawei violated economic sanctions against Iran isn’t helping, recent weakness has stemmed from three primary issues, all of which are tied to global growth concerns: Continue reading

Market Update: Wed, Dec 5, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

Tough day for stocks. After their best week of the year last week, followed by healthy gains on Monday, major indexes did an about-face and fell more than 3% yesterday. Several catalysts drove traders to the sidelines (and into Treasuries): Inversion at the short end of the yield curve heightened recession fears and weighed on financials. In addition, the latest headlines from Washington, D.C. suggested President Trump’s successful characterization of what was agreed to with China may have been overstated. Additional details have been scarce and those that were available have conflicted, leading to doubts about whether 90 days is enough time to solidify meaningful terms. Profit taking likely also played a role after such strong gains last week.
Continue reading

Market Update: Tue, Dec 4, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

Short end of the yield curve inverts. The spread between 3- and 5-year, as well as 2- and 5-year Treasury yields turned negative yesterday for the first time since July 2007, though neither are reliable indicators of a pending recession. Instead, investors are effectively putting the Federal Reserve (Fed) on notice that its projected path of rate hikes between now and the end of next year is too aggressive. Fed fund futures currently suggest we’ll likely see two hikes next year at most, which aligns with our outlook, as global investors (and the Fed) start to appreciate the effects of the Fed’s balance sheet reduction, the impact of dollar strength, and the lack of threatening wage pressures.

Continue reading

Market Update: Mon, Dec 3, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

  • Risk-on back on after clarity on Fed policy, trade. After a speech from Federal Reserve (Fed) chair Jerome Powell last Wednesday provided relief for investors that policy would not be as tight as feared in the coming year, global equities momentum is continuing after the U.S. agreed to postpone a planned increase in tariffs on $200 billion of Chinese goods as the two countries restart negotiations in earnest. The two sides are set to meet in Washington beginning in mid-December with a focus on the longstanding issues troubling American business leaders, including the forced transfer of technology, intellectual property protection, and cybersecurity. It is also expected that China will purchase more U.S. goods in agriculture, industrials, and technology. The goal is that the opening of these markets will help restore balance to global trade, while reducing the costs of cross-border commerce. While hard-liners may view the truce as a temporary delay tactic, we view any clarity relative to supply chain disruptions, input costs, and tariffs as supportive for further growth in trade and capital investment. It should also be noted that the 90-day timeframe, ending on or around March 1, would occur just before China’s annual national legislative session, normally a period where Chinese leaders are wary of making international concessions. Any escalation of the tariff war could be perceived as embarrassing for President Xi leading into this meeting. In our latest Weekly Market Commentary, due out later today, we share more of our thoughts on these major market-moving events and reiterate our positive stock market outlook.

Continue reading

Time for Santa?

2018 has been a rocky year with a big dose of volatility, but could a late-year rally be in store for investors? History says it is quite possible. “Although the well-known Santa Claus rally is technically the last five days of the year and the first two of the new year, you can’t deny the fact that December tends to bring with it good vibes and stocks gains,” explained LPL Senior Market Strategist Ryan Detrick.

Continue reading

Market Update: Fri, Nov 30, 2018 | LPL Financial Research

LPLResearch-Macro-View

Daily Insights

  • Fed minutes support flexibility. Minutes from the Federal Reserve’s (Fed’s) November meeting supported Fed Chair Jerome Powell’s and Fed Vice President Richard Clarida’s dovish comments earlier in the week. In the minutes, policymakers discussed several headwinds that have concerned investors recently: trade, deterioration in business-related economic data, and tightening financial conditions. Fed members also acknowledged that they must better convey their flexibility to economic circumstances, especially given the current headwinds. We remain encouraged by the Fed’s pragmatic approach to evaluating risks, and we believe that a careful, gradual approach to increasing rates will limit the chances of a policy mistake.

Continue reading