Market Update: Thursday, August 17, 2017

MarketUpdate_header

Yesterday’s Market Activity

  • Small gains in stocks. Dow (+0.1%) rose for fourth day in a row, clearing psychological level of 22,000. S&P 500 +0.1%,Nasdaq +0.2%
  • Two CEO advisory boards (Manufacturing Council, Strategy and Policy Forum) disbanded creating tension in White House and markets, but equities found footing late day post Fed Minutes release.
  • Materials (+1.0%) led as many base metals continued to rise. Telecommunications (+0.5%), consumer discretionary (+0.5%), utilities (+0.4%) outperformed. Financials (-0.2%) fell with yields, while drop in crude pushed energy (-1.0%) lower .
  • Treasuries weaker across curve, with 10-year yield -4 basis points (-0.04%) to 2.22%; largest drop in three weeks.
  • Zinc hit 10-year highs. Base, industrial metals rise continues; copper also surged to multi-year highs.
  • U.S. Dollar Index (-0.3%) down after Fed minutes, which were seen as dovish.
  • WTI crude oil -1.4% as U.S. production hit a new high. COMEX Gold (+1.0%), dollar weakened (-0.3%).

Overnight & This Morning

  • U.S. stocks slightly lower; quiet morning as most digesting yesterday’s Fed Minutes.
  • Europe broadly lower (STOXX Europe 600 -0.3%); FTSE 100 (-0.3%), DAX (-0.2%), CAC 40 (-0.2) all in the red.
  • Asian stocks mostly mixed, Nikkei (-0.1%), Shanghai Composite (+0.7%).
  • Treasuries slightly weaker, 10-year yield rebounding, +2 basis points (0.02%).
  • Commodities – mixed picture with crude oil (-0.4%); gold (+0.7%), industrial metals still rising.
  • Today’s economic calendar includes weekly Initial Jobless, Continuing Claims, August Philadelphia Fed at 8:30 a.m. ET, followed by July Industrial Production, Capacity Utilization at 9:15 a.m. ET, while July Leading Indicators out at 10:00 a.m. ET.

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Key Insights

  • The Federal Reserve (Fed) minutes showed that most Fed officials want to wait until the next meeting to reveal details of balance sheet unwind. The Fed also discussed surprisingly low inflation readings, with a few officials noting that the Fed could be patient before raising interest rates again. The bottom line is, until inflation begins to pick up, it could be very tough for them to raise interest rates again. The odds of a balance sheet normalization announcement in September currently remains low. One of the big takeaways was Fed Governor Williams saying the Fed is halfway through the tightening cycle.

Macro Notes

  • Fed and ECB meeting minutes released. The Fed’s July meeting minutes were released yesterday at 2 pm, and as expected there was a lot of discussion around the fact that inflation continues to trend below the Fed’s 2% target, and what that means for the future path of rate hikes. The European Central Bank (ECB) also released the minutes of their July meeting this morning, and they were also dovish, with the central bank showing some concern about recent Euro strength, and the fact that it could reduce efforts to restore price stability (or put more simply, keep downward pressure on inflation). We will discuss these central bank minutes in more detail today on the LPL Research blog.

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Click Here for our detailed Weekly Economic Calendar

Thursday

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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 #1-635157

 

 

Do Transports Really Matter?

The Dow Jones Transports (transports) have been one of the weakest segments of the market since July. As Charles Dow suggested more than 100 years ago, for the primary trend to be in place we need to see the transports confirm the action in the Dow Jones Industrial Average (Dow). In other words, if the Dow makes a new high and the transports group doesn’t, that is a potential warning sign.

Well, on August 1, 2017 the Dow closed at a new 52-week high, yet the transports group closed at a new 52-week low relative to the Dow. In others words, the performance gap, or spread, between the two is at its widest over the past year. So it would seem transports aren’t carrying their weight; and the question is: Is this a major warning sign?

Per Ryan Detrick, Senior Market Strategist, “Going back in history, we have often seen the rare combo of a 52-week high in the Dow and a 52-week relative low in transports precede some tumultuous times. It took place ahead of the ‘73/’74 bear market, the ’87 crash, and the ’00 peak for starters, which makes the signal seen earlier this month something we aren’t taking lightly.”

Now here’s the good news: The track record of this rare signal is far from spotless. Per Ryan Detrick, “Although on the surface this sounds scary, looking at all the signals (to remove clusters, each instance must be at least three months apart to define a new signal) in which the Dow and Dow/transports spread hit new 52-week highs, the Dow has been up a median 17.1% over the following year. We’d still say the weakness in transports is a concern, but a bigger concern is that we’ve gone more than a year without a 5% correction, and there are multiple big events (think debt ceiling, tax reform, and infrastructure spending) out of Washington on the horizon that could trip up the market.”

 

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. 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.

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.

Stock investing involves risk including loss of principal.

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

The Dow Jones Industrial Average Index is comprised of U.S.-listed stocks of companies that produce other (non-transportation and nonutility) goods and services. The Dow Jones Industrial Averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices.

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 #1-634806 (Exp. 08/18)

 

Market Update: Wednesday, August 16, 2017

MarketUpdate_header

Yesterday’s Market Activity

  • Stocks little changed. Easing geopolitical tensions in North Korea, overseas gains, some strong data (retail sales, homebuilder sentiment, New York manufacturing) contributed to early gains that evaporated as the session progressed.
  • Mixed sector leadership. Defensives (staples, utilities) led, up ~0.5%; tech (0.3%), financials (+0.2%) also outperformed. Earnings weighed on consumer discretionary (-0.9%).
  • Treasuries weaker across the curve, 10-year yield +4 basis points (+0.04%) to 2.27%.
  • U.S. Dollar Index up 0.5%. Particularly strong vs. yen (+0.9%).
  • Oil little changed ahead of inventory data. COMEX Gold (-0.9% to $1278/oz.) remains under pressure on shift away from save havens, firming dollar.

Overnight & This Morning

  • U.S. stocks slightly higher. Continued unwinding of North Korea-attributed declines, delayed reaction to positive U.S. data likely at play, though no obvious driver.
  • Gains in Europe helping U.S. sentiment. STOXX 600 +0.7%, led by France CAC (+1%). European gross domestic product (GDP) +0.6% as expected.
  • Asian stocks mostly higher amid reports of unwinding short positions tied to the North Korean conflict. Hang Seng +0.9%; Shanghai, Nikkei little changed.
  • Treasuries slightly weaker, 10-year yield up to 2.28%. U.S. dollar up marginally.
  • Commodities – WTI crude oil slightly higher after private inventory data Tuesday night showed bigger-than-expected drawdown, but gasoline stocks rose, gold -0.3%.
  • Today’s economic calendar includes government data on oil inventories, housing starts, mortgage applications, in addition to the FOMC minutes (2 p.m. ET).

MacroView_header

Key Insights

  • Good day for Fed-watchers. Minutes from the July 25-26 Federal Open Market Committee (FOMC) meeting are due out this afternoon. The Federal Reserve (Fed) is not expected to signal a rate hike in September (markets pricing in near zero probability) but insight into the central bank’s plans for balance sheet reduction and its reaction to recent weaker inflation data will be of interest to market participants. A December rate hike remains well within the realm of possibility, a move advocated by New York Fed President Dudley this week.

Macro Notes

  • Do transports matter? The weak action lately in transports has many wondering if this is a potential warning sign for the broader markets. The big worry stems from August 1, when the Dow closed at a new 52-week high and transports closed at a new 52-week low relative to the Dow. This rare combination also took place ahead of the 1973-1974 bear market, the 1987 crash, and the tech bubble in 2000. Today on the LPL Research blog we will take a closer look at this phenomena to see what it could mean.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

Friday

 

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 #1-634695