Market Update: Thursday, October 19, 2017

MarketUpdate_header

Market Recap

  • Major averages rose, led by Dow. Earnings results provided support. S&P 500 Index +0.1%, Dow +0.7%, Nasdaq flat, Russell 2000 +0.5%.
  • Breadth on NYSE was positive (1.1:1), trading volume light again (~90% of 30 day average).
  • Financials (+0.6%) led while technology (+0.3%) also outperformed. Particular strength in investment banks, semiconductors; energy (-0.7%), telecom (-0.6%) lagged.
  • 10-year Treasuries sold off, pushing the yield +4 basis points (+0.04%) to 2.34%; U.S. dollar index slightly lower on euro gains.
  • WTI crude oil finished higher (+0.3%) after inventories showed unexpectedly large draw, COMEX gold dipped (-1.2% to $1288/oz.) in response to dollar strength.
  • Fed Beige Book cited modest to moderate growth across all districts while highlighting increasingly tight labor market. September housing starts, building permits missed expectations.

Overnight & This Morning 

  • U.S. stocks following Europe lower after another S&P 500 record high yesterday; markets’ focus is on Spain, latest wave of earnings, next Fed Chair speculation, Senate budget deal progress, and ACA fix.
  • Asia mixed overnight; Nikkei (+0.4%) advanced for 13th straight session; Shanghai Composite (-0.3%), Hang Seng (-1.9%) fell despite China’s gross domestic product (GDP) meeting expectations as continued reliance on credit remains a concern.
  • European equities lower midday as Spanish-Catalan deadline passes. Spain’s IBEX (-1.0%) fell after Madrid-imposed deadline passed with nothing but a call for more talks. STOXX Europe 600 (-0.6%), FTSE 100 (-0.3%), DAX (-0.6%).
  • Treasury yields slide lower, 10-year yield -3 basis points (0.03%) to 2.31%.
  • Commodities – WTI crude rolls back gains (-1.6%) to $51.40/bbl., metals mixed with gold up +0.4% to $1287/oz., copper -1.0%.
  • Today’s economic calendarJobless claims down 22K to 222K (240K expected); Philly Fed 27.9 vs. 22 expected; Yellen interview for second term; China GDP in line with consensus (+6.8%), down from 6.9% in Q2.

MacroView_header

Key Insights

  • A not so happy anniversary. Today marks the 30th anniversary of what could be considered the worst day in stock market history. We look back on this historic event in our latest Weekly Market Commentary, published on Monday, and make the case that stocks currently stand on much stronger fundamentals, and markets are less susceptible to crashes now than they were then. Although volatility will likely pick up before long (how could it go any other way?) and corrections will happen, we do not see the makings of a big downturn anytime soon.
  • Solid start to earnings season. With 52 S&P 500 Index companies having reported, beat rates for earnings (82%) and revenue (73%) are excellent so far, with the average company reporting a 5% upside earnings surprise according to Thomson data. While the pace of earnings gains is slowing–largely hurricane driven–we are encouraged by the slight increase over recent weeks of S&P 500 consensus earnings estimates and expect re-acceleration in Q4. More to come with our next earnings season dashboard on Monday.

Macro Notes

  • Dow 23,000. The Dow closed above 23,000 for the first time in history yesterday. Along the way it was the 51st new all-time high of the year; only one away from the 52 new highs made in 2013. Looking at milestone 1,000 point intervals, the Dow has now cracked 20,000, 21,000, 22,000, and 23,000 so far in 2017. No other year ever made more than two milestones, making the four this year a new record. Of course, as the Dow goes higher the percentage move needed to make new highs gets smaller–still, this is yet another way of showing how rare and strong 2017 has been.
  • China’s National Communist Party Congress Underway. China’s 19th National Congress of the Communist Party, which takes place every five years, started yesterday. A lot of topics were discussed, including a continuation of China’s drive to be a global power and how to improve the lives of Chinese citizens, but one key point that markets were watching was whether President Xi’s speech would mention reform related to financial markets and debt levels. Xi did talk about financial reforms, but stopped short of calling for reform in one of the major areas of debt growth in recent years: state-owned enterprises (SOE). Instead, Xi said that SOEs would continue to be important to China moving forward and seemed to reassert the power of the government in the economy rather than pulling it back. The Congress lasts until October 24th, so we are likely to see further headlines, especially related to party reshuffling and consolidation of President Xi’s power base.
  • Why Does Catalonia Matter so Much? Catalonia is back in the news again this morning, as headlines around the autonomous region’s bid for independence from Spain continue. Spain’s economy has been seeing relatively strong growth over the past few years, with GDP increasing, unemployment decreasing (though it remains high at 17%), and its debt-to-GDP level flattening. Catalonia, which includes the major city of Barcelona, is one of Spain’s most affluent regions and makes up about one-fifth of Spain’s GDP. If it were to achieve independence, it could be disruptive to the growth Spain has seen in recent years. This isn’t to say that the only reason Spain wants Catalonia to stay is economic, but it is certainly a factor.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Thursday

  • Philadelphia Fed Mfg. Report (Oct)
  • Leading Economic Index (Sep)
  • UK: Retail Sales (Sep)
  • Japan: All Industry Activity Index (Aug)
  • Japan: Machine Tool Orders (Sep)

 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 # 1-656864

 

 

Long-Term Technical Patterns for Copper Remain Bullish

The London Metal Exchange (LME) is one of the primary trading venues for copper. And as it stands, the LME Copper spot price index continues to show signs of a break out of a multi-year base in the form of a bullish cup-and-handle chart pattern.

A bullish cup-and-handle is described by technical analysts as a continuation-type pattern in which the price consolidates into what resembles a tea cup, followed by a breakout in the form of the cup’s handle. If this type of chart pattern executes, then based on historical data, the commodity spot price is likely to climb higher over the long term. To determine how much higher the price is likely to move following a breakout, you simply measure the price change from the bottom of the cup to the beginning of the handle, and add that value to the top of the handle. The final number is your bullish price objective.

The current pattern for the LME Copper spot price index, which began in January 2015, took approximately two years to form its base, or cup. As seen in the chart below, between February and July 2017, the handle became more visible. And in August 2017, the index price remained above the 6,100 level for more than three trading days, which increased the likelihood that the pattern would execute to the upside, and the price would continue higher over the long-term time horizon.

With the long-term trends in copper continuing to look more bullish, countries that manufacture copper, such as Chile, are showing signs of upward momentum. The MSCI Chile Index, much like that of copper, began exhibiting characteristics of a long-term bullish cup-and-handle pattern in August 2014 and has been forming its cup over an approximately 2.5-year time horizon. The chart below shows that between April and July 2017, the handle became more visible. This past August, on and around the same time as copper, the MSCI Chile Index price executed a bullish catalyst by remaining above the 1750 level for more than three trading days, which increased the likelihood that the pattern would execute to the upside, and the price would continue higher over the next 3–12 months.

Looking at historical data going back to 1988 in the table below, there were 9 instances when the MSCI Chile Index executed a long-term bullish cup-and-handle chart pattern (on average lasting over 320 days), and both average and median returns over the subsequent 3- to 12-month periods were impressive.

The recent cup-and-handle pattern breakout on both the LME Copper spot price and MSCI Chile indexes are providing initial signals that the longer-term trend may be changing, increasing the likelihood that both index prices may move higher. This may provide investors with an opportunity to diversify their portfolios with either a commodity or emerging market country asset class. But as always, we believe it is prudent to wait for further confirmation of these types of long-term trend reversals prior to investing, in order to help mitigate the risk of a false signal. Stay tuned to the LPL Research blog for future analysis of commodity-related asset classes.

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.

Stock investing involves risk including loss of principal.

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

London Metal Exchange (LME) Copper cash is the cash price from the LME’s final evening evaluations.

The MSCI Chile Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1987.

Tracking #1-656854 (Exp. 10/18)

 

 

 

Market Update: Wednesday, October 18, 2017

MarketUpdate_header

Market Recap

  • Domestic indexes finished mixed as large caps outperformed small caps. S&P 500 Index +.01%, Dow +0.2%, Nasdaq flat, Russell 2000 -0.3%.
  • Breadth negative on NYSE (1.4:1), another low volatility-low volume day (~84% of 30-day average).
  • Healthcare (+1.3%) led on potential for a bipartisan bill reinstating insurance subsidies; financials, consumer staples, industrials lagged as markets prepare to digest the influx in earnings results.
  • 10-year Treasuries held flat, finishing at 2.30%; U.S. dollar slightly stronger across the board.
  • Industrial production bounced back into positive territory slightly outperforming expectations, but manufacturing, while turning positive, disappointed. The data overall supported the broad picture of continued steady economic growth.
  • WTI crude oil finished higher (+0.3%) after inventories showed unexpectedly large draw, COMEX gold dipped (-1.2% to $1288/oz.) in response to dollar strength.

Overnight & This Morning 

  • U.S. stocks open up +0.1% as earnings reports continue to roll in.
  • Asian markets mixed overnight; Nikkei (+0.1%) advanced for the 12th straight session; Shenzhen (-0.4%), Hang Seng (+0.1%), as China’s President Xi gave three-hour address to Communist Party Congress–continuing to tighten his hold on power; this meeting takes place every five years.
  • Equities in Europe are higher midday; STOXX Europe 600 +0.4%; Spain’s IBEX (unchanged) lagged amid Catalan tensions.
  • Treasury prices slightly lower, 10-year yield +3 basis points (0.03%) to 2.33%.
  • Commodities – WTI crude (+0.7%) is back above $52/bbl., metals broadly lower–gold (-0.4%), copper (-0.2%).
  • Today’s economic calendar – September housing starts; Fed’s October Beige Book; Fed Presidents Dudley, Kaplan will speak.

MacroView_header

Key Insights

  • Fed chair announcement on November 3. President Trump will announce his choice for chair of the Federal Reserve (Fed) on November 3 before departing for an 11-day trip to Asia. The short list is current chair Janet Yellen, current Fed Governor Jerome Powell, National Economic Council director Gary Cohn, economist John Taylor, and former Fed Governor Kevin Warsh. President Trump could go outside that list, but the chances of that are significantly lower than they once were. Powell’s star has been rising as the stability candidate, but the president and Taylor were reported to have had a strong rapport at their meeting last week. Of these candidates, Taylor and Warsh are clearly the most hawkish and the most likely to have a market impact if selected, with the bias being toward a stronger dollar and increased rate hike expectations.

Macro Notes

  • Time for healthcare to shine? Well-received earnings and the reported agreement between Republican Senator Alexander of Tennessee and Democratic Senator Patty Murray of Washington to potentially reinstate the ACA subsidies eliminated by President Trump’s executive order last week drove the sector to a market-leading 1.3% advance on Tuesday. Though the deal still faces hurdles to get through Congress and to the President’s desk, prospects appear favorable. We believe the combination of attractive valuations and the solid outlook for healthcare spending overall sets the stage for potential further gains, despite the sector’s 22% year-to-date advance.
  • The long-term technical patterns for copper remain bullish. One commodity that continues to move higher and exhibit bullish price momentum is copper. Today on the LPL Research blog, we take a look at another asset class that benefits when copper moves higher.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

 Wednesday

Thursday

  • Philadelphia Fed Mfg. Report (Oct)
  • Leading Economic Index (Sep)
  • UK: Retail Sales (Sep)
  • Japan: All Industry Activity Index (Aug)
  • Japan: Machine Tool Orders (Sep)

 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 # 1-656864