Market Update: Thursday, March 23, 2017

MarketUpdate_header

  • Global equity markets stabilize. (10:10am ET) U.S. stocks are stable this morning after ending mixed on Wednesday; the Dow finished marginally lower to post its fifth consecutive loss. The technology sector (+0.8%) buoyed the S&P 500 (+0.2%) and the Nasdaq (+0.5%), while telecom (-1.0%) and financials (-0.2%) posted losses in the face of Treasury strength across the curve. Overnight, Asian markets recovered after their worst decline in three months, as the Shanghai Composite (+0.1%) and Nikkei (+0.2%) advanced on the backs of financial and industrial stocks. In Europe, equities are slowly gaining ground as the STOXX 600 (+0.3%) attempts to rebound after three down days. Elsewhere, WTI crude oil ($47.72/barrel) is lower again, COMEX gold ($1249/oz.) is near flat after six days of gains, and the yield on the 10-year Treasury is unchanged at 2.40%.

MacroView_header

  • Weekly jobless claims tick higher, but labor market remains healthy. Data released this morning on initial claims for unemployment insurance for the week ending March 18 showed an increase of 15,000 from the prior week to 258,000, above consensus expectations. Despite the unexpected rise, claims remained below 300,000, which is generally associated with a healthy labor market. This marks the 80th straight week that weekly data have come in below 300,000, the longest stretch since 1970.
  • Technology asserts its leadership. The S&P 500 technology sector is the top S&P sector performer in 2017 with an 11.7% return, followed next by healthcare at 8.6%. Not only that, but the sector is also the only one above its 2016 relative high vs. the broad S&P 500. Momentum of course does not always portend more momentum, but technology remains one of our favorite sectors due to a solid combination of earnings gains, relatively low valuations, innovation, and potential policy benefits, most notably repatriation of overseas cash at lower tax rates.
  • Time for a correction? Seeing as the last 5% correction for the S&P 500 was right after the Brexit vote in June 2016, could Tuesday’s 1% drop be the start of a normal correction? With financials, small caps, and crude all weakening, this is a question many are pondering. Since 1928[1], this is the eighth-longest streak with the S&P 500 closing within 5% of its all-time high. Simply put, the amount of time since the last normal correction could be one of the largest advocates for a pullback here. Here’s the catch: March and April have been strong over the past 20 years, and when the S&P 500 makes a new high in March (like it did this year), April is higher 75% of the time. We will dig more into this important question today on the LPL Research blog.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Thursday

Friday

Saturday

  • China: PBOC’s Zhou Speech

 

Important Disclosures

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 #1-593283

Insider Sentiment

There are so many different measures of stock market sentiment that it can make your head spin. Some are surveys such as the American Association of Individual Investors (AAII) Bull-Bear survey, which tells us how individual investors feel about stocks, and the National Association of Active Investment Managers (NAAIM) survey, which tells us how money managers are moving actual dollars.

Flows data, the derivatives markets, and the VIX measure of implied (future) S&P 500 market volatility can help gauge fear levels in the markets.

Valuation metrics like price-to-earnings ratios are also sentiment measures, showing how optimistic (or pessimistic) market participants are about an investment.

Still others look at market value relative to economic indicators, corporate balance sheets, or even relative to the amount of margin debt investors hold (which we will tackle in a future blog).

There are many other sentiment measures, but the one we want to focus on today is insider sentiment: that is, what corporate executives are doing with their own company’s stock. Thanks to our friends at Ned Davis Research (NDR), we have access to a measure of what these insiders are doing that can be used as a sentiment gauge. The theory is that the people who know their companies best are smarter buyers and sellers.

Figure 1 shows the NDR insider score* is quite negative now, implying that more insiders are selling than buying. Is this cause for concern? Perhaps, but the numbers in Figure 2, which show S&P 500 performance when NDR’s insider score is in their bullish (buying) zone, the bearish (selling) zone or neutral, should help ease concerns. As you can see, stocks fare better when the reading is positive. However, the weakness following negative readings has historically been minimal.

This indicator does suggest stocks need a pause. But when we look at sentiment measures broadly, we do not see excessive optimism that can lead to big near-term corrections. Remember, negative sentiment, which is not difficult to find across the universe of sentiment indicators we watch, can be a positive contrarian signal. As LPL Research Chief Investment Officer Burt White and Market Strategist Jeffrey Buchbinder noted in this week’s Weekly Market Commentary: “Our analysis of investor sentiment reveals signs of increasing worry. From a contrarian perspective, this could be a positive sign.” So while insider sentiment does suggest some nervousness, and we may get a pickup in volatility after an unusually calm period, we would not be alarmed by this one indicator. Look for more from us on sentiment here in the coming weeks.

IMPORTANT DISCLOSURES

*The NDR Aggregate Insider Rating uses advanced statistical techniques to capture meaningful changes in corporate insider buying or selling activity across the approximately 3,000 largest U.S. publicly traded companies.

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.

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 # 1-592952 (Exp. 3/18)

Market Update: Wednesday, March 22, 2017

MarketUpdate_header

  • U.S. equities extend losses after worst day of year. (10:10am ET) Major indexes are down this morning after falling more than 1% yesterday for the first time in more than five months; the Nasdaq was off 1.8% Tuesday while the S&P 500 slid 1.2% and the Dow lost 1.1%. Strength in the Treasury market sent the S&P financials sector (-2.9%) reeling and boosted utilities (+1.4%), the only sector to gain ground. Materials (-1.7%), industrials (-1.5%) and the heavily-weighted technology (-1.5%) sector also underperformed. Asian markets followed suit overnight, led down by the Nikkei (-2.1%); losses were more muted in the Hang Seng (-1.1%) and Shanghai Composite (-0.5%). Europe’s STOXX 600 (-0.6%) is continuing to slide after shedding half a percent in the prior session; bank stocks are among the region’s worst performers, along with materials amid weakness in the oil patch as WTI crude oil ($47.66/barrel) continues to drop. Elsewhere, COMEX gold ($1249/oz.) is up slightly after the yellow metal gained 1% yesterday, and the yield curve continues to flatten, with the yield on the 10-year Treasury down five basis points (0.05%) to 2.38%.

MacroView_header

  • Evidence of ACA timetable’s importance. Tuesday’s selloff revealed the importance of Republican efforts to complete at least the first stage of the healthcare reform overhaul, highlighted in this week’s Weekly Market Commentary. Markets have priced in an optimistic policy path (the S&P 500 is up 10% since Election Day) and want the GOP to promptly get to the core of its economic agenda. Our Washington sources still suggest something gets done this spring, though odds of a later start for corporate tax reform, a lengthier tax legislative process, or a scaled down version, have risen. Some market takeaways include: 1) volatility is normal at this stage of the cycle and may present opportunities (the S&P 500 has not experienced a 5% pullback since the Brexit vote in June 2016); 2) the recent small-to-large cap and value-to-growth rotations may continue until policy uncertainty abates, 3) financials may see increased near-term volatility due to their sensitivity to Washington policy; and 4) infrastructure spending plans are getting pushed back further and may weigh on industrials near term.
  • Finally, a one-percent drop. The S&P 500 finally closed down one percent yesterday for the first time since October 11, 2016. The 109 trading days without a one-percent drop was the longest streak since 110 in early 1995. During the incredible streak, the S&P 500 gained 11.1% and this was only the thirteenth time since 1928[1] that the S&P 500 made it at least 100 days or more in a row without a one-percent close lower. The good news is the median return a month after one of these streaks ends is a 3.4% gain. A year out, the average return jumps to more than a 15% gain. Today, on the LPL House of Charts and Twitter, we will take a closer look at these long streaks and what happens when they are over.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1928 incorporates the performance of predecessor index, the S&P 90.
  • The worst day of the year. The S&P 500 fell 1.2% yesterday, which was the worst day of the year and the worst one-day drop since October 11. It was even worse for small caps and financials, as both fell more than 2.5%. To put things in perspective, the S&P 500 is still only 2.2% away from its all-time high. The Nasdaq actually made a new intra-day all-time high in the morning, before closing more than two percent from the intra-day highs. You have to go clear back to March 7, 2000 for the last time that happened. Still, be aware that the average worst day of the year for the S&P 500 going back 50 years has been -3.7%. In fact, this is currently the smallest loss on the worst day of the year ever for the S&P 500.

 

MonitoringWeek_header

Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

Friday

Saturday

  • China: PBOC’s Zhou Speech

 

Important Disclosures

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 #1-592900