Yesterday’s Market Activity
- Stocks bounced slightly with Dow closing at its 24th new all-time high this year. Financials lead after recent weakness; tech also outperformed. Telecom again lagged.
- Nasdaq up again, as the tech heavy index gained for the 5th consecutive day.
- Retail finally bounces. The severely beaten-down group had a big day; >2% gain marked its best day of the year.
- Crude oil was weak early, but managed a 1.3% gain; third consecutive day of >1.0% advance.
- Janet Yellen wrapped up second day of testimony; overall more dovish than anticipated, market sees chance of another rate hike this year as a coin flip.
Overnight & This Morning
- Stocks in Asia up slightly overnight; Nikkei, Shanghai Composite both +0.1%.
- European markets unchanged in a quiet session; STOXX Europe 600 +0.1%.
- Commodities – WTI crude oil ($46.63/bbl.) +1.2%, COMEX gold (+0.9%), copper (+0.54%) both rising.
- Treasury prices slightly higher in early trading, 10-year yield sits at 2.33%.
- Consumer Price Index (CPI) unchanged month over month vs. +0.1% expectations; +1.6% year over year (details below).
- Retails sales missed expectations, -0.2% vs. expected +0.1% (details below).
- U.S. equities are up modestly in early trading despite weakness in financials following earnings from a string of large banks.
- Earnings season unofficially kicks off today with multiple large banks having reported already this morning. Earnings were up over 15% year-over-year in the first quarter, and we think there is a good chance earnings could climb double digits again in the second quarter. Something to consider is that earnings have beaten the expectations 21 consecutive quarters now and the average beat is by about 3.5%. With most expecting earnings up between 6-7% this quarter, hitting double digits again is very possible.
- Inflation tame in June. CPI was flat in June versus consensus expectations of a small increase. Excluding the volatile food and energy categories, prices rose 0.1% in June versus expectations of a 0.2% increase. Market participants continue to watch inflation closely to gauge the path of interest rate hikes, and June’s data will marginally lower expectations. We still see a third rate hike in 2017 more likely than not by the end of the year, but would need to see a pick-up in second half growth, accompanied by more stable inflation, for that to happen.
- Retail sales disappoint in June. Retail sales fell 0.2% in June against expectations of a modest increase, and declined 0.1% ex-auto and gas versus expectations of more robust 0.4% growth. Retail sales growth year over year has slowed to 3.0% after topping 5.5% back in January but remains above inflation. While retail sales is only a piece of consumer spending, tepid sales may weigh on second quarter gross domestic product (GDP) growth. We get the first estimate of second quarter GDP on July 28.
- Major breakout in emerging markets? The MSCI Emerging Markets Index has had a great year, up nearly 19% so far in 2017. Could more be store? Today on the LPL Research blog we will take a look at a potentially very significant breakout that could suggest more gains are yet to come.
Monitoring the Week Ahead
- CPI (Jun)
- Retail Sales (Jun)
- Industrial Production & Capactiy Utilization (Jun)
- Italy: CPI (Jun)
- Japan: Industrial Production & Capacity Utilization (May)
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