Market Update

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 overnightNikkeiShanghai 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.

Macro View

Key Insights

  • 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.

Macro Notes

  • 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

Click Here for our detailed Weekly Economic Calendar

Friday

  • CPI (Jun)
  • Retail Sales (Jun)
  • Industrial Production & Capactiy Utilization (Jun)
  • Italy: CPI (Jun)
  • Japan: Industrial Production & Capacity Utilization (May)

 

IMPORTANT DISCLOSURE

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.

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