Market Update

• Strong retail sales data boosts sentiment, stocks. A headline beat and strength in the underlying retail sales figures released this morning helped lift stocks off early lows. On Thursday, indexes were little changed amid an up-and–down session as investor’s focused on earnings reports and higher-than-expected jobless claims. European markets are lower but trending up in midday trading despite a downward revision to first quarter Eurozonegrowth figures. This comes on the heels of disappointing economic data out of Asia, which weighed on the region; indexes in Japan, India and Hong Kong fell 1% or more. Meanwhile, data showing OPEC ramped up production in April is weighing on WTI crude oil prices, as is dollar strength. COMEX gold is up slightly, and 10-yearTreasuries are retracing yesterday’s pullback that left theyield at 1.73%.

Macro View

• April retail sales should help calm consumer fears.After a difficult week for consumer news–poor Q1 sales from mall-based retailers and a spike in jobless claims–core retail sales rose a better than expected 0.9% between March and April, exceeding expectations of a 0.4% increase. Core sales feed directly into gross domestic product (GDP). In the first two months of Q2 2016, core sales are running more than 4% ahead of their Q1 average, strongly suggesting that Q2 GDP will accelerate from the tepid sub-1% pace seen in Q1 2016.

•  European Q1 GDP revised down. Additional data came in, revising European GDP data down from 0.6% to 0.5%. Some European countries had already reported GDP, but new data came in overnight. Germany grew at 0.7%, the strongest of the new data, after Spain announced 0.8% growth earlier. The Greek economy contracted at -0.4% during the quarter. Overall, Europe has avoided a recession, but growth remains weak and is expected to be 1.2-1.5% for the year.

• Limping to the finish. Earnings season during the last week was filled with disappointing retail results and, despite a solid government retail sales report for April, leaves markets questioning the health of a major segment of the consumer discretionary sector. The dichotomy highlights the immense demographic and online shifts and, along with the aging business cycle, supports our modest near-term caution on the consumer discretionary sector. 

• The 50-day moving average is support again. With one day to go, the S&P 500 is up 0.3% for the week. Yesterday was a flat day, but the S&P 500 finished off its lows, finding support from its 50-day moving average. This upward sloping trend line has been support since last week. A flat day yesterday was a nice change, considering the S&P 500 gained over 1% on Tuesday, only to fall nearly 1% on Wednesday.

• Friday the 13th. Today is the 151st Friday the 13th going back to 1928. As we noted yesterday, this day is actually up 57% of the time, which is better than the average Friday (up 54.5%). However, it has had some big losses when it is lower, taking the average Friday the 13th return down to 0.02% versus the average Friday return of 0.05%. Lastly, today is the 13th occurrence of Friday the 13th in May going back to 1928. This day in May shows a return of -0.3%, with only October and November sporting worse returns.

• A bullish technical sign for crude. Crude oil had a golden cross on Monday, which could suggest better times are ahead for the commodity. A golden cross is when the faster 50-day moving average moves above the 200-day moving average. In fact, going back to 1983, the recent bear market in crude was a record, as it went 422 days with the 200-day above the 50-day. There have been 23 previous golden crosses; historically, three months later crude is up 4.2% on average and higher 65% of the time. Today on the LPL Research blog we will examine this development in more detail.

Monitoring the Week Ahead

Saturday

• China: Industrial Production (Apr)
• China: Retail Sales

Click Here for our detailed Weekly Economic Calendar

 

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) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

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.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.

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