Market Update

• Earnings and Fed in midweek spotlight. The Nasdaq is leading U.S. exchanges higher this morning, with tech giant Apple advancing due to a Q2 earnings beat, and as investors await the conclusion of the Federal Reserve Bank (Fed) meeting this afternoon, though no change in interest rates is expected. The S&P 500 closed flat on Tuesday with gains in materials, industrials, and technology offset by weakness in defensive sectors telecom, utilities, and consumer staples. In Japan, the Nikkei rallied 1.7% as Prime Minister Abe announced a stronger than expected fiscal stimulus package; while in China, the Shanghai Composite lost 1.9%. European stocks are higher across the board, paced by 1.5% gains in France and Spain. WTI crude oil COMEX gold are up modestly, and the yield on the 10-year Treasury trades in its recent, narrow range, ticking down to 1.55%.

Macro View

• FOMC statement due today at 2 p.m. ET. With no press conference by Fed Chair Yellen and no new set of economic forecasts or dot plots, the statement released by the Federal Open Market Committee (FOMC) today is the only way the Fed can communicate with markets. After today, the next key event for the Fed is when Yellen speaks at the Kansas City Fed’s Jackson Hole symposium in late August. The market is not expecting a rate hike by the Fed today, nor is it expecting the Fed to hint at a hike for September. In today’s statement, the Fed is likely to upgrade its view of the economy and labor market post-Brexit, but remain concerned about global financial conditions, low inflation, and inflation expectations.

• June durable goods report suggests some stabilization in manufacturing in Q2, but capital spending still likely to be a drag on GDP in Q2. Core durable goods ordersand shipments (a proxy for the business capital spending portion of gross domestic product [GDP]) were mixed in June and in Q2. Core orders posted a modest month-over-month gain in June versus May but were down 6% in Q2 versus Q1, a slightly less negative reading than the 7% drop in Q1. Core shipments fell 0.4% in June but were down just 2% in Q2, after the 12% drop in Q1 and the 7% drop in Q4 2015. In short, although oil prices rebounded in Q2 as the dollar weakened and the oil supply glut eased, the manufacturing sector remained under duress. The business capital spending portion of GDP is expected to be a drag on overall GDP when the Q2 GDP figures are reported later this week, but should turn around and add to growth in the second half of 2016.

• U.K. data, pre- and post-Brexit. Overnight, pre- and post-Brexit data were released; not surprisingly, the data tell a tale of two markets. On the plus side, U.K. GDP for the second quarter came in up 0.6%, versus 0.4% for the first quarter and expectations of a 0.5% increase. Strength was across the board, but particularly in manufacturing and industrial production. On the negative side, the Confederation of British Industry’s monthly retail salesindex fell to -14, from 4 in June. This is consistent with weak post-Brexit consumer confidence numbers released earlier this week. Most economists forecast that the U.K. will fall into a recession later this year.

• Is the S&P 500 in a bubble? With new highs being made, we’ve noticed more talk about equities potentially being in a bubble. Could this be true? We will take a much closer look at this question today on the LPL Research blog.

• The tight range continues. The S&P 500 was up marginally yesterday, making it now nine straight days of alternating higher and lower closes–tying the longest streak since last November. Also, the S&P 500 hasn’t moved more than 0.75% for 12 consecutive days, the longest such streak in 16 months. Lastly, the incredibly tight range in small caps continues as well, with theRussell 2000 in a range of only 1.6% in the past 10 days, the tightest in 18 years (July 1998).

Monitoring the Week Ahead

Wednesday

• FOMC Decision
• UK: GDP (Q2)
• Eurozone: Money Supply and Bank Lending (Jun)

Thursday

• Initial Claims (7/23)
• Germany: Unemployment Change (Jul)
• Germany: CPI (Jul)
• Japan: Jobless Rate (Jun)
• Japan: CPI (Jun)
• Japan: Tokyo CPI (Jul)
• Japan: Industrial Production (Jun)
• Japan: Retail Sales (Jun)

Friday

• GDP (Q2 and Revisions to Data from 2013 – 2016)
• Chicago Area PMI (Jul)
• Eurozone: GDP (Q2)
• UK: Money Supply and Bank Lending (Jun)
• Eurozone: CPI (Jul)
• Japan: Bank of Japan Meeting
• Mexico: GDP (Q2)

Sunday

• China: Official Mfg. PMI (Jul)
• China: Official Non-Mfg. PMI (Jul)
• China: Caixin Mfg. PMI (Jul)

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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