Market Update

• U.S. stocks little changed following yesterday’s rise.Equities are near flat this morning, as the market continues to be range bound. Yesterday’s session saw stocks stage a modest rally, with the S&P 500 moving out of negative territory early on to close up 0.3%. Utilities and telecom benefited from a 0.07% drop in the yield on the 10-year Treasury (1.54%), though energy was the top performer on the day, advancing 1.5% on the back of a 1% gain in the price of crude oil. Overnight, Asian markets finished mostly lower on little news, led down by Japan’sNikkei, which lost 0.4% amid a strengthening yen; theShanghai Composite closed flat. European markets are moving higher despite weak production data out of Germany; the STOXX Europe 600 is back near flat after hitting its highest level since January on Monday. Meanwhile, WTI crude oil is modestly higher while COMEX gold is flat. The dollar is also unchanged following a sharp drop yesterday, and the yield on the 10-year note is continuing to move lower.

Macro View

• Service sector disappoints in August. At 51.4, the August reading on the non-manufacturing Purchasing Managers’ Index (PMI) was below expectations (54.9) and below the July reading of 55.5. In fact, the 4 point drop between July and August was the largest since 2008. Still, the reading was above 50, indicating expansion in services (80% of the U.S. economy), and the 54.4 reading over the past 3 months indicates a solid pace of activity. The relatively weak readings on the August manufacturing and non-manufacturing PMIs, along with the slightly weaker than expected (although still solid) August jobs report, reduce the odds that the Federal Reserve Bank (Fed) will raise rates at its September Federal Open Market Committee (FOMC) meeting. We continue to expect the Fed to raise rates in December, and put the odds of an additional hike in September at 1 in 3.
• ECB meeting upcoming. The European Central Bank (ECB) meets tomorrow during a period of economic uncertainty and mixed data. German industrial output for July (yes, these data are a little delayed) fell -1.5%, against market expectations of a 0.1% gain and a 0.8% gain last month. This weakness is probably not enough, by itself, to cause the ECB to ease monetary policy further. We’ll do a more in-depth meeting preview on today’s LPL Research blog.
• September isn’t so bad. The S&P 500 was up 0.3% yesterday for the second green day in a row; it hasn’t been up three days in a row for over a month. Energy and utilities led, while industrials and materials were slightly in the red. Even though September is historically a more volatile month, that hasn’t happened so far at least. In fact, the first three days of September look very similar to what we saw in August. Taking a bigger look at things, the S&P 500 hasn’t closed up or down 1% for an incredible 41 straight days, the longest streak in two years. It hasn’t had a 1% drop for 49 straight days (right after Brexit). This comes on the heels of a 54-day streak earlier this year.
• Another look at the tight range. We’ve talked a lot about the incredibly tight range the S&P 500 has been in recently. In fact, over the past 40 days the S&P 500 has traded in a range of only 1.77% (using closing prices)–the tightest range ever using data back to 1928. Here’s another way to look at the tight range though. The S&P 500 has closed 42 consecutive days within 1% of an all-time high. That is an extremely long time to hang around all-time highs; the last time it did that was in 1995 at 48 straight days, and 1965 was the time before at 47.

Monitoring the Week Ahead

Wednesday

• JOLTS (Jul)
• Beige Book
• Germany: Industrial Production (Jul)
• Sweden: Riksbank Meeting (No Change Expected)
• Canada: Bank of Canada Meeting (No Change Expected)
• China: Imports and Exports (Aug)

Thursday

• Eurozone: European Central Bank Meeting (No Change Expected)
• China: CPI (Aug)
• Japan: Economy Watchers Survey (Aug)
• Japan: Money Supply (Aug)

Friday

• European Union: Central Bankers and Finance Ministers Meeting in Bratislavia
• China: New Loan Growth and Money Supply (Aug)

Saturday

• European Union: Central Bankers and Finance Ministers Meeting in Bratislavia

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) 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.

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