Market Update

• Markets rebound after retail-led drop. Strength in WTI crude oil, which hit a new 2016 high this morning after an official report projected tightening supplies, is helping U.S. equities rise and European stocks stage a midday turnaround. This comes after major U.S. indexes fell 1% on Wednesday amid little economic news and disappointing guidance from Macy’s, which dragged consumer discretionary stocks down 2%. Overnight, Asian indexes caught the tail end of oil’s rebound to finish mixed, after starting Thursday’s session mostly lower. COMEX gold is paring recent gains, and Treasury yields are moving higher amid risk-on sentiment.

Macro View

• New claims for unemployment rose 24,000 to 294,000 in the week ending May 7, but Verizon strike and late spring break in NYC schools may be distorting the data. With the calendar turning from April to May, we thought the distortions to the weekly claims data caused by the shift in Easter and/or spring break in most of the country between 2015 and 2016 were over. But spring break in the New York City school system was very late this year. In addition, the strike at Verizon may have pushed claims higher temporarily. Looking through the distortions, claims remain near historically low levels and are close to the lows seen last summer and fall, which were the lowest in 42 years (1973). Claims are up 18,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market, but we will continue to watch them closely.

• European industrial production disappointed, falling by 0.8% in March against flat expectations. The earnings season in Europe is about half over and the results have been generally disappointing. Over 50% of companies are beating earnings expectations, though those expectations have been reduced over the past few months. But less than 40% of companies are beating revenue estimates. Overall, it has been a disappointing earnings season thus far, and without a great deal of support from economic growth that may turn things around.

• Big down day after a big up day. The recent volatility continues, as the Dow dropped more than 200 points yesterday, the day after gaining more than 200 points. This was the first time that has happened since late January. The first time this ever occurred was back in December 2000. Should the Dow gain 200 points today, it would be just the fifth time a 200-point loss was sandwiched between two 200-point gains—with this past January and August 2011 the most recent times this happened.

• Fear Friday the 13th? Tomorrow is Friday the 13th, and with it comes many superstitions. One question we hear every time this day happens is: What does it mean for the market? Going back to 1928, there have been 150 previous Friday the 13ths and the S&P 500 has gained 0.02% on average and it was up 57.3% of the time. This compares to all Friday returns of 0.05% and positive 54.5% of the time, so there does seem to be some weakness when looking at the average returns. Today on the LPL Research blog, we will take a closer look at this phenomenon.

Monitoring the Week Ahead

Friday:

• Retail Sales
• Consumer Sentiment and Inflation Expectations (H1 May)
• Eurozone: GDP (Q1 – Revised)
• Malaysia: GDP (Q1)

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.

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High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

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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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