/perspectives/weekly-viewpoint/near-term-holding-pattern-likely

Near Term ‘Holding Pattern’ Likely

The major market indices finished the week little changed as investors digested and debated the implications of a soft batch of economic data out of China, the recent weakness in the high-yield bond market, and the ongoing flattening of the yield curve.

November 20, 2017    |    By Mike Schwager

Performance for Week Ending 11/17/2017:

The Dow Jones Industrial Average (Dow) fell 0.27%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.06%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.13% and the Nasdaq Composite Index (NASDAQ) added 0.47%. Sector performance was mixed with 7 of the S&P groups finishing higher and 4 closing lower. The Consumer Discretionary sector (+1.26%) was the best performer while Energy (-3.38%) was the worst.

Index* Closing Price 11/17/2017 Percentage Change for Week Ending 11/17/2017 Year-to-Date Percentage Change Through 11/17/2017
Dow 23358.24 -0.27% +18.19%
Wilshire 5000 26790.38 +0.06% +14.36%
S&P 500 2578.85 -0.13% +15.19%
NASDAQ 6782.79 +0.47% +26.00%

*See below for Index Definitions

 
MARKET OBSERVATIONS: 11/13/2017 – 11/17/2017

The major market indices finished the week little changed as investors digested and debated the implications of a soft batch of economic data out of China, the recent weakness in the high-yield bond market, and the ongoing flattening of the yield curve. Uncertainty over the timing of tax reform also weighed on sentiment. While we continue to believe the broader narrative surrounding the market remains intact, we must also be cognizant that many investors are sitting on pretty solid year-to-date performance and thus have a bias to preserve the gains when negative news emerges. Looking ahead, the markets could remain stuck in a near-term holding pattern until clarity begins to emerge on the specifics and timing of the tax package.

Tax Reform: Last week, the House approved its version of legislation to overhaul the U.S. tax code in a 227-205 vote, passing a key milestone in the administration’s plan to cut taxes across the board for companies and individuals. The Senate Finance Committee also voted to approve its revised tax package, setting the stage for a full chamber vote likely during the week after Thanksgiving. If passed, the real work will begin as the House and Senate versions will need to be reconciled into a single bill that can be delivered to President Trump to sign. While the Trump administration would like to get the final bill passed by year-end, the consensus view is that this is likely to be a Q1 event with potential stumbling blocks along the way.

Market View: We continue to believe the bull market remains intact and the “Goldilocks” economic environment (not too hot, not too cold) should help limit downside risk in the event of a correction. From a macro point of view, the world is enjoying a period of synchronized global growth, which has resulted in a favorable turn in the earnings environment. In addition, valuation levels—while elevated—are far from extreme. If the market were to stage a near-term pullback, it would be viewed as an opportunity to add equity exposure to portfolios.

The Week Ahead: The data calendar is relatively light during the holiday shortened week as financial markets will be closed on Thursday in observance of Thanksgiving and will close early on Friday. Reports of interest on the economic calendar include October existing home sales, October durable goods orders, and the University of Michigan’s November consumer sentiment survey. Earnings season continues to wind down with only 14 members of the S&P 500 scheduled to report. Other events on the radar screen include a speech on Tuesday night by Fed Chair Yellen at NYU and the release of the minutes from the November Federal Open Market Committee (FOMC) meeting on Wednesday.

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.




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