Beige Book: Window on Main Street

The latest edition of the Federal Reserve’s Beige Book, released Wednesday, April 19,2017, continued to deliver a positive view of the U.S. economy. The Beige Book is a qualitative assessment of the U.S. economy and each of the 12 Fed districts individually. The report is prepared eight times per year, ahead of each of the eight Federal Open Market Committee (FOMC) meetings. We believe the Beige Book is best interpreted by measuring how the key words change over time. The qualitative inputs for the April 2017 Beige Book were collected in early March 2017 through April 10, 2017.

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Europe Enters The Tour De France

The next four weeks will be a major turning point for European investors. France is in the middle of what is arguably its most important election cycle since World War II. The results of the second round of presidential elections, as well as parliamentary elections scheduled for mid-June, will determine if France maintains its historical position as one of the primary advocates for European integration and identity or if anti-European candidates garner additional power. France is both literally and figuratively at the center of Europe, and the concern that it will become more anti-European may be having greater impact on the markets than is apparent at first. Even with pressing political issues, it’s important not to overlook corporate fundamentals, which have also been seeing a meaningful reversal. European corporate earnings experienced a strong rebound at the end of 2016, with consensus expectations from Thomson Reuters of another 20% increase over 2017. These are optimistic forecasts, and though certainly possible, combined with the political uncertainty has kept LPL Research from recommending European equities on a tactical basis.

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Which Breaks First, Stock Prices or Uncertainty?

Some significant technical trend lines are in play, so we take a closer look at market technicals and sentiment this week. The longer-term technicals continue to look strong, and an evaluation of global market breadth suggests the path of least resistance remains higher for stocks. However, sentiment remains a much more mixed picture indicating that market volatility could finally be heating up.

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Corporate Tax Reform Takes Center Stage

Over the next few weeks, analysis of the Trump administration’s first 100 days will increasingly dominate the news cycle (April 29 is day 100). From a policy perspective, all of the action (or lack thereof) will take place over the rest of 2017 and into 2018, which is a more realistic time frame for implementing major agenda items. During that time, corporate tax reform will likely take center stage.

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First Quarter 2017 Earnings Preview

The S&P 500 is poised for double-digit earnings growth in the first quarter. Earnings season gets underway this week and corporate America is poised to show a strong increase in its bottom line. The S&P 500 appears likely to produce doubledigit year-over-year earnings growth for the first quarter, powered by energy’s rebound from the oil downturn that battered the sector early last year. Last year’s first quarter marked the trough of the earnings recession as S&P 500 earnings fell 5%, setting up an easy comparison for the first quarter of 2017 [Figure 1]. This week we preview the upcoming earnings season. Continue reading “First Quarter 2017 Earnings Preview”

The $4.2 Trillion Dilemma

Minutes from the most recent Federal Reserve (Fed) meeting, released last Wednesday, sparked selling of stocks and bonds, as investors read that the Fed may reduce its $4.2 trillion balance sheet. Minutes also revealed that “some Fed officials viewed equity prices as quite high relative to standard valuation measures” and that there are “downside risks” if “financial markets were to experience a significant correction.” As we mentioned last week, we believe the stock market reaction to the Fed minutes was overdone, but nevertheless, investors should take the ending of Fed accommodation seriously.

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