Jeffrey Buchbinder, CFA, Chief Equity Strategist
Lawrence Gillum, CFA, Chief Fixed Income Strategist
Quincy Krosby, PhD, Chief Global Strategist
Jeffrey Roach, PhD, Chief Economist
It’s a tradition here to write about what scares us around Halloween each year. The past few years have offered plenty of material to use in these annual commentaries, but with wars in Israel and Ukraine ongoing, Washington, D.C. dysfunction reaching new heights, the unrelenting rise in interest rates, still-high inflation, unaffordable housing, tight financial conditions, and a Federal Reserve (Fed) that has not yet signaled it’s done hiking rates, the list seems to be a bit longer and scarier than it usually is. But these are risk factors, not our base case. Keep in mind there are plenty of positives at the same time, including easing inflation, the resilient economy bolstered by a healthy job market, growing earnings, and the strong possibility that the Fed is done hiking rates.
Weekly Market Commentary
Jeffrey Roach, PhD, Chief Economist
Despite headwinds, the U.S. could experience structural changes in the labor market, residential real estate, and inflation as the post-pandemic economy progresses into the New Year. As markets adjust to a new regime, investors should recognize the economy is becoming less interest rate sensitive and they should focus on leading indicators such as the ratio of part-time workers and not on lagging metrics such as the headline growth stats mostly cited in the media.
Weekly Market Commentary
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Earnings season has kicked off with several of the big banks and a handful of other blue-chip companies having already reported results for their calendar third quarters. The key headline this reporting season will be the (likely) end of the earnings recession. The October-November reporting season can be particularly interesting because full-year numbers are nearly locked in while more companies share thoughts on the year ahead. Here are several things we will be watching as reports stream in.
Weekly Market Commentary
Lawrence Gillum, CFA, Chief Fixed Income Strategist
Adam Turnquist, CMT, Chief Technical Strategist
U.S. Treasury yields have seemingly been moving in one direction lately (higher), with the 30-year Treasury yield temporarily breaching 5% for the first time since 2007. The move higher in yields (lower in price) has been unrelenting, with intermediate and longer-term Treasury yields bearing the brunt of the move. There are several reasons we’re seeing higher yields, but rates are moving higher alongside a U.S. economy that has continued to outperform expectations, pushing recession expectations out further, and by the unwinding of rate cut expectations to be more in line with the Federal Reserve’s (Fed) “higher for longer” regime. And with the economic data continuing to show a more resilient economy than originally expected, we think Treasury yields are likely going to stay higher for longer as well. As such, we now project the 10-year Treasury yield will end the year between 4.25% and 4.75% (previously 3.25% and 3.75%).
Weekly Market Commentary
PROSPECTS FOR A FOURTH QUARTER RALLY
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Lawrence Gillum, CFA, Chief Fixed Income Strategist
Adam Turnquist, CMT, Chief Technical Strategist
After a difficult September for stocks, investors are surely ready to flip the calendar to October. That’s the month that kicks off the historically strong fourth quarter. Expecting this pattern to repeat this year is tricky given the overhang of a government shutdown, interest rates near 16-year highs, a market still trying to digest the Federal Reserve’s “higher for longer” message, and a consumer who is facing some stiff headwinds as excess savings are drawn down, student loan payments restart, and the effects of higher borrowing costs are increasingly felt. Amid that complicated backdrop, here we assess prospects for a fourth-quarter rally.
Wealth Ethoughts article continued
ESG in Action
Paul King
Environmental, Social and Governance investing (ESG) has recently been receiving more headlines as it has grown in popularity. I recently had the opportunity to speak briefly on the subject as it relates to a controversial project very close to home.
Weekly Market Commentary
IS INDIA THE NEW CHINA?
Adam Turnquist, CMT, Chief Technical Strategist
India has emerged as a compelling economic growth story and an increasingly attractive alternative to China within the emerging markets complex. A growing population with a robust and young workforce, significant infrastructure spending, and an ongoing digital transformation have been key catalysts to India’s outperformance over China. India has also benefited from the de-globalization trend as manufacturers move production away from China. While we may not go as far as officially calling India the new China, the economic and technical trends suggest the country may be set for a prolonged period of outperformance.
Weekly Market Commentary
BUY JAPAN, HOLD U.S., SELL EUROPE
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Jeffrey Roach, PhD, Chief Economist
Recent data suggests economic conditions in Europe are deteriorating, removing a key element of LPL Research’s positive view of the attractively valued developed international equities asset class. Previous U.S. dollar weakness and strong earnings momentum, which were other key reasons why we became more interested in European investing earlier this year, have reversed and suggest looking elsewhere for investment opportunities. Another international market to consider is Japan, which is also attractively valued with better fundamentals than Europe, in our view.
Weekly Market Commentary
THE GROWING LIST—AND POLITICIZATION—OF BRICS AND FRIENDS
Quincy Krosby, PhD, Chief Global Strategist, LPL Financial
The BRIC acronym, without the “S,” was introduced in 2001 by the Goldman Sachs chief economist who highlighted the prodigious growth and investment prospects of Brazil, Russia, India, and China combined. In 2009, Russia advanced the BRIC platform to create an informal bloc that could challenge the dominance of Western nations, particularly the United States. In 2010, South Africa joined and became the “S” in the BRICS lexicon. The original bloc, an informal economic alliance, comprises approximately 45% of the global supply chain for commodities, including industrial, precious, and agricultural products. In terms of contribution to global GDP, the BRICS constitute 31%, with expectations for a more expanded share as the new BRICS+ entrants are installed in 2024. The bloc has been characterized as the “commodity powerhouse of the world,” and that title will only strengthen with additional members.
Weekly Market Commentary
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Quincy Krosby, PhD, Chief Global Strategist
Earnings season is mostly behind us with about 85% of S&P 500 companies having reported second quarter results. The high level results aren’t particularly impressive, but if we peel back the onion, the numbers are encouraging. Results and guidance probably haven’t been good enough for stocks to add to recent gains, but they have been good enough, in our view, to end the earnings recession and limit the magnitude of any potential pullback. Here we provide some takeaways from this earnings season.
Weekly Market Commentary
Jeffrey Roach, PhD, Chief Economist
Jeffrey Buchbinder, CFA, Chief Equity Strategist
The economy is doing better than expected, and the markets are responding accordingly. In this piece, we discuss some of the factors that cause us to think the Federal Reserve (Fed) hiked for the last time in this cycle as inflation is receding and the outlook for the consumer looks cloudy. We close the piece with investment implications.
Weekly Market Commentary
July 24, 2023: (STILL) WAITING ON THE FED
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial
The first half of the year probably didn’t go the way many fixed income investors had hoped, particularly after the historically awful year last year. It wasn’t a horrible start—more in line with recent years—but expectations were high this year, with many calling 2023 the year for fixed income. But the themes that negatively impacted fixed income investors last year have carried over into this year as well—namely inflation and the Federal Reserve (Fed). While many of us thought the Fed would likely be done raising rates at this point, given the still high (but falling) inflation levels, it looks like the Fed isn’t quite done just yet. Our base case is the Fed will raise rates again this week (and possibly one more time this year) but is close to the end of its rate hiking campaign. As we point out in our recent Midyear Outlook 2023: The Path Toward Stability, a Fed pause has been good news for fixed income. And since we know it’s not how you start but how you finish, once the Fed is done, it could mean the year for fixed income is only postponed and not canceled.
Weekly Market Commentary
July 17, 2023, EARNINGS NEED TO DO SOME HEAVY LIFTING TO KEEP THIS RALLY GOING
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Dr. Quincy Krosby, PhD, Chief Global Strategist
Earnings season is upon us as some banks and a small handful of other blue chip companies have already reported results for their quarters ending June 30. The results on the surface probably won’t offer much to write home about given consensus estimates imply a 7% year-over-year decline in S&P 500 earnings per share. However, the key question is always what’s priced in, which at least offers an opportunity for markets to react positively, though our best guess is we get the typical upside surprises and guidance reductions, giving this rally a convenient excuse to take a breather.
Weekly Market Commentary
CAPITAL MARKETS: THE ESSENCE OF AMERICAN CAPITALISM
Dr. Quincy Krosby, PhD, Chief Global Strategist
The long dormant capital markets have recently begun showing signs of interest from institutional investors and deal makers anxious to bring companies to market. While activity remains muted at best, expectations are focused on 2024, when there is a prevailing consensus that the Federal Reserve (Fed) will be finished with its rate hike campaign, and that economic conditions will be resilient enough to underpin a strong capital markets environment. Given the country's unique characteristics in nurturing innovation and technological leadership, the role of capital markets is crucial in maintaining hegemony. That Apple's market capitalization at the close of the second quarter crossed over $3 trillion, exemplifies the country's dominance and the role of innovative experimentation.
Weekly Market Commentary
NEW BULL MAY NEED A BREATHER
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Adam Turnquist, CMT, Chief Technical Strategist
We know it’s old news at this point, but on June 8, 2023, the S&P 500 entered a new bull market. After such a strong rally off the October lows, this young bull probably needs a breather. A look at the charts suggests this market may be due for a pause. Bull markets are not linear. However, the impending end of the Federal Reserve (Fed) rate-hiking campaign, and the economy’s and corporate America’s resilience, help make the bull case that steers LPL Research toward a neutral, rather than negative, equities view from a tactical asset allocation perspective.
Weekly Market Commentary
June 20, 2023, MARKET RESPONSES TO FED (IN)ACTION
Jeffrey Roach, PhD, Chief Economist
Lawrence Gillum, CFA, Chief Fixed Income Strategist
As the economy is likely downshifting, investors should take heed that the Federal Reserve’s (Fed) current stance is eerily similar to early 2007. During that time, the Fed held a tightening bias since they believed the housing market was stabilizing, the economy would continue to expand, and inflation risks remained. Clearly, their expectations were not met as the economy soon fell into recession. That’s not suggesting another 2008 is coming, but rather highlights how fast the economic environment can change.
Weekly Market Commentary
June 13th, 2023 FOMC PREVIEW: SKIP, PAUSE, OR HIKE?
Quincy Krosby, PhD, Chief Global Strategist
Lawrence Gillum, CFA, Chief Fixed Income Strategist
The Federal Reserve (Fed) meets this week where it is largely expected to not raise short term interest rates for the first time in 15 months. However, Fed messaging has been all over the place in recent weeks. While some Fed officials continue to advocate for additional rate hikes, others want to be more patient. So, according to current market pricing anyway, the Fed is expected to skip the June meeting before hiking again in July which could mark the starting point for an extended pause. It can be very confusing to markets at times. And throw in the glut of Treasury issuance expected to come to the market and the Fed is likely going to continue to stay in the news for the foreseeable future. The good news? We agree with markets that the end of the rate hiking campaign is near, which has historically been a good thing for core bond investors.
Weekly Market Commentary
June 5, 2023 CLOSING OUT OUR EQUITIES OVERWEIGHT
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Adam Turnquist, CMT, Chief Technical Strategist
Stocks have had a nice run, but at higher prices, the bar for further gains gets higher. We have recently made the case in this publication that there are a lot of reasons to expect the market to go higher between now and year end. But with stocks at higher valuations, high-quality bonds offering attractive yields, an S&P 500 Index with concentrated leadership facing technical resistance at 4,300, and an elevated risk of a late-2023 recession, we think it makes sense to be a bit careful here. Importantly, though, neutral is not bearish.
Weekly Market Commentary
5/30/23 HOW MUCH OF A PROBLEM IS CONCENTRATED LEADERSHIP?
Adam Turnquist, CMT, Chief Technical Strategist
Jeffrey Buchbinder, CFA, Chief Equity Strategist
The mega-cap technology companies have powered the broad market higher this year. In fact, the 8.1% gain in the S&P 500 year to date has been driven entirely by six mega-cap stocks: Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Meta (META), Amazon (AMZN), and Alphabet (GOOG/L). Is this narrow leadership a problem for stocks looking forward? We try to answer that question.
Weekly Market Commentary
5/22/23 WILL HISTORY RHYME? A FED PAUSE HAS BEEN GOOD FOR FIXED INCOME
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial
Economists like to remind us there is no such thing as a free lunch. In investment parlance, that just means all investments carry risk—even cash. And the big risk with cash is reinvestment risk. That is, while short-term rates are currently elevated, the risk is these rates won’t last and upon maturity, investors will have to reinvest proceeds at lower rates. And if this current cycle follows history, we could see lower core bond yields over the next year, which would mean cash-only investors may miss out on these higher yields. LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) recommends investors maintain a neutral duration relative to benchmarks with the expectation that Treasury yields are likely headed lower (or at least not much higher) over the next few quarters.