December 4th, 2023 | LPL Research

After the last few weeks of softening economic data, it increasingly looks like the July rate hike will be the last one for this cycle, and that could be good news for fixed income investors. Historically, once the Fed is done raising interest rates, we tend to see lower yields on intermediate-term securities even before the Fed actually cuts rates. Of the most recent Fed rate hiking campaigns, 10-year Treasury yields were lower, on average, by 1% a year after the Fed stopped raising rates.

November 20th, 2023 | LPL Research

As interest rates began to edge comfortably lower, and as mutual funds finished their tax-loss harvesting trades, slowly but surely markets gained momentum in November, the most hospitable month for equities.

On November 14, the softer than expected Consumer Price Index report ignited a strong bout of short covering in concert with options traders piling on, which created a squeeze and moved the S&P 500 above key levels. This “squeeze” phenomenon was a prime factor during 2021 when stock prices climbed quickly for “meme” stocks.

Volume began to gain strength as the markets moved higher and the fear of missing out, the FOMO trade, caught fire.

November 13th, 2023 | LPL Research

The S&P 500 officially entered correction territory in late October after falling over 10% from its summer high. Rising interest rates and a steady drumbeat of higher-for-longer monetary policy messaging from the Federal Reserve (Fed) captured most of the blame for the selling pressure. The unexpected Israel-Hamas war, weak seasonal trends, and sputtering economic activity in China also weighed on risk appetite.

November 6th, 2023 | LPL Research

In an effort to fight generationally high inflationary pressures, the Fed has engineered one of the most aggressive rate hiking campaigns in its history. Over the past 20 months, the Fed increased its fed funds rate by over 5%, including four 0.75% rate hikes over the course of four Fed meetings. The aggressive response was a significant headwind for fixed income markets broadly last year and has carried into this year as well. 

October 23rd, 2023 | LPL Research

The recent uptick in the number of part time workers implies that businesses are starting to feel the effects of economic uncertainty, even though many of the official metrics imply robust growth. For example, growth estimates for Q3 will be released October 26 and will likely be better than expected. However, investors should be especially careful with coming to strong conclusions by lagging indicators. Now more than ever it is important to focus on leading indicators that guide investors into wise decisions.

October 16th, 2023 | LPL Research

Analysts have underestimated corporate America’s ability to generate revenue and control costs throughout 2023, while economists have generally underestimated the resilience of the U.S. economy, consumers’ willingness to spend, and benefits from both prior stimulus and previously low interest rates. As a result, even under intense cost pressures, companies have exceeded expectations throughout the year and kept estimates steady.

October 9th, 2023 | LPL Research

The shape of the U.S. Treasury yield curve is often looked at as a barometer for U.S. economic growth. More specifically, it reflects how the Fed intends to stimulate or slow economic growth by cutting or raising its policy rate. Each tenor on the curve is roughly the expected policy rate plus or minus a term premium (the term premium represents the expected compensation for lending for longer periods of time).

October 2nd, 2023 | LPL Research

While falling rates are the most obvious potential catalyst for stocks to rally through year-end, third quarter earnings season starts in a couple of weeks and carries the potential to buoy investor sentiment. For one, third quarter results may bring an end to the earnings recession. Second, results excluding energy sector earnings declines have been excellent relative to expectations in the last few quarters. Third, economic growth based on third quarter data has continued to exceed expectations, pointing to potential GDP growth north of 3%. And finally, though energy sector profits will be down, recent strength may leave analysts’ estimates overly conservative.

September 25th, 2023 | LPL Research

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.

September 18th, 2023 | LPL Research

Europe’s economy outpaced most expectations in late 2022 and early this year amid fears of an escalating energy crisis as the war in Ukraine continued. Rising earnings expectations coincided with that outperformance, at least until this summer. Since July, however, earnings estimates have fallen, coinciding with recent ratcheting lower of economic growth expectations in the region.

September 11th, 2023 | LPL Research

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.

September 5th, 2023 | LPL Research

The Fed and other central banks ripped the proverbial Band-Aid off over the last few years, and interest rates are now back into more normal levels.

Could interest rates go higher? It’s possible. With the Treasury Department expected to issue a lot of Treasury securities to fund budget deficits and with the potential for the Bank of Japan (BOJ) to finally end its aggressively loose monetary policies, we could continue to see upward pressure on yields. However, while supply/demand dynamics can influence prices in the near term, the long-term direction of yields is based on expected Fed policy. 

August 28th, 2023 | LPL Research

As investors prepare for the rest of this year and for 2024, markets need to adjust to the likelihood that central bankers will not be as coordinated in this period of transition. Europe has stickier inflation despite weakening economic growth, so we could expect a hawkish pause out of the ECB. Diverging policy has direct investment implications, especially for currency markets. If the Fed hikes and the ECB doesn’t, investors could expect the U.S. dollar to appreciate, making things difficult for U.S.-based multinational companies.

August 21st, 2023 | LPL Research

Stocks are struggling this month as gravity appears to be setting in. While overbought conditions into August are part of the story, the recent jump in interest rates has captured most of the blame for the selling pressure. Benchmark 10-year Treasury yields have surged nearly 50 basis points (bps) over the last month, proving to be too much too fast for equity markets to absorb. This observation has been further evidenced by the correlation between 10-year yields and the S&P 500 recently turning negative for the first time since March.

August 14th, 2023 | LPL Research

While Fitch’s opinion in and of itself doesn’t matter all that much in the grand scheme of things, one potential reason why it could matter to investors is likely only administrative. The U.S. is officially split-rated, so accounts that have minimum AAA-rating requirements may have to change account documentation, but it will not likely result in forced selling.

August 7th, 2023 | LPL Research

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. 

July 31st, 2023 | LPL Research

Goods prices declined three of the last four months, pulling the annual rate of goods inflation down to -0.6%, the lowest since 2020. Services inflation is also cooling, but it’s still too high as consumers concentrate their spending on services. If inflation metrics continue to cool, investors should expect the Fed to pause at their next meeting in September.

July 24th, 2023 | LPL Research

The Fed meets this week and is largely expected to raise short-term interest rates once again. With inflationary pressures trending in the right direction and still no signs of a wage/price spiral, which could reignite inflationary pressures, we think the Fed is just about done with its current rate hiking campaign.

In fact, once the Fed is indeed done raising interest rates, we could start to see lower yields on intermediate-term securities before the Fed actually cuts rates. 

July 17th, 2023 | LPL Research

From a sector perspective, the energy sector is projected to detract the most from earnings growth, with consensus estimates showing a 48% decline in profits amid the significant drop in oil prices over the last year. Conversely, the consumer discretionary and communications sectors are the only two sectors projected to record double-digit earnings growth (27% and 13%, respectively).

July 3rd, 2023 | LPL Research

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.

June 26th, 2023 | LPL Research

The duration of a bull market can vary significantly, but historically they have been long-lasting. Since 1957, the average S&P 500 bull market has lasted 59.2 months and produced an average cumulative gain of 169.3%.

June 20th, 2023 | LPL Research

The latest Consumer Price Index (CPI) print decelerated toward the lower end of expectations, with overall headline inflation falling to the lowest level since April 2021. The encouraging trend in consumer prices will provide the Fed some leeway throughout the balance of 2023. Investors seem to believe the latest CPI report shows inflation is heading in the right direction and likely reinforced the Fed’s decision to skip a June rate hike or even pause for a longer period.

June 12th, 2023 | LPL Research

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.

June 9th, 2023 | LPL Research

Higher interest rates make stocks relatively less attractive when compared with bonds for a couple of primary reasons. First, the value of a stock is the present value of future cash flows. So, a higher interest rate raises the discount rate and lowers the value of those cash flows.

May 30th, 2023 | LPL Research

Mega-cap stocks, which have outlier market capitalizations and are often referred to as ‘the generals,’ have made an impressive comeback this year. Last year’s headwinds of higher rates underpinned by aggressive Federal Reserve (Fed) tightening have finally abated. Interest rate stabilization, signs of receding inflation, and a potential peak in the terminal rate by this summer have helped bring buyers back into the space. 

May 23rd, 2023 | LPL Research

If history at least rhymes during this cycle and we do see lower yields over the next year, intermediate core bonds could very well outperform cash and other shorter maturity fixed income strategies. Historically, core bonds, as proxied by the Bloomberg Aggregate Bond Index, have performed well during Fed rate hike pauses.

May 15th, 2023 | LPL Research

Solid earnings results compared with expectations have helped keep stocks afloat in recent weeks amid debt ceiling jitters, regional bank concerns, and louder calls for recession. But we’re still in an earnings lull and a weak seasonal period for stocks. While a Fed pause is likely to arrive in June, gains may depend on the continued resilience of the U.S. economy.

May 1st, 2023 | LPL Research

“Sell in May and go away” is the seasonal stock market pattern in which stocks generally produce the best returns from November through April and the worst returns from May through October. This pattern has been strong enough—and the adage popular enough—that it has probably been somewhat of a self-fulfilling prophecy over many years.