Weekly Market Commentary

IS TOO MUCH OPTIMISM PRICED IN?

Jeffrey Buchbinder, CFA, Chief Equity Strategist

With the S&P 500 having recently ascended to a fresh record high after such a strong 2023, it’s natural for investors to worry that valuations have become over-extended. On traditional valuation measures, valuations do appear high and it does seem reasonable to expect more moderate stock market returns going forward. Here we walk through several different stock valuation approaches to get a more complete picture and even make the case that they aren’t as pricey as they look.

Weekly Market Commentary

WILL SHIPPING DISRUPTIONS ALTER FED PLANS?

Jeffrey Roach, PhD, Chief Economist
Lawrence Gillum, CFA, Chief Fixed Income Strategist

Shipping disruptions in the Red Sea could temporarily impact goods prices but not at the same magnitude as during the pandemic. Tight financial conditions, slowing economic growth, and a disinflationary trend all support the Federal Reserve’s (Fed) pivot away from tightening monetary policy to easing in the new year. Despite these longer term trends, rates possibly got ahead of themselves in recent weeks, exhibiting higher volatility.

Weekly Market Commentary

MAGNIFICENT SEVEN AND MARGINS ARE KEYS TO Q4 EARNINGS SEASON

Jeffrey Buchbinder, CFA, Chief Equity Strategist

Fourth quarter earnings season kicked off last week, and markets were generally left wanting more. That doesn’t necessarily mean this earnings season will be disappointing, especially considering the bar has been lowered so much. Plus, some of the disappointment was around special bank charges and November-quarter-end companies’ results were solid. This reporting period may lack the splashy “earnings recession over” headlines we got last quarter, but it takes on added importance because it sets the tone for 2024. After 2023 was a year in which improving valuations delivered strong gains, this year, earnings will likely have to do the heavy lifting

Weekly Market Commentary

KEY EQUITY THEMES FOR 2024

Jeffrey Buchbinder, CFA, Chief Equity Strategist
Adam Turnquist, CMT, Chief Technical Strategist

Following the Federal Reserve’s (Fed) aggressive rate-hiking campaign in 2022 and 2023, stocks are entering a phase in which the market narrative is focused on interest-rate stability — as inflation, we believe, comes down further. Low and stable interest rates should help support stock valuations, while corporate profits are moving into a sweet spot. So even though stocks look fully valued, if rates ease as we expect, we could see upside to our year-end 2024 fair-value target range of 4,850 to 4,950. We highlight some key themes for stocks next year.

Weekly Market Commentary

DISCORD IN THE OPEC+ OIL PATCH

Quincy Krosby, PhD, Chief Global Strategist
Joshua Cline, Associate Analyst

Despite a heavy lobbying effort to cajole OPEC+ members to agree to a unified cut in oil production, Saudi Arabia, the de facto leader of the energy cartel, was unable to orchestrate anything more than pledges on a “voluntary” basis. Accordingly, benchmark oil prices continued to slide lower following the announcement, and without a catalyst to propel prices higher, oversupply in the market coupled with concerns over the global economic landscape, have steadfastly kept prices lower. Nonetheless, forward pricing forecasts indicate prices will climb higher. The role of the Saudis as the OPEC+ leader has been questioned regarding how ineffective they’ve been in organizing a viable response to softening prices. The broader issue for the cartel is whether the current structure is flexible enough to accommodate the disparate economic needs of its constituents, especially in a challenging economic environment.

Weekly Market Commentary

MARKET OPPORTUNITIES AMID AN ECONOMIC ROTATION

Jeffrey Roach, PhD, Chief Economist
Lawrence Gillum, CFA, Chief Fixed Income Strategist

Opportunities abound in the markets, even during periods when the economy appears ripe for a regime shift. Recent growth metrics surprised to the upside, but leading indicators point toward some downside risk. In this edition of the Weekly Market Commentary, we examine potential opportunities amid a rotation in housing, buying patterns, and inflation.

Weekly Market Commentary

ANATOMY OF A MARKET RALLY

Quincy Krosby, PhD, Chief Global Strategist
Joshua Cline, Associate Analyst

As the market appears to be taking a rest and consolidating its $2.7 trillion rally leading up to the Thanksgiving holiday, the historical pattern over the last five years suggests the shortened holiday week typically enjoys modest gains. With concerns over the resiliency of consumer spending, however, the market can be affected by any indication that Black Friday doesn’t witness the throngs of consumers out hunting for bargains, or indications that the start to Cyber Monday won’t result in the billions of dollars that are spent online.

Weekly Market Commentary

IS THE STOCK MARKET CORRECTION OVER?

Adam Turnquist, CMT, Chief Technical Strategist

There is nothing like an eight-day winning streak to change the market narrative. Stocks have quickly gone from a correction to a comeback this month, and the S&P 500 is now challenging key resistance at 4,400. While a confirmed breakout above this level raises the odds of the correction being over, there are still a few boxes left to check on our technical list before making that call. One of the unchecked items is market breadth. Despite the recent rally, participation in the latest rebound has been underwhelming, raising questions over the sustainability of the advance. Second, 10-year Treasury yields remain in an uptrend, and until more technical evidence confirms the highs have been set, it may be challenging for stocks to maintain their upside momentum.

Weekly Market Commentary

CAN MUNI INVESTORS CATCH A BREAK? WE THINK SO

Lawrence Gillum, CFA, Chief Fixed Income Strategist

It’s been another volatile year for municipal (muni) investors this year. While generally outperforming U.S. Treasuries, the Bloomberg Muni Index is on track for its second calendar year of negative returns—something that has never happened before. But, while volatility will likely persist over the coming months, we think muni investors may be able to catch a break, especially if the Federal Reserve (Fed) is done with its aggressive rate hiking campaign. Moreover, the next few months have historically been favorable for muni investors. So, with still solid fundamentals, the broader muni market may be in for a year-end rally, which would certainly be a nice reprieve for investors suffering from one of the worst muni drawdowns on record.

Weekly Market Commentary

POSSIBLE HALLOWEEN SCARES FOR MARKETS AND THE ECONOMY

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

CAN SOMETHING GOOD COME FROM A CRISIS?

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

EARNINGS HOPE TO KEEP THIS ONE-YEAR-OLD BULL MARKET GOING

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

HIGHER FOR LONGER—UPDATING OUR TREASURY FORECAST

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

August 7, 2023: KEY EARNINGS SEASON TAKEAWAYS

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

July 31, 2023: A CLOUDY OUTLOOK MAKES FOR CHOPPY MARKETS

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.