Archive

Economic Blog Posted by lplresearch

Thursday, September 23, 2021

The Federal Reserve (Fed) ended its two-day Federal Open Market Committee (FOMC) meeting yesterday and, as expected, there were no changes to current interest rate or bond purchasing policies. However, the Fed continues to prepare the market for a reduction (taper) of bond purchases. In the statement released shortly after the conclusion of the meeting, it was noted that a “moderation in the pace of asset purchases may soon be warranted”. Additionally, during the press conference, Chairman Jerome Powell mentioned that, “while no decision has been made, the Committee currently believes tapering would likely conclude around mid-2022”. These statements are in line with our expectations and we continue to think plans to taper are likely to be announced in November with the actual reduction in bond purchases taking place in December.

“This meeting will likely be perceived as slightly hawkish,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “However, we would characterize it as slightly less dovish. We still think the Fed will continue to provide monetary support to the economy for a few more years.”

Interestingly, the signaling on the future path of monetary policy continues to show the wide divergence of opinions on the committee. As shown in the LPL Research Chart of the Day highlighting the Fed “Dot Plot,” individual members believe short-term interest rates could be anywhere from zero to over 1.5% in 2023. Also of note, nine (out of eighteen) officials believe at least one interest rate hike is warranted next year. While these dot plot projections are not official policy, it does show that there is a noticeable split between the doves and hawks on the Committee. As such, the future make-up of the committee and whether Powell is reappointed or not will likely have a notable impact on the future of monetary policy. We are likely to hear from the Biden administration in the next few months on how, if at all, they could reshape the Committee.

View enlarged chart.

Also of note, four times a year, the Fed updates its economic projections for the next several years as well its longer-term forecasts. The influence of supply chain bottlenecks and the delta variant have clearly influenced how the Fed sees inflation and GDP growth, respectively, for the remainder of the year. The Fed now sees 5.9% GDP Growth in 2021 (down from 7.0% in June), and much higher inflation expectations with PCE headline and core metrics, their preferred inflation measures, at 4.2% and 3.7% (up from 3.4% and 3.0% in June), respectively. However, the committee sees inflation falling slightly in 2022 and a pick-up in economic growth for the year as well.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

Thursday, September 16, 2021

U.S. consumers shocked economists in August with their willingness to spend in the face of recent jitters over the economic outlook.

This morning, the U.S. Census Bureau released August retail sales data showing overall retail sales grew 0.7% month-over-month vs. a consensus forecast for a 0.7% drop, while retail sales ex autos and gas rose 2% month-over-month vs. a consensus forecast for no change. Auto sales remained under pressure because of supply chain bottlenecks and higher prices, accounting for the large gulf in the numbers. The big beats come on the heels of disappointing July data, which received additional negative revisions, taking a small bit of the shine off August’s numbers.

Nonetheless, the spending resilience shown in this report is receiving an overwhelmingly early positive response, as economic releases in recent weeks have generally been surprising to the downside. COVID-19’s resurgence in recent months is surely to blame for a significant portion of the lowered expectations, but consumers have also been forced to contend with rising prices, severe weather events, lukewarm payroll gains, and cuts to enhanced unemployment benefits.

“There have been several reasons to question the consumer outlook recently,” explained LPL Financial Chief Market Strategist Ryan Detrick. “And yet, the old mantra ‘never bet against the U.S. consumer’ continues to ring true. This has been a volatile series of late, but we look for the consumer to continue powering this economy well into the future.”

As seen in the LPL Chart of the Day, retail sales ticked significantly higher in August following a difficult July.

See enlarged chart.

The familiar theme of goods over services consumption seen during prior virus flare-ups is evident in this report, as well as a back-to-school boost. General merchandise stores (3.5%) and nonstore (online) retailers (5.3%) showed large monthly boosts, reversing a disappointing July. In addition, furniture and home furnishing stores rose nicely (3.7%). Meanwhile, food services and drinking places (0.0%), an in-person segment most impacted by virus caution, held steady against forecasts for a decline, while volatile electronics and appliance stores (-3.1%) showed weakness.

We continue to believe that successfully tackling Delta could set up a fourth quarter growth rebound despite many strategists increasingly turning sour on the second half of the year. Cases from this latest COVID-19 wave are starting to decline, and plentiful job openings and impressive wage gains data should prevent a major income shortfall resulting from the expiration of enhanced unemployment benefits. Consumers also still have elevated excess savings relative to history—in the neighborhood of $2 trillion. We continue to look for a resilient consumer, as well as for services spending to play catch-up vs. goods spending in coming months.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data from Bloomberg.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Wednesday, September 15, 2021

With summer (un)officially over, investment-grade corporate bond sales are ramping up again. Despite a four-day week last week, thirty-eight investment-grade companies sold $60.5 billion in the first two sessions, breaking a record for the number of borrowers to come to market over that span. As seen in the LPL Research Chart of the Day, that takes year-to-date issuance up to $1.1 trillion through Sept 10. The $1.1 trillion is already more than the annual issuance in 2010, 2011, and 2012 and in line with 2013—with 3 ½ months still to go. We’re unlikely to see a repeat of 2020, which had the heaviest new issue calendar year ever with nearly $2 trillion of debt issued but it looks like we may get close to 2017 levels, which was the second highest year at $1.4 trillion.

“A lot of companies have been able to take advantage of really cheap financing, which should help set them up for future growth,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “But credit spreads already reflect a lot of that good news.”

View enlarged chart.

Companies are locking in low interest rates and taking advantage of the global search for yield. And for many companies, this deluge of debt issuance isn’t because they need the cash. Large-cap companies, as proxied by the companies in the S&P 500 Index, are flush with cash. According to Bloomberg, as of June 30, S&P 500 companies, in aggregate, had nearly $655 per share in cash and equivalents on their balance sheets, which is up from $460 per share as of the end of 2019. While debt loads have increased, net debt levels (long-term debt minus cash) are in line with historical averages and interest coverage ratios have improved recently because of the low interest rates on this newly issued debt. So while debt levels have increased, companies’ ability to service that debt remains manageable.

As a consequence of companies issuing all this debt and extending debt maturities, the interest rate sensitivity of the corporate bond index has increased. This makes investing in corporate debt prone to increased interest rate volatility. Additionally, with a 2.0% yield-to-worst for the corporate index, the yield is near the lowest it has ever been. Since 2009, yields have only been lower 6% of the time—meaning valuations are in the top decile in terms of expensiveness.

We are currently neutral on investment-grade corporates because of the increased interest rate sensitivity and lofty valuations. Currently, we think a benchmark weight to the corporate sector is about right. For investors using the Bloomberg Barclays Aggregate Index, a 25% allocation within a 100% fixed income portfolio likely makes sense (depending on risk and return objectives). However, we like the short-to-intermediate part of the corporate curve as it tends to have less interest rate risk.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

Tuesday, September 14, 2021

After a crazy summer of nosebleed inflation readings, we may finally be starting to see signs of transitory inflation.

The Bureau of Labor Statistics released the August Consumer Price Index (CPI) data this morning, which came in softer than expected. Headline CPI climbed 0.3% month-over-month vs. estimates of 0.4%, while core CPI jumped only 0.1% month-over-month vs. estimates of 0.3%. Base effects from rolling off weak numbers a year earlier meant the year-over-year numbers were larger, but we find more usefulness in the monthly numbers until we get past the weak comparisons versus a year ago.

To be sure, a resurgent Delta variant played a part in dampening overall inflation, and future reports will help clarify the magnitude of its effect—but, expectations were already lowered to account for this dynamic and the data still missed.

One major takeaway from the report is that the composition of the decline suggests that the long-awaited abatement in price spikes in supply-constrained segments of the economy could be upon us. These relatively smaller parts of the overall CPI basket were driving an outsized portion of the gains this summer. Used cars and trucks (-1.5%), airfare (-9.1%), and lodging away from home (-3.3%) all declined significantly month-over-month.

“’Transitory’ has certainly been lasting longer than we originally thought it would,” said LPL Financial Chief Market Strategist Ryan Detrick. “But the CPI components that displayed summer volatility resulting from supply chain bottlenecks are beginning to resolve themselves as expected.”

As seen in the LPL Chart of the Day, used car and truck prices have experienced a drop-off after the summer surge, which saw them become the posterchild for bottleneck-driven inflation from semiconductor shortages.

View enlarged chart.

As we have highlighted in previous inflation blogs, we make special note of the trend in rents since they are viewed as “stickier” parts of the inflation outlook and count for more than 40% of the overall calculation. Moreover, the Delta variant likely has less of a direct effect on rents compared to some of the other components mentioned earlier. As such, owners’ equivalent rent of primary residences rose 0.25% month-over-month, down slightly compared to the prior two months, a modest pace that is unlikely to spook even the most hawkish inflation watchers.

Gauging the Federal Reserve’s reaction function to inflation and jobs data is fast becoming the market’s primary focus. Following August’s weak payroll report, market participants have mostly pushed back their expected timelines for tapering asset purchases so long as inflation does not spiral out of control in the meantime. Judging by the early market reaction, today’s softer inflation numbers are confirming that narrative.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union.

These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Wednesday, September 1, 2021

Financial headlines continue to warn of the potential for broader financial stresses as usage of some short-term lending programs have surged to record levels recently. The size of the moves has some analysts warning that the markets for short-term funding are vulnerable to disruption. As the lifeblood for many corporations, any potential disruption in the short-term funding markets could have spillover effects into the real economy.

“While we’re always on the lookout for early warning signs, we don’t think short-term funding markets are flashing those warning signs right now,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “We think this is a case of too much money chasing too few safe investments.”

Why are short-term funding markets important?

Short-term funding markets are important as they connect the financial markets to the real economy. Commercial paper, money market mutual funds, repo and reverse repo markets are the more popular short-term funding markets as they tend to be very large and liquid markets. Companies use these markets to manage many day-to-day expenses like payroll. In 2008, when the commercial paper market froze-up, companies had to tap expensive lines of credit to make their day-to-day expenses or fail to honor their short-dated commitments. However, now usage at the Fed’s reverse repo program has surged to record amounts recently so when these markets start to “act” abnormally its right to pay attention to any signal that they may be providing.

What is the Federal Reserve’s (Fed) reverse repo program?

As seen in the LPL Research Chart of the Day, usage of the Fed’s reverse repo program has consistently topped $1 trillion recently—the most by far since the Fed created the program back in 2013. The Fed’s reverse repo program is a program that allows short-term investors, such as banks and money market funds, to invest excess cash overnight. Mechanically, the Fed sells a security, usually a Treasury bill, to an eligible counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future. The difference between the sale price and the repurchase price, together with the length of time between the sale and purchase, implies a rate of interest paid by the Federal Reserve on the transaction. Short-term investors have historically used the program when they don’t want to take counterparty risk because they won’t know for sure if their trading partner will be around the next day. That we are consistently seeing more than $1 trillion move into this program is worrying some investors.

View enlarged chart.

Are short-term funding markets flashing warning signs?

We don’t think the record amount of money flowing into the Fed’s reverse repo program presages a market event at this time. Central banks continue to provide emergency level monetary accommodation while, at the same time, Treasury bill supply has been dwindling as the Treasury tries to create more borrowing room under debt ceiling constraints. This, in our view, is a case of excess cash looking to add any incremental return in a yield starved world awash with liquidity. Moreover, when we look at corporate credit markets, which also tend to presage market events, they continue to remain well behaved. Option-adjusted spreads, or the additional compensation for holding riskier debt, remain near historical lows. If there were troubles on the horizon we would likely see multiple markets flashing warning signs, which we’re just not seeing right now.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Tuesday, August 31, 2021

The incredible bull market continues, with the S&P 500 Index up to a record 53 new all-time highs before August is over, topping the previous record from 1964.

View enlarged chart.

“Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”

View enlarged chart.

The S&P 500 hasn’t had so much as a 5% correction since last October and with stocks up more than 100% since March 2020, investors should be open to some potential seasonal weakness. The good news is we remain in the camp that stocks will continue to go higher and investors should use any weakness as an opportunity to add to core equity holdings.

Let’s be honest, stocks can’t go up forever. In fact, the S&P 500 is about to be up 7 months in a row, one of the longest monthly win streaks ever.

View enlarged chart.

It is what happens next that has our attention. As the LPL Chart of the Day shows, after 7-month win streaks, the S&P 500 has been higher six months later 13 out of 14 times, with a very impressive 7.8% average return. This reinforces our belief that in the event of a well-deserved pullback, it would be an opportunity to buy at cheaper prices.

View enlarged chart.

With a very highly anticipated Federal Reserve Bank meeting in September, along with continued Delta variant worries, coupled with the fact that stocks haven’t pulled back in a long time, investors should be on the lookout for some seasonal volatility in September. We remain in the camp that any weakness, should it occur, could be short-term and likely be contained in the 5-8% range. This bull market is alive and well and we would view any potential weakness as an opportunity.

For more of our thoughts on today’s markets, please read Poking the Bear, our latest Weekly Market Commentary.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

Friday, August 27, 2021

How is the recent increase in COVID-19 cases in the United States linked to the spread of the Delta variant affecting the U.S. consumer’s behavior? We look at some consumer confidence focused high-frequency data for clues on how this uptick in COVID-19 cases appears to be moderating behavior rather than having the dramatic effects that lockdowns had on economic activity.

“The Delta variant has weakened consumer confidence which has, in turn, added extra caution to our outlook,” explained LPL Financial Chief Market Strategist Ryan Detrick. “But widespread lockdowns seem unlikely and we see inventory replenishment and pent-up consumer demand as key reasons to remain bullish on the US economic recovery.”

High-frequency data from the TSA shows that air traffic through U.S. airports recovered to about 80% of pre-pandemic 2019 levels, peaking around the end of July at just over 2 million passengers per day. Since then the number of passengers has dropped by about 14%, however the influence of the Delta variant looks tempered as around 11% of this decrease would have been expected in a pre-pandemic environment related to the end of summer and children going back to school.

View enlarged chart.

Data on U.S restaurant diners from Opentable shows a similar recovery from the pandemic lows of -100% to eclipsing pre-pandemic levels at the end of June of this year. There has been a slight dip since that full recovery and reservations are now down 10% versus pre-pandemic levels. The national data masks wide discrepancies in the data between different states and cities such as Nevada and Las Vegas showing increases of 38%** vs 2019 bookings even as New York state has seen a 38% decline and San Francisco has fallen 56% for the same period.

View enlarged chart.

U.S theatre box office sales show the appetite to go to the movies has waned slightly during the past few weeks, from a peak in mid-July and it is still extremely depressed compared to pre-pandemic levels. Even at the recent peak ticket sales are less than half of the average weekly level for 2019. There are a couple of unique factors that could be causing this data to recover more slowly than airline tickets and restaurant bookings. Demand for theatre tickets could have been permanently reduced by the substitute product of direct-to-consumer movie releases. There is also a supply issue, with studios not wanting to release their blockbuster movies in an environment where they could be playing to sparse crowds (due to any social distancing requirements or consumers choosing to moderate behavior and stay home).

View enlarged chart.

As we continue to keep a close watch on how the Delta variant unfolds across the U.S, and its potential impacts on the economy and markets, we believe that there is a lack of appetite for renewed stringent lockdowns. More likely the Delta variant may have a smaller drag on the economy from the moderations in consumer behavior as shown in the high-frequency data. While other concerns like inflation and some recent data disappointments remain, we believe we’re still in the middle of a robust economic recovery with a solid outlook, which should provide a supportive backdrop for equities.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Thursday, August 26, 2021

Phones certainly aren’t just for making calls anymore, but how many see the power in the palm of their hand as an enduring weapon in the battle against inflation?

Through our phones and devices, consumers now have the power of near perfect price discovery as well as access to a wide range of markets near and far. That’s a powerful economic force that has impacted markets from cars to cornflakes. Supply chain disruptions are temporarily forcing consumers to compete on price. But as things move back to normal, consumers will increasingly regain control. That’s just the world we live in now.

For more on the power of price discovery to contain inflation and the new meaning it gives to “retail therapy,” please watch this recent Street View video with LPL Financial Director of Research Marc Zabicki. You can watch the video from our YouTube channel or below.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Wednesday, August 25, 2021

The S&P 500 Index made yet another new all-time high yesterday, the 50^th on the year. “The all-time record for any one year is 77 S&P 500 new all-time highs back in 1995,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Incredibly, 2021 is currently on pace for 78 new highs. There’s a long way to go, but this has been an amazing year and this is yet another way to show it.”

View enlarged chart.

As impressive as 50 new highs is, investors need to remember that new highs happen in clusters that can last decades. We’ve been sharing this chart for years, saying exactly that: previous periods of new highs lasted much longer than most expected. Mark Twain said history doesn’t repeat itself, but it often rhymes. If history rhymes once again, we could still have several more years of new highs.

View enlarged chart.

Another interesting stat about S&P 500 all-time highs is every month so far in 2021 has seen a new high, 8 for 8. Only once have all 12 months made a new all-time high and that was in 2014. This is somewhat surprising, given the S&P 500 gained only 11.4% in 2014, but it was a very slow and persistent move. Most investors (including this author) would guess it was 1995, but that spectacular year saw new highs in ‘only’ 10 months.

View enlarged chart.

Although August tends to be historically weak for stocks, that hasn’t been the case this year. In fact, the S&P 500 has made an incredible 9 new highs already this month, the most since 1929. No, we don’t think this is another 1929, but this is just another way to show how astounding this bull run has been.

View enlarged chart.

As shown in the LPL Chart of the Day, 50 new S&P 500 all-time highs before the end of August is quite a feat. In fact, only twice has the 50 level been cracked through the end of August, in 1964 and 1995.

View enlarged chart.

So what happens next? The rest of the year in 1964 the S&P 500 added 3.6%, while it added 9.6% in 1995. Below we looked at all the years with at least 30 new all-time highs through August and sure enough, better than average returns the rest of the year are common. The final 4 months gained 4.7%, versus the average final 4 months gain for all years of 3.6%. Now this is skewed due to 1987s crash, as that was the only time stocks were lower the final 4 months after more than 30 new highs by the end of August. Smoothing things out, the median return jumps up to a very impressive 5.4%, versus a median return of 3.6% for all years.

View enlarged chart.

2021 is off to a roaring start and we continue to expect higher prices before all is said and done. The studies we did today do little to change our view. We’d use any potential weakness as an opportunity to add before potential higher prices.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

Tuesday, August 24, 2021

Since 1978, the Federal Reserve Bank of Kansas City has played host to central bankers, policymakers, academics and economists from around the world at its annual economic policy symposium in Jackson Hole, Wyoming, which is slated to begin this week. This year’s symposium, “Macroeconomic Policy in an Uneven Economy,” will take place from Thursday to Saturday and the Federal Reserve (Fed) Chairman Jerome Powell will headline the event (a complete list of speakers has not been released yet). The symposium was originally scheduled to return to a live format this year, but late Friday afternoon (August 20), it was announced the event would be held virtually due to the “recently elevated COVID-19 health risk”.

“Moving Jackson Hole back to an entirely virtual format this year is telling us that Fed officials are taking the Delta variant seriously,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “We’ll have to see if that alters the tapering timeline and importantly the market’s expectations for when the Fed will start to increase short-term interest rates.”

Notable economic policy shifts have occurred at the event in the past, including last year when Powell announced that the Fed would operate under a new monetary policy framework called Flexible Average Inflation Targeting (FAIT), which seeks to avoid premature interest rate hikes. We will have to see if this year’s symposium offers any monetary policy surprises as well. Fed watchers will be looking for any additional hints on when monetary accommodation will start to be scaled back. The July Fed meeting minutes were released last week and indicated that “most” participants judged that it could be appropriate to start reducing the pace of asset purchases “this year” if the economy evolves in line with their expectations. Additionally, “most” participants noted that substantial further progress has been made towards the inflation goals but the employment goals have not been met yet. Importantly, these minutes came from a meeting held more than three weeks ago—before a string of disappointing economic data releases and before the recent surge in COVID-19 cases.

This symposium may serve as an opportunity for Powell to clarify and update the committee’s current assessment of the economy, which will tell us if the minutes released last week are still relevant. Additionally, Powell may use his time to help separate any tapering decisions from upcoming interest rate decisions, which was something the committee has recently discussed. This would potentially help push back expectations for rate hikes despite potentially moving forward with tapering plans.

As seen in the LPL Research Chart of the Day, market expectations for when the Fed will start to raise short-term interest rates have not changed over the past few months. After the June FOMC meeting, the market repriced the Fed’s actions and pushed back expectations for rate hikes to the first part of 2023. Despite ongoing commentary from some Fed officials that indicate an initial rate hike in 2022 may be appropriate, the market remains unconvinced. Markets, however, will be watching for any clues from Powell on Friday (August 27) that may alter this view.

View enlarged chart.

Federal Reserve Chairman Jerome Powell’s remarks will be livestreamed to the public at 9 a.m. CT/10 a.m. ET on Aug. 27 via the Kansas City Fed’s YouTube channel at www.youtube.com/KansasCityFed. The program’s full agenda will be available at www.KansasCityFed.org at 7 p.m. CT/8 p.m. ET on Aug. 26. Continuing with past practice, conference papers and other materials will be posted as they are presented during the event. After the event, a transcript will be posted on the Bank’s public website.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value