Wealth Management

Economic Blog Posted by lplresearch

Wednesday, September 29, 2021

Stocks have come a long way since the S&P 500 bear market low way back on March 23, 2020, but despite the general strength of the bull market we’ve seen two very different types of trades leading markets at different times. They include a “work-from-home” trade characterized by strength among large caps and growth-style oriented stocks, strong performance by U.S. stocks in particular, and well contained interest rates. At other times, we’ve seen a “reopening trade,” where mid- and small-cap stocks have performed well, cyclically-oriented value-style stocks have led, interest rates have pressed higher, and performance across geographical regions has been more even. For most of the last six months the work-from-home trade has dominated, but we’re seeing some signs of potential rotation toward a reopening theme once again.

“It’s increasingly looking like the Delta-related surge in COVID-19 cases, while still dangerous, has passed its peak, and there are signals that markets may be anticipating the next stage of economic reopening,” said LPL Chief Market Strategist Ryan Detrick. “After a mid-summer head fake, we’re seeing signs that this time the rotation might stick.”

It all starts with interest rates. The 10-year Treasury yield started to stabilize in early August, and since then we’ve seen steady movement higher as elevated inflation looks increasingly sticky in the near term, and markets start to anticipate global central bankers slowly winding down extraordinarily supportive monetary policy. The full transition to neutral policy will likely take years, and central banks will remain supportive for some time, but the change in direction does matter. Seeing the 10-year yield move higher despite stock losses on Tuesday may be a telling sign.

A higher 10-year Treasury yield has supported financial sector stocks, which are the largest sector in the Russell 1000 Value Index. The breakout in relative strength compared to the August peak may signal a more sustainable change in direction this time.

It’s still too early to call a reversal by value-style stocks overall, but financial sector strength helps. Rising interest rates also tend to increase the value of near-term earnings over less visible long-term earnings growth, which may also give value stocks an edge. While there are some signs of a reversal higher in the value trade, what we’ve seen so far isn’t persuasive in isolation. But added to the broader market signals, we see potential for further relative strength, particularly for cyclical value sectors.

The relative strength of small caps looks more robust, breaking out to the upside after treading water for several months. Small caps went through a stretch of extraordinarily strong performance between September 2020 and March 2021, and it’s not completely surprising that they gave back a good share of those gains after coming so far so fast, but we still think the economic environment is likely to be supportive for small- and mid-caps compared to large.

We’ve been anticipating a rotation back to the reopening trade for some time. If you look at the charts there’s really been relative stability between the two themes since mid-July, but the last few weeks have provided solid signals of a potential reversal. With the latest surge in COVID-19 cases likely past peak, vaccination rates slowly rising, and economic surprises starting to come back into balance after a series of disappointments, it’s no surprise to see the shift toward the reopening theme.

But there are some potential economic negatives that support this trade as well, such as high commodity prices, higher interest rates, and growing risk of stickier inflation. Nevertheless, we think the fundamental backdrop for equities remains positive on the whole, and we continue to recommend modest overweights to equities while leaning into cyclically-oriented value sectors and tilting away from large caps.

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

https://www.youtube.com/watch?v=zbboTgz4z5g

Economic Blog  Posted by lplresearch

Friday, September 24, 2021

On Thursday, September 23, the Conference Board released its August 2021 report detailing the latest reading for the Leading Economic Index (LEI), a composite of ten data series that tend to lead changes in economic activity. Many economic data points are backward-looking, but we pay special attention to the LEI, as it has a forward-looking tilt to it and spans many segments of the economy. The index grew 0.9% month over month, the highest in three months and slightly ahead of expectations for 0.7%.

“August’s strong LEI growth supports the idea that the longer term recovery remains intact despite the latest COVID-19 flare-up,” said LPL Financial Chief Investment Strategist Ryan Detrick. “We continue to expect a strong fourth quarter GDP print coming off some softness in Q3.”

As seen in the LPL Chart of the Day, the LEI’s growth rate inflected higher off June’s low.

View Enlarged Chart.

Eight of the ten components rose in August, while one fell and one held steady. Average weekly initial claims for unemployment insurance, the Institute for Supply Management (ISM) New Orders Index, and building permits represented the three largest positive contributors. The lone negative contributor was average consumer expectations for business conditions, while average weekly manufacturing hours remained unchanged. Strong breadth among component indexes gives us increased confidence in the resilience of the economy.

When making investment recommendations, we always advocate taking a long-term view and not overreacting to the day-to-day newsflow. The economic backdrop is and always will be the most important factor in determining asset allocation, and despite some near-term challenges we continue to believe we are in the early stages of a new economic cycle, which should continue to power risk assets for years to come. August’s LEI report should help to reinforce that notion and we continue to recommend overweight allocations to stocks.

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 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.

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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.

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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).

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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.

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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.

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All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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