Wealth Management

Market Blog Posted by lplresearch

Wednesday, March 17, 2021

“The stock market is a giant distraction to the business of investing.” Jack Bogle, founder of Vanguard

First off, we hope everyone has a happy and safe Saint Patrick’s Day! We’ve had a lot of green out there over the past year and here’s to some more today and over the rest of 2021.

One year ago yesterday was one of the worst days in the history of the stock market, with the Dow losing 12.9%, the fourth worst day ever. In fact, only the ’29 crash, the ’87 crash, and the day after trading starting (after being halted for multiple months) in the midst of World War I in December 1915 were worse.

As the great Jack Bogle explained above, sometimes stock market volatility distracts us from our long-term goals. Many investors panicked and sold this time a year ago, only to see stocks soar higher, while bonds struggled and cash didn’t do anything. One of the most important takeaways from 2020 for long-term investors: it is important to have a plan in place before the skies turn dark.

As this current bull market nears the one-year anniversary of the March 23, 2020 lows, there will be a lot of reflection on how far we’ve come and where we could be going. The bottom line is the economy is recovering at a record pace, stocks are at all-time highs, and we’ll have the NCAA Tournament this year. Those are three things to be very grateful for.

So what happens now is the logical question? “The good news is previous bull markets have never been lower during the second year of their existence,” explained LPL Chief Market Strategist Ryan Detrick. “Although it won’t be an easy ride, investors need to remember that history is on the bulls’ side, as this bull market is still just an infant and continued gains are quite likely.”

As shown in the LPL Chart of the Day, the previous six bull markets since World War II all saw gains during their second year. The average bull market was up 43% one year in and up to 61% two years off the lows. It is worth noting that the current bull market is up close to 75%, making it the strongest start to a new bull market ever, besting the start to the 2009 bull market. But be aware, that bull was up 68% one year off the lows, but up 94% two years off the lows. In other words, strong gains continued (the green line below).

View enlarged chart.

We will take a closer look at this bull market as it turns one next week in 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

Market Blog Posted by lplresearch
Tuesday, March 16, 2021

This week, the Federal Reserve (Fed) meets for their two-day Federal Open Market Committee (FOMC) meeting, which concludes on Wednesday followed by a press conference with Fed Chairman Jerome Powell. If we were invited to the press conference, here are five questions we would ask Chair Powell—each of which may meaningfully impact fixed income markets.

1. Why have (or haven’t) the Dot Plots changed from their December FOMC meeting? The Fed’s Dot Plots represent the committee’s expectations of where the federal funds rate should be over the next few years, ending with their longer-term expectations. Current projections have the federal funds target rate unchanged at 0-0.25% through 2023. These projections were before the recently enacted $1.9 trillion COVID-19 relief bill and before the success we’ve seen in vaccine deployment. Growth and inflation expectations have increased significantly since then, so is it time for the Fed to change the expected path of short-term interest rates?

2. Has the Fed started thinking about thinking about raising short-term interest rates? Back in June 2020, Chairman Powell famously quipped “We’re not even thinking about thinking about raising rates,” in an effort to reassure markets that the low interest rate environment was here for some time. While we don’t expect the Fed to announce plans to raise rates anytime soon, the market has started pricing in an earlier liftoff (early 2023) than the Fed has communicated. It will be interesting to see if the Fed pushes back against these market expectations.

“The Fed has been one of the biggest stories in bond markets over the past several years. What will they say about inflation, about the economy, about the next rate hike, and about future bond buying? It all matters, so stay tuned,” explained LPL Financial Chief Market Strategist Ryan Detrick.

3. Will the Fed change its bond buying behavior? Additional quantitative easing programs are off the table, in our view. However, under the current program, the Fed has committed to buying $80 billion in Treasury securities and $40 billion in mortgage-backed securities (MBS) each month for the foreseeable future. Eventually, we believe the central bank will announce a reduction in bond purchases, likely before the Fed is ready to communicate an increase in short-term interest rates. Hoping to avoid a repeat of the 2013 Taper Tantrum, we think current Fed officials will eventually announce a gradual decrease in purchases. While we don’t think this will happen at this FOMC meeting, it’s likely to happen later this year and may push interest rates even higher.

4. Have the bond markets been focusing on the wrong thing? Chairman Powell has repeatedly said that the Fed is not focused on the level of one financial variable (10-year Treasury yields) but rather an index that captures overall financial and economic conditions. Nonetheless, largely due to an increase in yields over the past month, bond markets increasingly expect the Fed to intervene to slow the pace of the increase (similar to what the European Central Bank (ECB) did last week). However, as shown from the LPL Chart of the Day, rising interest rates have not negatively impacted financial conditions, at least not yet. Despite the 10-year yield rising over 60 basis points this year (orange line), financial conditions (blue line) remain accommodative by historical standards (lower readings indicate accommodative conditions). As long as financial conditions remain accommodative, rising Treasury yields aren’t likely to become an issue for the Fed, which means yields may continue to drift higher from these levels.

View enlarged chart.

5. Will the Fed extend the Supplementary Leverage Ratio exemption? Somewhat technical with this one, but last year a regulatory change was enacted that allowed banks to exclude nearly $2 trillion of Treasury securities from certain leverage ratios. That exemption is scheduled to expire at the end of March 2021. Treasury ownership by banks increased last year to 6% of total assets. Failure to extend this exemption may cause banks to have to sell Treasuries or not be an active buyer of Treasuries in the future in order to adhere to bank regulatory requirements, which may cause Treasury yields to increase.

While we’re unlikely to get answers to all of our questions at this FOMC meeting, the Fed will remain an important story for bond markets for the foreseeable future. As such, we will continue to follow Fed policy changes and update our recommendations as appropriate.

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

Friday, March 12, 2021

Few equity sectors on earth have been as poor as European financials since the Global Financial Crisis. The sector still sits more than 50% below its 2007 all-time highs, hampered by regulations, low to negative interest rates, and all around slow growth in the Eurozone. However, despite those headwinds, the sector has benefitted from a recent rotation to value, and has certainly been assisted by rising interest rates, a phenomenon we discussed earlier this week.

Not only is performance for European financials improving in absolute terms, as global equities continue to recover from the worst of the ongoing COVID-19 pandemic, but since early October the sector has outperformed the S&P 500 by more than 20 percentage points. As shown in the LPL Chart of the Day, the pattern relative to the S&P 500 appears to be on the verge of breaking out of a nearly year-long technical base, similar to where US financials stood just two months ago.

View enlarged chart.

While we don’t think European financials are going back to all-time highs anytime soon, remember, the sector still needs to gain 12% from current levels just to eclipse its 2020 pre-pandemic highs, a bar that certainly now seems attainable in 2021. “We remain broadly skeptical of foreign developed equities compared to their U.S. counterparts,” explained LPL Chief Market Strategist Ryan Detrick. “However, financials are the largest sector within Europe and improving performance and the continued rotation to cyclical value stocks make this a development to keep an eye on.”

For now, we recommend sticking with US financials, which we recently upgraded in our latest Global Portfolio Strategy report, and is now the second best performing sector year to date, trailing only energy.

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, March 11, 2021

The economic recovery is gaining steam. In fact, so much so that the Organisation for Economic Co-operation and Development (OECD) had to raise their U.S. gross domestic product (GDP) forecast for 2021 by more than 3 percentage points this week (from 3.2% to 6.5%). That’s a big change from December 2020, even if it does reflect another massive fiscal stimulus package that President Joe Biden will likely sign into law tomorrow.

But as you can see in our LPL Chart of the Day, the improving economic picture is not just a domestic story. “Global growth expectations for this year and next have risen substantially,” according to LPL Financial Equity Strategist Jeffrey Buchbinder. “If the global economy can grow near 6% in 2021, led by the United States and Asia, it should create a favorable environment for stocks globally.”

View enlarged chart.

Among the world’s largest economies, the OECD raised its economic growth forecast for the United States by the most. But India’s economy—the world’s fifth biggest—actually saw the biggest upgrade of 4.7 percentage points. Australia, Canada, and Brazil also saw solid increases of one percentage point or more. On the other side of the coin, France and Italy saw slight downgrades. The OECD only sees 3.9% GDP growth in the Euro area in 2021, well shy of the forecasts for the U.S., Australia, Canada, the United Kingdom, and much of the emerging world. Europe has been slower to open up its economies as its COVID-19 vaccine program has lagged well behind that in the U.S., which we think makes it a less attractive investment destination than the U.S., Japan, or broad emerging markets right now.

We continue to recommend investors focus their regional allocations on the United States and emerging markets. More risk tolerant investors may also want to consider a tactical allocation to Japan, where appropriate, given the country’s relative success containing COVID-19 and massive amount of stimulus unleashed to support its economy during the pandemic.

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

Wednesday, March 10, 2021

Investors have become increasingly concerned with inflation, and inflation hawks have cited historic stimulus measures and accelerating economic activity as tailwinds that could lead to runaway inflation. February’s consumer price index (CPI) release should help keep some of these concerns at bay. Headline CPI rose 0.4% month over month, in-line with the Bloomberg consensus forecast. However, core CPI, which controls for volatile food and energy prices, rose 0.1%, below the Bloomberg consensus of 0.2%.

Weather-related disruptions to energy production in Texas and other oil-producing states pushed headline CPI higher, but the softer than expected core price reading should help contain the market’s inflation jitters—at least for now. While inflation has been well contained for the past couple of months, data for March—and the subsequent months thereafter—will garner particular attention as the base effects for year-over-year data will begin to appear in the numbers, and the effects of continued reopening will begin to make their way into the services sector. Adding to the calls from inflation hawks is the soon-to-pass sixth coronavirus stimulus bill, which is sporting a price tag of nearly $1.9 trillion–creating a total of roughly $5 trillion in fiscal aid since the beginning of the pandemic.

Despite so much attention on inflation, the recent rise in bond yields hasn’t been primarily driven by investors demanding a higher yield to compensate for rising prices. As shown in the LPL Chart of the Day, real Treasury yields—those adjusted for core CPI—have been moving higher as economic growth has surprised to the upside in 2021:

View enlarged chart.

Historically, gold has had a strong inverse relationship to real yields, as the precious metal has been a popular hedge for inflation. Now that Treasury yields are rising more on growth prospects than normalizing inflation, gold has stalled out. “After skyrocketing into the summer, the soft-dollar environment hasn’t been enough for gold to overcome the rise in real yields, “added LPL Financial Chief Market Strategist Ryan Detrick. “The recent surge in Treasury yields has seen real yields climb with them, showing the market is demanding higher yields because of economic growth rather than just accounting for inflation risk.”

While gold hasn’t been offering safety from rising bond yields, more-credit sensitive areas of the bond market have been showing strength. In particular, bank loans provide investors with the most yield per unit of interest rate risk, even if short-term yields remain anchored by Federal Reserve policy. We upgraded bank loans to neutral in our February Global Portfolio Strategy publication, as we believe they are an increasingly attractive opportunity for suitable investors.

If bond yields continue to climb, we may see further demand for interest rate protection in these more credit-sensitive sectors, particularly against a backdrop of an improving economy. For more information on our sector and asset class views, we welcome you to read our most recent Global Portfolio Strategy.

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.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

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, March 9, 2021

“It’s tough to make predictions, especially about the future.” -Yogi Berra

The Nasdaq officially moved into correction territory, down more than 10% from the all-time high. It took only 15 trading days to do this, one of the fastest corrections ever. Interestingly, 2020 holds the two fastest corrections ever. Let’s say it one more time, good riddance 2020.

View enlarged chart.

What does it mean? Well, as Yogi told us, predictions about the future are tough, but this could end up having the bulls smiling. “Yes, being down 10% in three weeks is a scary scenario for investors heavy in Nasdaq and technology names, but history might be on the bulls side here,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In fact, looking at the previous fastest correction ever shows us that six months later the Nasdaq is up 23% on average and higher 9 of the previous 11 times.”

As the chart below displays, previous fast corrections tend to resolve higher (or even much higher) going out 3 to 12-months. This pullback no doubt feels uncomfortable and scary, but investors willing to use this correction as an opportunity very well could be rewarded down the road.

View enlarged chart.

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, March 9, 2021

Today is the one-year anniversary of the low in the 10-year Treasury yield. While we’ve discussed the sharp rise in U.S. Treasury yields that have occurred this year, rising rates have been a global phenomenon. Similar to the United States’ story of increasing growth and inflation expectations, non-U.S. interest rates have started moving higher.  As we wrote last week, vaccine deployment has been uneven but is accelerating and still foretells good news for economies globally. Not surprisingly, those countries that were more aggressive in virus containment and vaccine deployment have seen the largest increase in yields this year. The good news that comes from increased vaccine distribution has been reflected in increased growth and inflation expectations, which have been the primary reason interest rates around the world have moved higher. As a reminder, as yields increase, bond prices decrease. Despite an improving economic landscape, though, we remain negative on foreign bonds as an investment.

“Not only have U.S. interest rates moved higher, but we’ve seen global yields move higher as well, which reflects an accelerating global economic recovery,” said LPL Financial Chief Market Strategist Ryan Detrick.

As the LPL Chart of the Day shows, interest rates have increased globally and a number of countries have seen larger increases than the U.S. Wide ranging growth and inflation expectations stemming from varying abilities to contain COVID-19 are the primary reasons for the differences in yield increases. For example, countries such as New Zealand and Australia that implemented more restrictive measures early on and are now on track to fully re-open sooner have seen their yields increase back to pre-pandemic levels. The U.S., Canada and Germany are countries that haven’t seen yields fully retrace their pandemic declines, which suggests that yields could continue to rise to these previous levels as further vaccine deployment takes place.

View enlarged chart.

Thus far, the global rise in rates has been for good reasons (primarily increased growth expectations), but a rise in rates that happens too quickly or gets too high could impact an uneven global economic recovery. To be sure, this is a risk that central bankers are paying attention to. Last week, central bankers from Australia, the Eurozone, and Japan came out and confirmed their desire for low interest rates and easy financial conditions. As a result, we saw yields in those countries come down a bit. Similar to U.S. rates, there seems to be a tug-of-war between central bankers and the market, a dynamic we’ll continue to monitor.

For more on how higher rates could impact stocks, please read Rising Rates and Stock Market Performance.

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, March 5, 2021

US payrolls grew at a solid clip month over month in February, as progress in the vaccine distribution process appeared to boost growth by enabling more of the economy to reopen. Our opinion has always been that until we have achieved widespread vaccine distribution, the in-person segments of the labor market will be slow to recover losses from a year ago. We are becoming increasingly bullish on the prospect for a 2021 economic reacceleration, and we are heartened that the hardest hit segments of the jobs market may be beginning to reflect that view.

The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added 379,000 jobs in February, exceeding Bloomberg-surveyed economists’ forecasts for a 200,000 gain. Large seasonal adjustments to the data did serve to boost the overall number by roughly 140,000, while January’s jobs gain was revised significantly higher from 49,000 to 166,000. Colder weather than normal may have also played some role, though the worst of the freeze experienced by middle America occurred just after the report’s observation window closed. The unemployment rate fell to 6.2% from 6.3%, and was paired with an unchanged labor force participation rate of 61.4%.

“Last month on jobs day, we noted our optimism around an improving trajectory for vaccinations and the implications that may have for future jobs reports,” explained LPL Financial Chief Market Strategist Ryan Detrick. “This has played out so far, and we expect continued vaccination progress to become more evident in the jobs numbers as the recovery reaccelerates.”

Average hourly earnings rose 0.2% month over month and 5.3% year over year, continuing to signal that lower-wage workers have endured the worst of the pandemic’s job losses. Inflation expectations have been in particular focus for the market lately, however inflation risks from a tightening labor market are not of major concern for now in our opinion. We expect overall average hourly earnings to remain steady or even reverse as lower wage workers are rehired in service sector jobs, and we still have lots of slack in the labor market as we hover well below 2020’s peak employment.

The composition of February’s report importantly signals a reversal of COVID-19-driven trends seen in recent months. Retail trade gained 41,100 jobs while the leisure and hospitably industry gained 355,000—two segments that have been hardest hit throughout the pandemic. Meanwhile, professional and business services added 63,000 jobs and government jobs fell by 86,000.

As seen in the LPL Chart of the Day, the jobs recovery in the leisure and hospitality sector has generally plateaued following an initial bounce. This segment of the labor market is highly dependent on in-person interaction, and has understandably suffered in a work-from-home environment. Unsurprisingly, service sector jobs have strongly correlated with broader trends in COVID-19 cases. The leisure and hospitality sector alone still accounts for about 3.5 million of the 9.5 million jobs lost compared to the February 2020 peak. And while we do caution against reading too far into one month’s numbers, we are excited to see this decimated sector tick notably higher in February.

View enlarged chart.

We have not had to look hard to find evidence that vaccines are having an impact. Nationally, seven-day averages for new cases have fallen to below early 2020 peaks, significantly below the highs of late 2020. Perhaps most crucially, the portion of the population most vulnerable to severe symptoms has largely already received at least one dose of the vaccination. A third vaccine was granted emergency use authorization in March, and this week President Biden estimated we would have enough supply of vaccinations to cover every adult by the end of May 2021. Once people can become comfortable with the virus trends, we expect widespread hiring in in-person industries to snowball quickly. February may have signaled a start to this trend.

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

Economic Blog Posted by lplresearch

Thursday, March 4, 2021

The Food and Drug Administration (FDA) approval of the Johnson & Johnson vaccine on March 1 added another important tool in the fight against COVID-19. President Biden reported Wednesday that thanks to a deal with Merck & Co. to manufacture this easy to transport, single-shot vaccine, there will be enough supply to vaccinate the whole US adult population by the end of May (although getting shots in arms will take longer). There are now three approved vaccines in the United States, on top of another 13 that have been developed around the world.

“The unprecedented development and production of vaccines to combat COVID-19 have undoubtedly been a triumph of human spirit and ingenuity. Countries, including the US, with successful vaccination programs may be well-positioned to get their economies back on track sooner rather than later,” said LPL Financial Chief Investment Officer Burt White.

While the pace of the inoculation programs implemented around the world has varied greatly, one thing is becoming clear from the data: More shots equal less COVID-19.

As shown in the LPL Chart of the Day, three of the countries leading so far in terms of vaccine doses administered per 100 people—Israel, the US, and the United Kingdom (UK)—have all started to see major declines in the numbers of new COVID-19 cases being reported.

View enlarged chart.

Globally Israel has had the most successful vaccination rollout so far and is fast approaching 100 shots administered per 100 people with 39% of the population now fully vaccinated (including 90% of people over 50). New cases have dropped to a low enough level that local authorities recently allowed shopping malls, gyms, and hotels to reopen. Key reasons for Israel’s success include its centralized heath care system and already well-developed infrastructure for responding to large-scale national emergencies. The coming months in Israel will be the first test of which occurs first: herd immunity, estimated at 75% of the population vaccinated, or a lack of people willing to be vaccinated (demand is already falling).

The United States and the UK, both hit hard by COVID-19, have the highest vaccination rates among major economies and have both also exhibited large recent reductions in new COVID-19 cases. The UK was very aggressive in its vaccine procurement program, ordering enough for its entire population to be fully vaccinated three times over, as well as benefiting from investment in the locally developed Oxford-AstraZeneca vaccine. Signs of confidence stemming from the vaccine rollout are being felt in the UK as the government announced a plan for a complete rollback of all restrictions by June 21. In the United States, some states like Texas are moving forward with removing mask mandates and business capacity restrictions.

Not all rollouts have gone this well: Issues with regulatory approval, lack of public confidence, poor distribution, and limited access to supply have hampered efforts in some countries. Countries that have not made as much headway on their vaccination programs, such as in the European Union (EU), Japan, and Mexico, have not seen as large a reduction in COVID-19 cases either, as shown in the chart below.

View enlarged chart.

Japan has managed to keep the actual spread of COVID-19 very low compared to many other countries, but it took two months longer than the US to approve the Pfizer shot. Japan has moved cautiously due to having one of the lowest public confidence rates in vaccines globally, dating back to vaccination health scares in the 1970s and 1980s.

The EU has struggled with supply due to issues with procurement and manufacturing delays as well as issues coordinating its response across its 27 member states (some such as Hungary have obtained Russian and Chinese vaccines not approved by European authorities). EU supply chains have improved in recent weeks and slow, but consistent, progress has been made. Mexico is struggling with supply and has barely started its vaccination program, complaining to the United Nations about unfair vaccine hoarding by the more developed economies.

While new vaccine resistant variants remain a risk, we see the progress made on vaccine deployment in the US as a tailwind for the economy and markets. We favor domestic equities over developed international equities, but the gap is narrowing. Within developed markets, we give the edge to Japan, despite its slow vaccine approval process, based on the country’s massive stimulus efforts and relative success containing COVID-19. Emerging market economies’ response to COVID-19 has been mixed, with Latin America struggling particularly, but we expect solid economic growth across Asia to support the asset class and continue to recommend an overweight allocation.

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, March 3, 2021

The energy sector has certainly been on a wild ride over the course of the past year, perhaps the wildest of all of the S&P 500 sectors. The outbreak of the pandemic in 2020 caused such a demand shock that oil futures traded for a negative value for the first time in history, implying that someone would pay you to take delivery of their oil!

Well, that’s in the rear-view mirror for the energy market now. Year to date, the S&P 500 energy sector is up over 29% as of March 2, according to data from FactSet, more than double the return of the financial sector, the second strongest sector thus far in 2021. As shown in the LPL Chart of the Day, the S&P 500 energy sector is trading at a blistering 30% above its 200-day moving average, the most ever using data back to 1990. While this might seem bearish on the surface, previous surges above 20% have historically bought above average returns over the next year rather than below average.

View enlarged chart.

“The case can be made that energy could be a bit stretched in the near-term, but momentum often breeds more momentum,” added LPL Financial Chief Market Strategist Ryan Detrick. “Energy has been unloved for quite some time, but we may be in the early innings of a larger rally for the energy sector as the global economy continues to improve.”

A confluence of events may be spurring the boom in the energy sector. An expanding global economy, a historic winter storm that shut down major oil producing states like Texas and Oklahoma, and an output agreement from members of OPEC+ have sent oil prices soaring to their highest level since early 2019. It’s not just oil, either. Copper and lumber have surged past their 2019 highs as well. It’s no secret that inflation expectations have been on the rise, and the surge in commodity prices are likely adding further credence to the market’s view of higher inflation.

We have continued to warm up to the energy sector, including upgrading our view on oil in January and then our upgrade from negative to neutral in our February Global Portfolio Strategy publication.

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