Wealth Management

Market Blog Posted by lplresearch

Wednesday, February 10, 2021

“Bulls make money, bears make money, and pigs get slaughtered.” Old Wall Street saying.

The Chinese New Year (often called the Lunar New Year) will kick off Friday, February 12, and with it will begin the Year of the Ox. Although we would never suggest investing based on the zodiac signs—it is important to note that the Year of the Ox has historically been quite strong for equities. Not to mention we are saying goodbye to the year of the Rat. Good riddance to the Rat, as the last two years of the Rat were 2008 and 2020, not the best years for many reasons!

Since the Chinese New Year typically starts between late-January and mid-February, we looked at the 12-month return of the S&P 500 Index starting at the end of January dating back to 1950. And wouldn’t you know it? The Year of the Ox has been up more than 13% on average (with a median advance of nearly 18%); suggesting bulls are smiling indeed!

View enlarged chart.

“The year of the Ox is the second of the 12 animal signs of the Chinese zodiac, and the Ox is considered a symbol of diligence, persistence, and honesty. Equity returns indeed are quite persistent during the Ox, as it is the third best return out of the 12 Zodiac signs,” explained LPL Chief Market Strategist Ryan Detrick.

The LPL Chart of the Day shows how all the 12 Zodiac signs have done historically, with the Goat, Tiger, and Ox as the best, while the Rooster and Snake have been the worst.

View enlarged chart.

We want to stress that no one should invest purely based on the zodiac signs. This relationship is random and the sample size is small. Still, here’s hoping that the Year of the Ox plays out well for the bulls once again!

Lastly, please watch our latest LPL Market Signals podcast, as we discuss improving economic trends and why we upgraded our economic and stock market forecasts.

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, February 5, 2021

US payrolls grew month over month in January following a brief dip into negative territory in December. Peering under the hood, though, this report did little to dispel the notion that the labor market’s recovery has been stalling out, and likely bolsters calls for additional fiscal stimulus.

The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added 49,000 jobs in January, falling short of Bloomberg-surveyed economists’ forecasts for a 105,000 gain. Large negative revisions to December’s number, as well as January’s large seasonality adjustments, cast this positive headline number in a somewhat more nebulous light. The unemployment rate notably fell to 6.3% from 6.7%, but that was paired with a labor force participation rate that declined to 61.4% from 61.5%.

Average hourly earnings rose 0.2% month over month and 5.4% year over year, signaling lower-wage workers have borne the brunt of job losses. One cohort of the labor market being disproportionately affected distorts these figures and reduces their usefulness as a gauge of whether inflation could begin to creep into the picture. The recently released Employment Cost Index, though, adjusts for these distortions and showed fourth quarter growth of 0.7% quarter over quarter and 2.5% year over year. This is below the prior cycle peak of 3.2% year over year, and therefore is not a present threat in our opinion.

As seen in the LPL Chart of the Day, the jobs recovery has plateaued just under the 143 million payrolls level in the last four months. This follows an initial sharp recovery off April’s bottom, and it should come as no surprise that the tapering off has coincided with rising case counts and colder weather. We remain about 9.9 million jobs short of February 2020’s 152.5 million peak.

View enlarged chart.

The composition of January’s report follows trends that are all too familiar from previous COVID-19 spikes, the dichotomy between jobs that can be done at home and those that cannot. Retail trade lost 37,800 jobs while the leisure and hospitably industry lost 61,000, two segments that have been hardest hit throughout the pandemic. Meanwhile, professional and business services added 97,000 jobs and government jobs increased by 43,000.

“The past few months on jobs day, we have flagged the need for fiscal stimulus to get us through to the other side of this economic soft patch,” explained LPL Financial Chief Market Strategist Ryan Detrick. “As the pace of vaccinations picks up, we are hopeful that the job market may soon start to benefit from more sustainable economic growth.”

Earlier this week, an important milestone made headlines across the country as the total number of vaccinations administered surpassed the total number of COVID-19 cases. Boots on the ground are becoming increasingly efficient at distributing the vaccine, and positive trial data boosted hope that a third vaccine soon may be made available for emergency use. Obviously, as a larger proportion of the population receives their vaccinations, economic activity can pick up and hiring in hard-hit service jobs can resume.

We may already be seeing nascent signs of this. The jobs report’s window cuts off at the end of the week containing the 12^th of the month. Initial claims for unemployment data, however, improved notably in the second half of the January. If the improvement in layoffs were also reflected in hiring, we would expect that to show in next month’s report. We may be slightly early in our optimism, but when paired with warmer weather on the horizon, vaccination progress gives us hope that we will soon break through this near-term ceiling in total US payrolls.

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

Thursday, February 4, 2021

Negative yielding debt has been one of the most extraordinary and peculiar consequences of global monetary policy initiatives, turning the basic premise of fixed income investing upside down. Instead of one party lending another party money, and the lender receiving interest in return for the risk incurred, since 2018 the levels of outstanding debt in which the lender pays the borrower for the privilege of loaning the borrower money has skyrocketed. This has left both lenders and fixed income investors in the unfortunate situation of attempting to “lose less” rather than “earn slightly more” than the value of the loan extended.

The total value of negative yielding debt around the globe set a new record in the final month of 2020, eclipsing more than $18 trillion as governments around the world issued debt to combat the COVID-19 pandemic. The majority of these bonds are issued by governments in the developed world such as Japan and Europe, while US Treasuries remain one of the few sovereign bonds in the developed world that held positive yields throughout the pandemic. Though the Federal Reserve has committed to keeping short-term rates near zero for the foreseeable future, it should come as a relief to investors that thus far, Fed Chair Jerome Powell has dismissed the idea of negative short-term rates in the U.S.

However, negative yielding debt does affect U.S. investors. Even after accounting for the costs of hedging out currency risks, Japanese investors can obtain 70 bps more in yield by investing in the U.S. 10-year Treasury note compared to a 10-year Japanese government bond, while German investors can earn 0.37% after hedging costs, compared with the -0.45% current yield of the German 10-year bund, which is the highest level in nearly five months. These factors increase demand for U.S. debt, which has helped to depress Treasuries yields and dampen the outlook for fixed income investors.

What does the future of negative yielding debt look like? As shown in the LPL Chart of the Day, the good news is that this amount of negative yielding debt has declined substantially in the past two months and fallen back below the previous record high set in 2019. We believe this amount should continue to fall in 2021 as global economies recover and safe-haven yields rise, contributing to the 10-year Treasury yield moving toward our year-end 2021 forecast of 1.25–1.75%.

View enlarged chart. 

For more of our 2021 market insights and forecasts, please read our new LPL Research Outlook 2021: Powering Forward.

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 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

Economic Blog Posted by lplresearch

Wednesday, February 3, 2021

Our latest installment in debt week for the LPL Research team is on corporate debt. On Monday in our Weekly Market Commentary: Markets Shrug Off Debt Levels, we discussed federal debt, and Tuesday we tackled household debt.

Here we share five reasons why investors should not be concerned about corporate America’s debt load.

1) Companies have plenty of cash flow to cover the debt. It’s not the amount of debt that matters so much as the cash flows that are available to service that debt. As shown in the LPL Chart of the Day, corporate net debt relative to cash flow for nonfinancial corporations was actually below average in the most recent quarterly data point (source: US Commerce Department). The most recent reading of 1.38 is below the long-term average (post-1980) of 1.65 (a lower number is better, reflecting less debt, more cash flow, or both). So while corporate leverage has increased in recent years, the amount of cash flow being generated by companies has increased as well.

View enlarged chart.

2) Interest rates are likely to remain low. We expect interest rates to rise gradually in 2021 but remain at historically low levels (the midpoint of our 2021 year-end forecast for the 10-year Treasury yield is 1.5%). There’s extra slack in the labor market which should help limit wage increases—a big part of the inflation equation. International interest rates remain very low, or negative, which puts downward pressure on US interest rates by encouraging US bond purchases by international investors. And the Federal Reserve has told us they anticipate pegging their target interest rate at zero for at least the next couple of years, likely limiting the magnitude of any potential upward moves in the 10-year Treasury yield. Given relatively long maturities, a meaningful increase in Treasury yields would adversely impact corporate bonds as well. However, given our expectation for only a gradual increase in yields, we think the impact on corporate bond returns would be manageable.

“Corporations have taken advantage of low interest rates and healthy credit markets to shore up their balance sheets,” said LPL Research Chief Market Strategist Ryan Detrick. “While investors may be concerned about high debt levels, companies are generally in an excellent position to service that debt with strong cash flows.”

3) Companies have termed out their debt well beyond 2021. Corporations have pushed out debt maturities in recent years. Only an extremely small amount of corporate debt will mature in 2021 and the peak year for corporate bond maturities does not come until 2025. That means corporations will only have to service their debt, rather than pay it all back, which reduces the chances of ratings downgrades or defaults in the coming year. Moreover, interest coverage ratios (the amount of cash available to cover interest payments) have increased in recent years and are near record levels, suggesting servicing existing debt levels should not be a problem over the next few years.

4) Economic recovery is ahead of schedule. The resilient US economy is on track to see a significant pickup in growth over the balance of 2021 as the pace of vaccine distribution accelerates and the economy fully reopens. Our forecasts for US gross domestic product (GDP) growth in 2021 of 4-4.5% may prove conservative. More economic growth likely creates a better environment for companies to generate the cash flows necessary to service their debt.

5) Corporate profits are rebounding strongly. Companies have managed their businesses efficiently during the pandemic—particularly large ones—and we believe they are set up for a very strong rebound in profits and cash flows in 2021 as the economy fully recovers. Consensus sees S&P 500 earnings rising nearly 25% in 2021 (source: FactSet), and that consensus estimate has been rising during an excellent fourth quarter earnings season.

The good health of corporate America overall supports our preference for investment-grade corporate bonds over US Treasuries. However, low yields, a relatively narrow yield advantage over US Treasuries by historical standards, and interest rate risk limit the attractiveness of corporate bonds and support our preference for stocks over bonds.

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 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

Wednesday, February 3, 2021

Market Blog Posted by lplresearch

The Super Bowl Indicator suggests stocks rise for the full year when the Super Bowl winner has come from the original National Football League (now the NFC), but when an original American Football League (now the AFC) team has won, stocks fall. We would be the first to admit that this indicator has no connection to the stock market, but “data don’t lie”: The S&P 500 Index has performed better, and posted positive gains with greater frequency, over the past 54 Super Bowl games when NFC teams have won. Of course, it doesn’t always work, as stocks did quite well the past two years even though AFC teams won.

It was originally discovered in 1978 by Leonard Kopett, a sportswriter for the New York Times. Up until that point, the indicator had never been wrong.

A simpler way to look at the Super Bowl Indicator is to look at the average gain for the S&P 500 when the NFC has won versus the AFC—and ignore the history of the franchises. As shown in the LPL Chart of the Day, this similar set of criteria has produced an average price return of 10.2% when an NFC team has won, compared with a return of 7.1% with an AFC winner. An NFC winner has produced a positive year 79% of the time, while the S&P 500 has been up only 65% of the time when the winner came from the AFC.

View enlarged chart.

Here’s the catch. Stocks have actually done just fine lately when the AFC has won. In fact, the S&P 500 Index gained 10 of the past 11 years after an AFC Super Bowl champ.

View enlarged chart.

“There have been 54 Super Bowl winners, yet only 20 teams account for those wins,” said LPL Financial Chief Market Strategist Ryan Detrick. “And wouldn’t you know it, the best stock market performance happens after the Bucs win the big game? But I don’t care, I’m still not rooting for Tom Brady.”

Here’s a breakdown of the 20 Super Bowl winners and how the S&P 500 has done following their victories. For some reason, the author’s favorite team, The Cincinnati Bengals, isn’t on this list. We double checked the data, but they still aren’t on there.

View enlarged chart.

Lastly, this is Tom Brady’s record 10th Super Bowl. It turns out; stocks don’t do well when he is in the game, up only 0.5% for the year. Meanwhile, should he lose (again, what the author is hoping for here), stocks actually do quite poorly, down 10.4% on average.

View enlarged chart.

LPL Research would like to reiterate that in no way shape or form do we recommend investing based on this data, but here’s to a great game and safe Super Bowl weekend everyone!

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, February 2, 2021

The surge in global debt has been a hot-button issue, so this week LPL Research will focus on the various segments of global debt, beginning “Debt Week” with Weekly Market Commentary: Markets Shrug Off Debt Levels

The US household has certainly been through a lot in the 21^st century, including a housing crisis in 2008 and now a global pandemic that has triggered one of the deepest recessions ever and caused double-digit unemployment at one point—the highest in the post-WWII era.

Despite these hardships, the ability of the average US household to meet its debt payments has steadily improved. As shown in the LPL Chart of the Day, after deteriorating throughout much of the 1990s up to the 2008 recession, household debt service payments as a percent of disposable income (i.e. after tax) have improved dramatically in the most recent decade.

View enlarged chart.

The steep drop in mortgage debt payments primarily drove the aggregate improvement in the household debt burden (blue line), as mortgage rates have fallen to all-time lows since the 2008 recession. However, the 2008 housing crisis has had a lasting impact on homeownership, which may also play into this trend. According to the 2019 Federal Reserve Survey of Consumer Finance, the homeownership rate remains well below the peak observed in 2004.

While there has been marked improvement in mortgage debt service payments, the consumer debt segment of household debt (yellow line), which includes credit cards and student loans, has actually crept higher in recent years. As student loan debt nearly doubled to $1.7 trillion in this period, students were unable to share the same trend in interest rates that benefitted other borrowers, according to the Department of Education. The surge in outstanding student loans may also weigh on the long-term growth prospects of the US economy, as student debt payments may reduce access to additional credit and can crowd out consumption or investment opportunities, either directly or indirectly through reduced access to credit.

Understanding the importance of protecting household finances during the pandemic, unprecedented levels of fiscal stimulus have been implemented, including enhanced unemployment insurance, direct payments to households, and student loan forbearance. These policies have triggered the additional dip in household debt burdens in 2020, despite unemployment reaching as high as 14.7% in 2020. “It may seem hard to believe, but the average household may be better off after 2020, but personal income rates have risen and debt service payments as a percent of disposable income have declined,” added LPL Chief Market Strategist Ryan Detrick.

Despite the improvement of the American family’s ability to service debt payments, unemployment remains at a persistently high 6.7%. With the Federal Reserve keeping interest rates at the zero-bound and pledging their continued support for the economy, the risk of a dramatic increase in interest rates causing a deterioration in debt burdens seems low for the near future.

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 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

02/01/21

Stocks got off to a nice start in 2021, until the late January selloff, as everyone got GameStop fever. Should bulls worry about what a down January might mean for the rest of 2021?

There’s an old adage on Wall Street that suggests, “As goes January, so goes the year.” This was first discussed in 1972 by Yale Hirsh of the Stock Trader’s Almanac, and it has an impressive track record.  Simply put, when the first month of the year was green, it bodes well for the rest of the year (and vice versa). Given stocks closed red in January, how worried should investors be?

As shown below in the LPL Chart of the Day, the numbers confirm that when the S&P 500 has been green in January, the index has been up 11.9% on average over the rest of the year (final 11 months) and higher 86% of the time. However, when that first month was red, stocks rose only 1.7% on average over the final 11 months and were higher barely 60% of the time.

View enlarged chart.

“A weak January could foretell of rough times ahead in 2021,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The good news is lately the trend has been broken, as stocks have done quite well after a weak January.” In fact, 8 of the past 9 times January saw stocks lower the final 11 months finished higher.

View enlarged chart.

A closer look at those years above and it is clear that a weak January has led to more volatility than normal recently. 2015, 2016, and 2020 all saw significant upticks in volatility during the year, likely increasing the odds that 2021 will be rocky 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

1/29/21

Economic momentum moderated in the United States in the fourth quarter, with gross domestic product (GDP) expanding at a 4% quarter-over-quarter annualized basis according to the Bureau of Economic Analysis, as the high-water mark set by third quarter growth left little room for major improvement. While Q4 growth was slightly below the Bloomberg consensus estimate of 4.2%, all private domestic components of the economy were positive despite the holiday-season surge in COVID-19 cases that prompted restrictions on activity.

As shown in the LPL Chart of the Day, business investment and consumer spending were the primary contributors to GDP, while government spending and net exports were the lone—but modest—detractors.

View enlarged chart.

Housing was another strong contributor to GDP in the fourth quarter, as historically low mortgage rates and the structural shift caused by the “working from home” environment has supported continued strength in the industry. While the pace of growth was lighter than one would hope in the early stages of an economic expansion, the economy’s resilience is notable given the new health restrictions and the delayed fiscal stimulus bill.

However, the Conference Board’s Leading Economic Index is pointing to further moderation of economic growth in the first quarter of 2021, as the index grew 0.5% in December following a 0.7% increase in November. In particular, rising jobless claims and waning consumer confidence weighed on the index and present a challenge for the economy to begin the new year.

“Like we originally expected, the US economy appears to be avoiding a double-dip like we’re seeing in Europe, but growth will be a bit soft until we make greater progress on the rollout of the vaccine, or we can get additional fiscal stimulus passed,” noted LPL Research Chief Market Strategist Ryan Detrick.

The debate over President Joe Biden’s $1.9 trillion stimulus proposal is just getting started, but early signs point toward a deal ultimately being passed in the first quarter—either through a bipartisan vote or through the budget reconciliation process.

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 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

01/28/2021

The incredible action from some of the most heavily shorted names has investors everywhere wondering what it all means? GameStop (GME) specifically has taken the country’s imagination by storm, as the stock started the year under $20 per share and this morning nearly hit $500.

Please note, we aren’t allowed to discuss individual equities, and in no way are we recommending any stocks in this blog, but from a bigger perspective, what is happening here? Basically, individual investors are using message boards like Reddit to find some of the most shorted stocks, then they all pile in at the same time, forcing large institutions to cover their shorts, and thus producing massive buying pressure.

LPL Research doesn’t think these parabolic moves reflect an overall unhealthy market, but institutions covering shorts at sizable losses may be removing capital from some big cap names. “While these developments could be another sign of excessive optimism in certain segments of the equity markets, we do not believe they represent a sign of a broader market bubble or indicate a major correction is forthcoming,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Don’t forget, overall market breadth is extremely healthy and the credit markets are functioning just fine—we don’t see a repeat of 1999 like some are claiming.

Lastly, as shown in the LPL Chart of the Day, after a 72% rally in the S&P 500 Index (and more in small caps and the Nasdaq), maybe it is simply time for a break. After all, the current bull market has tracked almost perfectly the start of the 1982 and 2009 bull markets thus far, and both of those took a break for a few months starting around this point in the cycle.

View enlarged chart.

Ryan joined CNBC’s Squawk Box yesterday to discuss some of these themes. Please watch the video below.

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