Wealth Management

Market Blog Posted by lplresearch

1/27/21

2021 kicks off the first year of a new four-year presidential cycle. One of the most popular questions we’ve received lately is how have stocks performed historically during this political year.

For starters, the S&P 500 Index historically has gained 6.8% per year during the first year of the four-year presidential cycle, but stocks have done better when the president was re-elected than when someone new occupied the White House. This makes sense, as a new president could bring new policies and potential uncertainty. Additionally, stocks do better during years three and four under a new president, while they are much weaker early in the cycle.

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As shown in the LPL Chart of the Day, breaking down all the quarters of the four-year presidential cycle shows that the first quarter of the first year in the cycle is one of only two quarters with a negative average return.

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Bigger picture, historically the fourth quarter of the year has been the strongest of the year, with the first quarter the second best on average. Don’t forget, the third quarter is usually a weak one. Please note, below is for all years, not just the first year of the cycle.

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We will take a closer look at February returns next week on the blog, but it is worth noting that when a new party is in power in the White House, historically stocks have struggled from late January until early March. “It is interesting, but from around the time of the inauguration to several weeks out, stocks tend to be pretty weak,” according to LPL Financial Chief Market Strategist Ryan Detrick. “It may be as simple as new leadership could bring with it new policies and added uncertainty”.

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Lastly, please be sure to watch our latest LPL Market Signals podcast, as we discuss positive COVID trends, small caps, and valuations.

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

1/26/2021

In LPL Research Outlook 2021: Powering Forward, we noted that large interest rate declines historically have been followed by reversals. With the 10-year Treasury yield continuing to climb, now’s a good time for an update. As shown in the LPL Chart of the Day, since 1990, the 10-year Treasury yield had declined at least 1.5% in a year seven times, based on quarterly data. The most recent decline was as of the end of March 2020. Will history hold true this time around?

“The previous six times the 10-year Treasury yield was down at least 1.5% in a year as of the end of the quarter, it was higher a year later every time, by an average of 0.92%,” said LPL Research Chief Market Strategist Ryan Detrick. “Well, we saw a new large decline at the end of March 2020, and while the final number won’t be in until the end of March 2021, as of last week, the 10-year yield was up again.”

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While the climb in yields is consistent with history, the move so far has been slower than average, rising 0.40% since the end of March 2020 as of Thursday, January 21, 2021.  But, the one-year period isn’t over yet, and rates have been steadily pushing higher. Since the start of August 2020, the 10-year Treasury yield has been climbing at a rate of about .08% each month. If rates continued to climb, we would close further on the long-term average increase, although moves over such a short time frame are unpredictable.

Extend that recent monthly pace for a year and that would be an annual increase of 0.96%. We believe rates will continue to increase in 2021 but the pace will slow over time as buyers are pulled into the Treasury market by an increasingly attractive yield, potentially limiting some of the upward momentum. Overall, we think the rate action we’ve seen so far in 2021 is consistent with our Outlook 2021 forecast of 1.25–1.75% as of year-end 2021, and we reaffirm our forecast.

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

1/22/21

It has been exactly one year since the first COVID-19 case in the United States was reported to the Centers for Disease Control (CDC), and to say the world as we know it has been completely changed would be an understatement. Thankfully, we may finally be seeing the light at the end of the tunnel.

With the rollout of multiple approved vaccines underway, some real-time COVID-19 indicators and mobility-related data points have put in their final highs (or lows). As shown in the LPL chart of the day, restrictions implemented at the end of 2020 appear to be helping to curb the spread of the virus, as new COVID-19 cases and those currently hospitalized have been on the decline.

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Meanwhile, the positive rate has also declined despite daily tests near all-time highs.

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However, while COVID-19 data has been improving, real-time economic indicators like OpenTable reservations show businesses continue to struggle as restrictions on activities to curb the late-2020 surge remain in place.

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Similarly, the number of people getting on airlines has fallen back to mid-October levels after the holiday bump. Domestic air travel activity remains 64% below pre-pandemic levels.

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“The good news is that cases are declining and vaccine distribution is increasing, but service industries and air travel are clearly still under a lot of pressure,” said LPL Research Chief Market Strategist Ryan Detrick. “While manufacturing and housing data remain firm, recent data on the job market and consumer spending have been choppy.”

It’s very encouraging to see COVID-19 cases and hospitalizations improving, a trend we hope will continue until this pandemic ends for good. In the meantime, we will continue to follow high-frequency data to gauge the recovery’s progress. The next report card comes next week with the release of fourth quarter 2020 gross domestic product (GDP).

We’ll also be closely watching developments in Washington, DC. The economy’s bridge to the other side will likely get stronger in the coming weeks with more stimulus—potentially to the tune of another $700 billion to $1 trillion.

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

Economic Blog Posted by lplresearch

1/21/21

The onset of the global pandemic shocked the economy and triggered one of the deepest recessions ever in 2020. As investors fled to “safe haven” Treasuries and the Federal Reserve (Fed) lowered interest rates, the yield on the 10-year Treasury traded as low as 0.31% intraday on March 9, 2020 (its lowest closing yield was 0.51% on August 8).

Earlier this year, mortgage rates followed the 10-year Treasury yield lower to register an all-time low value of 3.3%. Fueled by additional purchases of mortgage-backed securities (MBS) by the Fed, mortgage spreads have narrowed while Treasury yields remain at depressed levels, only recently trading above 1%. As shown in the LPL Chart of the Day, the average rate on a 30-year fixed rate mortgage has continued to fall, now trading at just 2.88% according to Bankrate.

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We’ve often referred to the economic recovery taking on a “K shape” where some segments of the economy are recovering and performing well (the upper leg of a K) and other areas are struggling (the lower leg of a K). The housing market has found itself in the upper leg of the recovery, as housing starts, building permits, existing home sales, and home prices have all surpassed their pre-pandemic highs.

“Perhaps it should come as no surprise that the housing market has boomed following a big decline in mortgage rates,” noted LPL Chief Market Strategist Ryan Detrick. “Low rates, undersupply, and the working-from-home environment have given us the best housing market in over a decade.”

Going forward, we continue to favor MBS relative to other investment-grade asset classes.  MBS provide a more attractive yield than Treasuries, while also providing better insulation from rising interest rates compared to investment-grade corporate 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

Market Blog Posted by lplresearch

1/20/2021

Today Joe Biden becomes the 46th President of the United States. We’ve already looked forward at what his presidency, coupled with a blue wave in Congress, could mean for policy in Market Policy Projections for 2021, so today we take a look back at how stocks performed under President Donald Trump.

As shown in the LPL Chart of the Day, the Dow Jones Industrial Average (Dow) gained approximately 56% during Trump’s four years in office, which comes out to an annualized return of an impressive 11.8%. “President Trump’s annualized Dow return of 11.8% was the best for any Republican president since President Calvin Coolidge in the Roaring Twenties,” explained LPL Financial Chief Market Strategist Ryan Detrick. “This was still below the annualized returns of Presidents Bill Clinton and Barack Obama.”

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Over the past four years, the Dow has made 126 new all-time highs, more than the 123 under Obama in eight years (albeit at a drastically lower starting point), and the most since the record 263 under Clinton. It is hard to believe it, but six presidents never saw a new Dow high while in power, with Presidents Jimmy Carter and Gerald Ford being the most recent to checkmark this dubious feat.

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The records from 2020 don’t end there, as stocks have seen a record surge since the election. In fact, from election day until the inauguration, the S&P 500 Index has been up a record 12.8%.

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Lastly, for more of our thoughts on stimulus packages, policy, and the current earnings season, please watch our latest LPL Research Market Signals podcast below or on our YouTube channel. Also, if you like our podcast, please give it a positive review—those reviews go a long way to helping more listen to it. Thanks!

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

1/19/2021

Investment-grade credit spreads, the extra yield you get from investment-grade corporate bonds compared to similarly dated US Treasuries, have already tightened to a level you usually only see during the middle of the economic cycle—and that can have consequences for bond investors. As shown in the LPL Chart of the Day, the current spread as of January 15 was at 1%, close to the tightest level of the previous cycle of 0.91%, hit in February 2018, and in the bottom quarter of all values going back to 1997.

“Corporate bonds will likely get support from an improving economic outlook as vaccines become more widely distributed,” said LPL Research Chief Market Strategist Ryan Detrick, “but you’re not getting a whole lot of compensation for the added risk anymore.”

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Tighter spreads are a strong sign of investor confidence that the economy is likely to continue to get back on track. At the same time, it makes corporate bonds relatively expensive and can increase their sensitivity to Treasury yields. When spreads have room to tighten, it can help offset rising Treasury yields. When spreads are already tight, the potential offset is small at best and may not occur at all.

We still see incremental value in corporates over Treasuries. That 1% of added yield over Treasuries from credit spreads remains attractive for many investors, especially if the economic outlook is positive. There are also shorter maturity investment-grade corporate options that may help limit rate sensitivity. There would be some lost yield at shorter maturities, but with sensitivity to changes in Treasury yields already increased by tight spreads, we think the trade-off is worth it.

With corporate spreads tight, our primary emphasis within investment-grade bonds remains mortgage-backed securities, where we believe the yield for the amount of underlying rate risk provides an edge over other investment-grade bond sectors.

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

January 15, 2021

One of the top questions we’ve received recently has been what a blue wave may mean for investments. After the Democrats won the two Senate runoff elections in Georgia, they will now control the White House and both chambers of Congress. Our January 11 Market Policy Projections for 2021 gave some of the immediate and longer-term policy impacts of the Democratic “blue wave,” and here we surf the blue wave with some interesting charts.

First off, blue waves have not been bearish for stocks, with the S&P 500 Index higher 6 of the past 7 times and up a respectable 9.1% on average since 1950.

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We shared this chart in 2020, and it shows that historically, stocks do better if an incumbent president wins versus a new president in office. This makes sense, as a new president will bring in new policies and likely question marks—while you know what you will get with a re-elected president. Remember, markets hate uncertainty and surprises.

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“Make it all nine new Democratic presidents since 1900 to bring with them both the House and the Senate. In fact, stocks do quite well that first year under such circumstances, up nearly 12% on average,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Maybe investors shouldn’t fear a blue wave after all.”

As shown in the LPL Chart of the Day, when a new Democratic president has brought with them the House and Senate, stocks gained that first year of their new presidency 6 of 8 times. What stands out to us for 2021, though, is the House majority is only 11—the smallest for a new Democratic president since 1900.

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Looking at all of the times the Democrats controlled the House (since the 35th Congress when it was Democrats and Republicans), the 11-seat majority is the lowest since 9 seats in 1879. Yes, the Democrats are in power, but this small majority will make it very tough for any of the more extreme policies to pass.

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Lastly, the Senate is split a perfect 50/50, which is again extremely rare. In the chart below we share the seat difference between the two parties. “A 50/50 Senate coupled with only an 11-seat majority in the House, and it is safe to say we have about as close to a perfectly divided government as we’ve ever seen,” said Detrick.

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In our latest LPL Street View video Ryan discusses some surprises to kick off 2021, like the blue wave and continued strong equity 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

Market Blog Posted by lplresearch

January 14, 2021

Heading into 2020, we maintained our preference for growth stocks as we believed that earnings growth would become harder to come by as the economic cycle aged, and their robust earnings growth was greatly appealing. These same growth stocks bucked historical precedent and proved to be well insulated from the economic effects of the stay-at-home environment presented by the outbreak of COVID-19. As the economy began to emerge from lockdown after the horrendous second quarter of 2020, a cyclical trend began to emerge, and we’ve slowly been warming up to value stocks as a result

In particular, we upgraded our view of the financials sector from negative to neutral in our most recent Global Portfolio Strategy publication, supported by a steepening yield curve and rising interest rates. As shown in the LPL Chart of the Day, the yield curve has steepened more than 50 basis points (0.50%) since the summer low as investors began to price in higher economic growth and inflation, while the Federal Reserve has kept short-term rates anchored at zero.

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The steeper yield curve should help the net interest margin on new loan issuance while long-term rates are rising due to better economic prospects, which should limit defaults. However, the 10-year Treasury yield remains historically low at just over 1%, and we forecast the yield to finish 2021 in the range of only 1.25–1.75%. Financials would be better off if the higher-end of our range were met or exceeded. Despite the economy being in a considerably better place than it was over the summer, the battle against COVID-19 continues to threaten the path of the recovery.

“We’ve talked a lot about cyclicals as we emerged from the lockdowns of last spring, and we expect it will continue into 2021,” noted LPL Chief Market Strategist Ryan Detrick. “The economy has been improving, but the rollout of the vaccine will be the key determinant for the economy.”

Meanwhile, we have downgraded communication services stocks from positive to neutral. Communication services, which includes internet and digital media giants Alphabet (Google), Facebook, and Netflix, has benefited from the stay-at-home environment that persisted through much of the pandemic.  However, the top-heavy nature of the sector—the three largest stocks account for nearly 60% of the sector weight—leaves it vulnerable to the rotation toward cyclicals. It’s also possible that the incoming Joe Biden administration may change the regulatory landscape for these firms, presenting an additional risk going 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 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

https://www.youtube.com/watch?app=desktop&v=soRrYeCUXfU

Economic Blog Posted by lplresearch

1/13/21

Rising COVID-19 cases and concern about the policy environment put a dent in small business optimism in the month of December, the index’s second straight monthly decline. As shown in the LPL Chart of the Day, the National Federation of Independent Business (NFIB) Small Business Optimism Index, a survey of more than 500 firms, declined in December to 95.9, falling below the long-term average index value since 1973 of 98. Further, 9 of the 10 index components declined, while only one—satisfaction with current inventory—managed to improve.

View enlarged chart.

The rise in COVID-19 cases in the fourth quarter of 2020 and the subsequent rise in restrictions implemented by state and local governments have taken a toll particularly on small businesses, pushing the Uncertainty Index component of the survey 8 points below the 6-month average. Meanwhile, the rise in COVID-19 cases has coincided with the election of a new administration in Washington, DC, and the potential regulatory and tax changes that may come with it, adding further uncertainty.

“Small businesses are rightfully concerned about their business outlook as new COVID-19 cases continue to surge,” noted LPL Chief Market Strategist Ryan Detrick. “The widespread vaccine distribution should be the key to lifting us out of the pandemic; however, local restrictions used as a bridge during the rollout of the vaccine will create a tough environment for small businesses.”

While survey data has suggested a tough economic environment, the stock market has been signaling this uncertainty may be short-lived, at least for publicly traded small cap stocks. As of January 12, 2021, the Russell 2000 Index of small cap stocks has handily outperformed its large cap counterpart, the S&P 500 Index, by nearly 11%. In Weekly Market Commentary: Market Policy Projections for 2021, we explain that the increased prospects for additional fiscal stimulus may encourage rotation toward areas of the market that may respond positively to economic reopening, which includes small cap stocks.

Even though small cap stocks—and perhaps the broader market—could be due for a breather after such a strong post-election rally, we think the future for small caps is brighter than the survey results may be suggesting.

In this week’s Market Signals podcast and video, LPL Research talks about 2021 policy updates and the possibilities of higher taxes and more regulation, more stimulus, higher Treasury yields, and better stock performance in 2021.

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