Wealth Management

Posted by lplresearch

Market Blog

Stocks just had their best week since April, with the S&P 500 Index incredibly a chip shot away from new all-time highs. Joe Biden will be the next President of the United States, but markets are confident Republicans will maintain the Senate, and this means gridlock in Washington. Remember, gridlock is good, as it pulls policy towards compromise and avoids extremes. Also, any legislative changes to taxes, regulation, and capital gains will have meaningful input from both parties.

As shown in the LPL Chart of the Day, a split Congress tends to mean stronger stock returns, almost ignoring whether a Democrat or Republican is in the White House. The most likely outcome from the election at this point is a Democratic president with a divided Congress—a scenario that historically has produced solid S&P 500 returns of 15.9% a year.

View enlarged chart.

Assuming President-elect Joe Biden takes over in January 2021, it is important to note that historically stocks haven’t done as well the first and second years of a new president compared with an incumbent winning. This makes sense though, as  historically voters may have chosen new leadership in part because of economic weakness, and the uncertainty of a new president’s policies could also hold things back some. If things are good, the president tends to win reelection. Things turn around significantly by the third year in office, though, if there’s new leadership. Of course, it’s worth noting that the first year of a new president has seen the S&P 500 higher recently, with stocks up nearly 20% the first year under President Donald Trump (2017) and 23% under President Barack Obama (2009).

View enlarged chart.

Lastly, the strength from stocks around the election has been rather historic. “The S&P 500 added 1% on four consecutive days, which hasn’t happened since late 1982,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Although there are only three other times this rare blast of strength happened since WWII, it is worth noting that strong returns going out a year took place after each instance.” The bottom line: Extreme buying pressure has a funny way of resolving higher, and we don’t anticipate this time being any different.

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

Posted by lplresearch

Economic Blog

The US labor market shrugged off election uncertainty and continued to add jobs in October. Despite the waning effects of fiscal stimulus and rising COVID-19 cases, per the US Bureau of Labor Statistics, the US economy added 638,000 jobs, ahead of Bloomberg survey estimates calling for 580,000. The headline number was depressed by a 268,000 drop in government employment, including 147,000 temporary census workers. Meanwhile, the unemployment rate fell from 7.9% to 6.9% despite a rise in the labor force participation rate, a reversal of the dynamic we saw in September when unemployment fell while the labor force participation also declined.

However, a troubling trend remains beneath the surface. As shown in the LPL Chart of the Day, the number of long-term unemployed—those out of work for 27 weeks or longer—continues to rise as a share of the total unemployed:

View enlarged chart.

“While the labor market has continued to show improvement, there are still many people out there who are having a hard time getting back to work,” noted LPL Chief Market Strategist Ryan Detrick. “With total jobs in the US around 10 million below pre-pandemic levels and rising COVID-19 cases, there’s a lot of room for improvement despite the declining unemployment rate.”

COVID-19 cases in the United States have reached record highs with a weekly trend growth rate above 20%, according to the COVID Tracking Project. As the weather cools and more activity shifts indoors, additional restrictions to limit the spread of the virus could slow the fragile labor market recovery.

In particular, much of the private sector gains in this month’s jobs report were in the services sector, where previous jobs reports had shown strength in goods-oriented industries. Many countries in Europe have reinstated restrictions or even gone as far as implementing new lockdowns. While we don’t expect lockdowns in the United States like we saw in March, restrictions on activity could limit future job gains.

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

Posted by lplresearch

Market Blog  

As of Thursday morning, a winner to the 2020 presidential election has yet to be “officially” declared as several battleground states have yet to be called. Even as more clarity emerges from remaining votes being counted in Arizona, Nevada, and Pennsylvania today and tomorrow, recounts and legal challenges could draw this out longer.

A Democratic capture of the Senate appears much less likely now than it did Tuesday. Barring an extraordinary event, we seem destined for a divided Congress.

This is in stark contrast to the Democratic sweep that markets had been pricing in leading up to the election. We look to market price action as a dispassionate and impartial guide as to where consensus among market participants lies.

Markets are now adjusting rapidly to a scenario in which a President Joe Biden—should he win—may not be able to enact large parts of his agenda because of a Republican-controlled Senate, or to a second term for Donald Trump and a status quo Congress.

Here we offer 10 significant observations based on currently available information:

Treasury Yields Down

Treasury yields are down sharply post-election as the market digests the narrative that a divided Congress could likely mean a smaller stimulus package, whenever it does come, under a Biden or Trump presidency compared to under a Democratic sweep. Treasury yields are strongly correlated to economic growth potential, and the market had appeared optimistic over a large fiscal stimulus package’s ability to inflect a slowing economic recovery higher. Further, the decline in yields may also be accounting for softer inflation expectations because of delayed stimulus. Breakeven inflation rates—measured by the difference in the yield of inflation-protected bonds and their nominal counterparts—have fallen on the week as the odds of a blue wave have declined.

Financials Lag

Financials had risen sharply in recent days in response to climbing Treasury yields and a steeper yield curve. A cyclical sector, financials would have stood to benefit from a larger fiscal stimulus package. Some regulatory fears hovering over certain industries may be dampened, however, under a divided Congress.

Industrials and Materials Lag

Investors were hoping that a large part of any stimulus package passed under a Democratic sweep would focus heavily on infrastructure spending, which would benefit companies levered to a major building initiative. While still a priority for both parties, the scale is likely smaller under a divided Congress.

Growth over Value

While areas of the equity market tied to the size of an eventual stimulus package struggled in the immediate aftermath of the election, stocks with elevated long-term growth rates that are less sensitive to fluctuations in the economy are receiving renewed interest. These stocks, including FAANG stocks, have been the overwhelming victors so far this year, but had been selling off somewhat leading up to the election.

Dollar Volatility

The US dollar has had a wild ride since election results have started rolling in. On the one hand, a divided Congress reduces a potential Biden presidency’s ability to enact major corporate tax increases, which would be negative for the dollar. On the other hand the United States would likely have a less aggressive trade policy under a potential Biden win, which had been one thing propping up the currency in the first three years of Trump’s term. In aggregate, though, the dollar is down slightly, which is consistent with the prevailing trend in the last several months.

Emerging Markets Up

Emerging markets equities are receiving a large bid post-election as the dollar weakens slightly and investors begin to make a bit of an explicit bet on a Biden victory. Foreign policy is largely driven without major input from Congress, and a Biden presidency is perceived to be less confrontational with China, the dominant weight in the emerging markets equities index.

Technology Up

Technology has been stuck in somewhat of a rut since its blow-off top late this summer. Prices are up sharply following the election as they stand to benefit from several factors including a weaker dollar (extremely international sector), lowered threat of tax increases (one of the more highly taxed sectors), and a major bid for growth stocks following a murkier outlook for stimulus-related stocks. There is, however, still bipartisan appetite for increased regulation in the sector.

Price Action for Munis

Municipal bonds stood to gain from a Democratic sweep, as we wrote about in our LPL Research blog Why Munis May Want Joe Biden to Win. The lack of a Democratic sweep likely means a lesser chance of rising income taxes, which reduces the relative attractiveness of federal tax-free municipal bonds. Moreover, there is likely less money for state and local governments under a bipartisan, watered down stimulus bill than one constructed under a blue wave Congress. Still, lower rates are supporting price action today.

Healthcare Up

Major healthcare reform is one priority for which Biden likely would have needed to control both chambers of Congress in order to enact significant change. As the possibility for an all-blue Congress dims, healthcare is rallying as the threat of disruption to its industry subsides somewhat.

Renewable Energy

Perhaps the posterchild for the Democratic sweep trade, renewable energy stocks, which have seen a significant run-up since the end of September, were down sharply in the immediate election aftermath. Major climate-change spending initiatives would require sign-off from Congress, which is much less likely under a Republican Senate.

For more of our immediate reaction to the election so far, please watch our latest LPL Market Signals video here.

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

Posted by lplresearch

Market Blog

The election is over, but the questions are mounting. We don’t know who will be the next president as of Wednesday morning, but we do know that stocks tend to do well the final two months of an election year. “Once the uncertainty is over, stocks tend to rally in November and December, with November the best month of the year during an election year,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Of course, 2020 isn’t like any other year, and we still could be a ways away from who the winner will be.”

The LPL Chart of the Day shows that the S&P 500 Index tends to do very well the final two months of the year, especially during election years.

The modern design of the S&P 500 stock index was first launched in 1957.  Performance back to 1928 incorporates the performance of predecessor index, the S&P 90

View enlarged chart.

One of the big takeaways so far from Tuesday night is that the Senate likely will stay Republican, meaning we may have a divided Congress. The chances of higher taxes and more regulation likely took a hit under this scenario. This could be a nice tailwind for stocks, as the S&P 500 historically has done quite well under a divided Congress, up more than 17% on average. Additionally, in years with a divided Congress,  stocks have been higher the past 10 times, with 2020 potentially being the 11th in a row.

View enlarged chart.

This election is far from over, so stay tuned to LPL Research as we continue to monitor things!

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

Posted by lplresearch

Economic Blog

2020 has certainly been a bizarre year, and perhaps we have finally arrived at the culminating event—the US presidential election. While every election may be characterized as a major turning point in our country’s history, the context of the ongoing global pandemic makes a particularly compelling case for this year’s election.

The pandemic has certainly affected the way voters head to the polls. As of November 2, nearly 100 million Americans had voted early, according to the US Elections Project, or over 70% of all of the votes cast during the 2016 election. Of the early votes submitted, we’re currently tracking a roughly 2:1 ratio of mail-in versus in-person voting, contrasted with the 2016 election in which the number of mail-in votes and in-person early voting was nearly even—highlighting the change in voter behavior most likely due to the threat of COVID-19.

Currently, most national polls suggest former Vice President Joe Biden is favored to win the election; however, some of the polls in swing states are signaling the race may be much closer. There are also a few market and economic signals pointing to a tighter race, which we discussed in our recent LPL Market Signals podcast: Market Signals for the Election.

With such a large portion of the population opting to vote early, there has been speculation of a delayed outcome, or even a contested election, which we covered in Market Responses to Election Uncertainty. While we don’t believe a legally contested election is very likely, we can understand the idea that the massive surge in early voting may cause a delay of a day or two before a winner is declared.

As we now play the waiting game for the highly anticipated results of today’s election, we once again encourage everyone to (safely) go out and vote—if you haven’t already.

In case you’ve missed some of the key Election 2020 charts:

Election Charts You Need To See Part 1

Election Charts You Need To See Part 2

Election Charts You Need To See Part 3

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

Posted by lplresearch

Economic Blog

With Election Day a mere five days away, we at LPL Research thought we would add one last election forecaster to the mix of what we’ve presented over the last several months—as much because of what it might tell us about the American electorate as what it might tell us about the election.

As shown in the LPL Chart of the Day, since 1952, with surprising regularity, US voters have given each party a second term in the White House to complete its legislative agenda. With equal regularity, they have flipped the party in the White House after eight years, resetting the balance of power in our two-party system.

“For all the talk of partisanship, voters seem to have chosen a kind of slow moving balancing act for more than 60 years,” said LPL Research Chief Market Strategist Ryan Detrick. “It’s almost as if they’ve seen worthwhile ideas in both parties, but have also rejected both parties when an extended stay in the White House might have led to those ideas being taken too far.”

View enlarged chart.

The apparent pattern is really very simple. You get eight years to execute your agenda, so each party gets a second term. But once a party has been in the oval office for two terms, voters seek to reestablish balance. While the pattern did not work very well before 1952, with Democratic Presidents Franklin D. Roosevelt and Harry Truman holding the White House for five consecutive terms, since then it’s been right in 15 of 17 elections, or 88% of the time. President Jimmy Carter’s loss in 1980 and President George H.W. Bush’s win in 1988 were the only outliers.

While it is a little naïve to say presidential election outcomes are simply due to the electorate seeking balance, there still seems to be something to it. Perhaps voters wanted President Barack Obama’s steady hand coming out of the financial crisis in 2008, but after eight years they thought the pendulum had swung too far and it was time to put an emphasis on a more pro-business approach emphasizing deregulation and lower taxes—an overly simple story but certainly part of what had happened.

As Americans, we are a pragmatic nation. We always have been. It doesn’t mean we reject ideas or don’t seek new ways to pursue our democratic vision. But it does mean that we at least collectively understand that any idea taken too far starts to detach itself from what it was intended to accomplish in the first place.

What does the pattern say about 2020? The forecast would be for a second term for President Donald Trump so that he has a chance to follow through on his policy initiatives. But if former Vice President Joe Biden should win, the American people might be saying the pendulum had swung too far too fast in a single term and it was time to seek balance. But either way, it only works because people go and vote, so whatever your perspective, we encourage you to vote and add your own wisdom to our 2020 election outcome.

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

Posted by lplresearch

Economic Blog

The outbreak of COVID-19 and the subsequent lockdowns triggered the largest quarter over-quarter decline in gross domestic product (GDP) since WWII, so perhaps it comes as no surprise that the following quarter tallied the sharpest rebound in that same time period. GDP expanded 33.1% on an annualized basis in the third quarter, ahead of Bloomberg consensus expectations of 32%, fueled by the continued reopening of businesses and reversing much of the economic fallout stemming from COVID-19-related lockdowns.

As shown in the LPL Chart of the Day, consumer spending—the largest contributor to GDP in the US and roughly 70% of economic output—rebounded in a powerful fashion in the third quarter.

View enlarged chart.

However, spending numbers were uneven, with a considerably larger portion spent on goods rather than services—consistent with the continued behavioral and business restriction effects on these industries. Further, the timing of spending was also fairly uneven, as much of the growth in consumer spending came in the early weeks of the third quarter and tapered off in recent weeks where the effects of fiscal stimulus and rising new COVID-19 cases influenced consumer behavior.

“GDP rebounded stronger than expected in the third quarter, but the big question on everyone’s mind is whether the economy can remain on firm ground in the fourth quarter and into 2021,” stated LPL Chief Market Strategist Ryan Detrick. “Barring a new round of fiscal stimulus, it’s likely that growth will taper off in the fourth quarter, but we still don’t expect a double-dip recession.”

Regardless of the state of economic momentum, it is remarkable that GDP is already only about 3.5% away from recovering the entire pandemic losses. The resilience of US consumers has been the top story of the recovery, even with the historic fiscal stimulus.

The surge in growth in the third quarter may also have political implications. As we noted in our recent Weekly Market Commentary: Are the Polls Wrong Again? the average GDP growth in the second and third quarters of election years can have predictive power for who wins the election, with stronger growth favoring incumbents. However, we also point out that recessions close to elections have favored challengers, sending some conflicting market signals heading into Election Day!

As the economy moves forward in the fourth quarter, we’ll continue to monitor real-time data indicators to gauge the impact of rising COVID-19 cases on consumer and business behavior.

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

Posted by lplresearch

Economic Blog

As the US economy transitions from lockdowns—where 90% of Americans were under a stay-at-home order—to continued reopening, we assess the state of American consumer confidence to spend despite the persistent COVID-19 outbreak.

Reopening the economy should, in theory, clear the runway for takeoff, but consumers need the confidence to spend. “While the stock markets have recovered, and employment is getting better, consumer confidence remains very low,” explained LPL Chief Investment Officer Burt White. “The economy’s biggest anchor isn’t that we haven’t reopened—it’s that consumers lack the confidence to spend.”

We discuss this in our latest LPL Street View video, “How Confident America Really Is,” available below and on the LPL Research YouTube channel. Please be sure to give this video a like or follow our channel, so you don’t miss anything!

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

Posted by lplresearch

Market Blog

Historically it has been unwise to attempt to “play” the stock market ahead of an election in an attempt to position based on perceived implications of a president’s policies, but the municipal bond market may be more susceptible to the results of this election. As stimulus talks in Washington appear stalled but not officially over, we outline the potential for investment opportunity in the municipal bond market going forward.

The municipal market had an eventful spring. As shown in the LPL Chart of the day, municipal bond yields relative to US Treasuries have contracted since that economic weakness in the spring, which severely hampered municipal budgets. Since the US economy has emerged from lockdown, much of the initial investment opportunity has been captured, but municipal yields still provide a relative yield advantage to Treasuries—tax advantages aside—as this ratio has held steady over 100% as of October 23, indicating a higher yield for similar maturity municipal bonds.

View enlarged chart.

If the Democratic Party wins the presidency and both chambers of Congress—a blue wave—it is likely that higher income and corporate taxes will be a policy priority. This could be positive for municipal bond demand, and may bring back many of the institutional players that may have lightened their exposure to the market following the tax changes from the Tax Cuts and Jobs Act of 2017. Current stimulus proposals from Congressional Democrats also have focused on aid to state and local governments, which may be a positive for the health of municipal financial conditions.

However, the treatment of state and local tax deductions under a Joe Biden presidency would remain a variable for retail demand, as well as state tax revenues. Netting these effects, we think municipal yields may rise, but we would expect them to outperform Treasuries.

If there is no blue wave, the potential for additional fiscal stimulus in the near term may be less and may require a deeper assessment of economic and unemployment conditions for consideration. If there is no additional stimulus, we may see an increase in supply through deficit funding, and muni/Treasury ratios may remain elevated.

“Overall, it would seem the outlook for the muni market depends more on the passage of additional stimulus—perhaps more so than the equity market—which may hinge on the results of the elections,” said LPL Chief Market Strategist Ryan Detrick. “Ultimately, we think there will be additional fiscal stimulus, but the timing of the stimulus remains quite uncertain.”

We expect interest rates to rise modestly in 2021, but we stop short of calling for a bear market for bonds. We continue to recommend slightly below benchmark interest rate risk, and maintain our preference for municipal bonds over richly valued Treasuries, even in the face of stimulus uncertainty.

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

Posted by lplresearch

Economic Blog

The Federal Reserve’s (Fed) Beige Book presented qualitative data that suggested the pace of the economic recovery had been tapering, as we discussed in the LPL Research blog, Beige Book Shows Pace of Recovery is Moderating, but now we have quantitative data that is confirming the survey data. The Conference Board’s Leading Economic Index (LEI) increased 0.7% month over month in September to beat Bloomberg consensus expectations of 0.6%, but slowed after rising 1.4% in August and 2% in July.

As shown in the LPL Chart of the Day, the leading indicators are still growing, but at a slower rate than the blistering pace seen in the initial months after emerging from lockdowns.

View enlarged chart

Growth in the LEI in September was primarily driven by the improvement in jobless claims, as well as continued strength in building permits for new private housing—a trend that matches the behavioral shifts to accommodate work from home conditions during the pandemic. The pullback in stock prices last month and manufacturers’ new orders were the lone detractors from the LEI in September.

“It comes as no surprise that growth began to level off after the surge over the summer, and the softer LEI print is suggesting the economy could be losing momentum heading into the fourth quarter,” said LPL Chief Investment Officer Burt White. “However, despite the slowing momentum, we still expect solid economic growth in Q4, just not quite at the same rate in Q3.”

The decline in manufacturers’ new orders is likely in relation to election uncertainty, which should prove transitory. However, the recent rise in COVID-19 cases in both Europe and the United States may cause business activity to slow, even if no additional lockdowns are mandated. As we head into the fourth quarter, we will continue to monitor real-time data for any additional clues about the pace of the economic recovery.

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

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