Wealth Management

Posted by lplresearch

Wednesday, January 5, 2022

Here is one chart about Santa and five more charts (or tables) that caught our attention recently.

Well, stocks did what they were supposed to do, which was gain during the historically bullish Santa Claus Rally (last 5 days of the year and first 2 days of the following year). We discussed this seasonally bullish period here, but the bottom line is we expected these days to be strong. It is when Santa doesn’t come to town that makes us worry. In fact, three of the past four times he didn’t come (2000, 2008, and 2015) saw stocks fall for the full year and the last five times he didn’t show all saw January lower. Only 2016 avoided a drop for the full year when Santa didn’t show, but that year started off with one of the worst first six weeks ever, so Santa was still a warning sign.

Mark this off as one less thing to worry about in 2022.

View enlarged chart.

Just because stocks were up big last year by itself isn’t a reason to worry. “The truth is big yearly gains likely take place in larger bull markets, so don’t get a fear of heights just because of what happened in 2021,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In fact, the past seven times the S&P 500 gained more than 25% saw the next year higher, with five of those years up double digits.”

As shown in the LPL Chart of the day, the S&P 500 is up nearly 12% on average and higher 86% of the time after it is up 25% the year before. There are lots of worries out there, but ‘stocks being up a lot and that is why I’m bearish’ shouldn’t be one of them.

View enlarged chart.

The first day of 2022 started off with a rare all-time high on Day 1. We were surprised, as this has only happened five other times in history. Let’s be clear, we would never suggest investing based on one day, but years that make a new high on the first day actually see a strong January and strong full year return. Not to mention nearly 40 all-time highs on average along the way.

View enlarged chart.

Taking this a step further, stocks not only made new highs, but it was a strong Day 1 as well. Below you will see that previous times the first day of the year gained more than 0.6% saw stronger than average January and full year returns. Again, don’t blindly invest on only this one signal, but it is quite interesting.

View enlarged chart.

The fourth quarter of 2021 went out like a champ, gaining more than 10% in the process. Turns out, 10% gains likely mean continued strength. Incredibly, the S&P 500 was higher two quarters later the past 12 times the S&P 500 gained more than 10% in a quarter. Again, this is just one study, but it does little to change the view that the bull market is likely alive and well in 2022.

View enlarged chart.

Another eye-opening stat is the S&P 500 is up 7 consecutive quarters, one of the longest quarterly win streaks ever. Turns out that future strength is more common than you might think. Two quarters later the S&P 500 has never been lower and a year later up a very solid 14.1% on average. In fact, you have to go back to the early 1950s for the last time a quarterly win streak ended at 7, as they usually manage to go further than most think.

View enlarged chart.

Lastly, Ryan and Jeff Buchbinder discussed many of these concepts in the latest LPL Market Signals podcast, which you can watch below or directly from our YouTube channel.

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

Tuesday, January 4, 2022

Fixed income investors aren’t used to negative total returns for core fixed income (as measured by the Bloomberg U.S. Aggregate Bond Index) but that is exactly what happened in 2021. Last year, rising interest rates were a headwind to bond prices that more than offset the positive returns from coupon income. As such, the index was down -1.5% for the year, which was only the fourth negative returning calendar year since the index’s 1976 inception—and the first since 2013. Interestingly, 1994 was the worst year ever for the index and it was only down 2.9%. So as a reminder, a bad year in bonds is like a bad day for stocks. That said, what is likely in store for core fixed income returns in 2022?

“Core fixed income returns likely aren’t going to be great in 2022,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “However, returns are only part of the equation with bonds. Capital preservation, liquidity, and diversification benefits of core bonds still make the asset class an important one within a diversified asset allocation.

As we point out in our recent 2022 Outlook: Passing the Baton, we expect interest rates to move modestly higher in 2022 based on near-term inflation expectations above historical trends and improving growth expectations once the impact of COVID-19 recedes. Our year-end 2022 forecast for the 10-year Treasury yield is 1.75–2.00%. However, an aging global demographic that needs income, higher global debt levels, and an ongoing bull market in equities may keep interest rates from going much higher over the next year. As such, as seen in the LPL Research Chart of the Day, returns for core bond investors are likely to be muted in 2022. Fixed income investors are bound by bond math, which means starting yields are still a good estimate for future returns and with starting yields still low by historical standards, returns are likely to be low as well. In fact, if neither interest rates nor spread levels change over the course of the year, the index will return approximately its starting yield, which as of the end of 2021, was 1.75%. But, because we think interest rates could move modestly higher (and we think spreads could stay where they are or tighten marginally), core fixed income returns could be flat to slightly positive for the year—not a great year but returns could be better than 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 MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

https://view.ceros.com/lpl/outlook2022/p/1

Posted by lplresearch

Thursday, December 30, 2021

Here it is, our final blog of 2021, and what better topic than the blog itself and the readers who make writing it so rewarding.

Our aim with the blog is simple: every day provide market analysis that is timely, understandable, actionable, and occasionally fun. While we have a good time with the blog, we take its underlying purpose very seriously.

For our last blog of the year, we look at our 10 most read blogs of 2021. The blogs are listed below, sorted from the most read to the 10^th most read. For each we include the publication date, a central quote, and what, in hindsight, actually happened.

Scroll through the list as you choose—there’s a lot of information there. But the list also tells us something about how markets behaved in 2021, and what to watch out for in 2022.

• Themes and Memes – Of the 10 most read blogs, three covered topics particular to the moment, such as GameStop (remember them?), Evergrande, and “tapering.” We view our role here as providing understandable coverage of new topics that are getting a lot of attention. There will be new memes and themes in 2022, but it’s hard to know what they are in advance.
• Don’t Panic – Fear always lurks in the background when dealing with risky markets. The risks should not be ignored, but at the same time the response should be measured. Four of our most read blogs raised the possibility that markets may be facing added headwinds. As it turns out, the S&P 500 really wasn’t all that volatile in 2021 and may not be again in 2022, but the prospect of entirely normal increased volatility is rising.
• Favorite Charts – Markets aren’t always right and past history never guarantees future results, but there is important information in all that market data and history, and often even some wisdom. Three of our most read blogs was our team simply sharing our view of some of the most important, timely market signals to be aware of. (See yesterday’s Charts of the Year for a great example.)
• Politics – On inauguration day, we ran a blog on how the stock market performed under President Trump. Stock performance was pretty good, but it was also pretty good under President Obama, and so far so good for President Biden too. We generally believe that too much emphasis is often put on politics as a driver of broad market returns, but it’s always a popular topic during political seasons. It will be again in 2022 as mid-term elections approach. We will provide market-relevant coverage, but it’s also important to tune out the noise.

So there you have it, four basic categories for our most read blogs. Whatever happens in 2022, we will be there to provide the most thoughtful analysis we can, usually with some sharp but simple charts.

Happy New Year everyone. We’ll see you in 2022.

The LPL Financial Research Team

LPL RESEARCH’S MOST READ BLOGS OF 2022

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

Wednesday, December 29, 2021

In today’s blog, we will take a look at some of the best charts and tables we shared all year.

There are so many charts and tables that sum up how special 2021 was, but at the end of the day the fact that 2021 had the second most all-time highs ever probably tells the story better than nearly any other.

Not to be outdone, this year will go down as one of the best ever for the bulls.

Many would consider 2021 to be a volatile year for stocks, but the S&P 500 Index only had one 5% pullback all year and that was during the Evergrande worries in September/October.

Here’s putting the 5.2% peak to trough pullback in perspective.

This was the fasted bull market to ever double and it set the record by a wide margin.

Every single month made a new all-time high (12 for 12), matching 2014 as the only years to accomplish this incredible feat.

Were there signs the bull market would be this strong? “Although many were caught flatfooted by the strong equity returns this year, there were numerous clues,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The huge end of year rally in 2020 was the first clue. Add in a strong first five days, a strong first quarter, the S&P 500 holding above the December lows in the first quarter, and right there you had several signals early in the year that strong returns were quite possible in 2021.”

Let’s get to some of the charts and tables we shared earlier this year that signaled the possibility of big returns in 2021.

The huge end of year rally was a good sign for 2020, as when the final two months gain more than 10% (like 2020), then the following year has never been lower.

The strong first five days suggested much higher than average returns.

When stocks were up more than 4% year to date by Valentine’s Day, the rest of the year tended to do well.

The big first quarter for stocks said better times were ahead.

The December Indicator was another big clue 2021 would be special. This indicator signals potential for a strong year when the first quarter low doesn’t violate the December low, like we saw this year.

A strong first 100 days of the year for stocks boded well for the rest of the year.

The S&P 500 had a 7-month win streak end in September, but the returns after such long win streaks only added to the bulls’ resume.

Things looked good for a strong fourth quarter, as the S&P 500 was up 6 quarters in a row heading into it, which historically was good for the bulls.

After a negative November when stocks are up more than 20% for the year, the usually bullish December actually does better. Well, stocks are up close to 5% this final month of the year, so this played out nicely yet again.

Those were all clues 2021 was going to be strong. Now let’s look at charts and tables we’d classify as interesting.

The Dow hit six 1,000 point milestones in 2021, the most for any one year ever.

We’ve heard a lot about how higher rates were bad for stocks, but history says that simply isn’t true.

Turns out, the first rate hike isn’t all that bad either. We haven’t even seen the first rate hike yet, but it is coming, so don’t get overly worried just yet.

Taking things a step further, stocks have historically done great the year before the first hike in a cycle, gaining the past nine cycles by an average of 15% heading into that first hike. Not so scary at all.

Stocks did great under President Biden, with his first 100 days in office ranking as one of the best ever.

What about 2022? Here are some charts and tables that suggest this bull market still has time left.

The big gains this year may be a good sign for 2022, as the past nine times the S&P 500 was up at least 20% it was higher the following year. Not to mention, the following year has been up 11.5% on average, a better than average return. Remember that 11.5% number….

Mid-cycle years are higher 80% of the time and up an average of 11.5%. Stocks may not gain 20% next year, but we may still see a solid return.

Now let’s end with some fun. These are signals that we would never suggest investing in, but they all indeed have turned out to be correct.

Turns out Zodiac signs can be worth watching, as the year of the Ox has been strong for stocks. This sure played out in 2021.

Don’t ever invest in this, but the Super Bowl Indicator suggested the Bucs winning was a good sign, as NFC wins have meant better stock returns.

Tom Brady in the Super Bowl hasn’t always been good for stocks, but when he wins, they do better. The Bucs winning didn’t hurt things.

In fact, when the Bucs have won the big game, that’s been the best out of all 20 teams to win a Super Bowl.

Golfer Phil Mickelson won a major in 2021, which has been good for stocks historically. This proves everyone likes Lefty.

We don’t know what 2022 will bring, but we can tell you that as the market sends signals, LPL Research will continue to try to capture them for you in our daily blog. We wish all our readers a Happy New Year and many happy returns in 2022.

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

Tuesday, December 27, 2021

The municipal market has been a relative bright spot for core fixed income investors in 2021. While most of the other “safe” parts of the core fixed income universe have generated negative returns this year, the national muni market is up for the year (through December 22). With state and local governments flush with cash due to better-than-expected tax receipts along with generous amounts of federal aid, many municipalities are in good shape. The fundamental picture for many state and local entities improved rather significantly during 2021. Coming out of the COVID-19 economic shutdowns, many states and local governments were concerned that tax receipts would fall significantly. And while the initial impact of restrictions was indeed deleterious, state and local tax receipts have rebounded meaningfully since. Tax revenues are up 17% versus 2020 and 14% above the pre-pandemic period in 2019. Additionally, as the economy recovers, state and local tax receipts should remain supportive of budgetary priorities.

“2021 has been a good year for munis and valuations reflect that good story,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “Continued positive inflows to the asset class along with the improved fundamental story for many state and local governments should provide a positive backdrop for returns next year.

However, the effects of higher tax collections, strong federal support, and robust investor demand has thus far had a positive impact on municipal bond valuations. As such, as seen in the LPL Research Chart of the Day, when looking at the ratio between AAA munis and similar-maturity Treasury yields, a common valuation metric, prices remain elevated at this point. And while the relative valuation story has improved in recent months, munis remain expensive relative to history with 10-year AAA and 30-year AAA munis near the bottom decile of historical valuations, meaning munis have been cheaper approximately 90% of the time. That said, while valuations, per se, aren’t necessarily a reason for yields and spreads to move higher in the near term, they do likely provide a slight headwind to potential future returns. As such, investor expectations should likely be guided downward as outsized returns are, in our view, unlikely.

As 2022 approaches, we continue to favor municipal bonds as a high-quality option for taxable accounts. Federal stimulus is providing support, although valuations relative to Treasuries remain elevated and demand may not get a boost from personal tax rate increases.

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

Thursday, December 23, 2021

As we head into the final week of a strong year for equities markets, we at LPL Research are thinking about the season of giving, to friends and loved ones as we wind down a difficult year in this season of giving, but also to favorite charitable organizations that support those in need and causes we care about. Philanthropic giving crosses political boundaries, can be local or global, and powerfully reflects the individual choices of donors to channel support to where they think it’s most needed. LPL Research wishes all a joyous holiday season and today shares some information about charitable giving that may make everyone’s holiday season a little brighter.

• The habit of end of year giving is tied to the holiday season and end-of-year reflection, but also to the tax calendar. Almost a third of charitable giving takes place in December and just over 10% over the last three days of the year (Source: Nonprofit Tech for Good). With fewer people itemizing deductions, end of year giving may not have the same sense of urgency. The truth is, no-one gives because of the tax deduction. It’s just a small incentive reflecting national values and creates a little extra motivation before the tax year ends.
• Many workplaces match some charitable donations, LPL among them. Check with your workplace to see if they have matching funds. Matching funds may be limited. If your workplace no longer has matching funds available, take pride in your employer’s support of charitable giving and your colleagues’ philanthropic efforts. At the same time, consider starting to give earlier in 2022, since matching funds are often replenished at the start of the year.
• For those with the means, there are charitable investing structures that can help maximize donations, minimize taxes, and build a more sustainable charitable legacy for favorite organizations. Some examples are Donor Advised Funds and for estate planning Charitable Remainder Trusts and Charitable Lead Trusts. Reach out to your financial professional if you think one of these options might be right for you.

LPL Research wishes all a joyous holiday season and looks forward to continuing to provide market perspective to our followers in 2022. Follow LPL Research through our blog, Twitter (@LPLResearch), and YouTube channel (youtube.com.LPLResearch). Happy holidays!

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

Wednesday, December 22, 2021

“If Santa should fail to call, bears may come to Broad and Wall.” —Yale Hirsh

December is widely known as one of the best months of the year for stocks, but most don’t realize that the majority of the gains happen in the second half of the month.

View enlarged chart.

Equity strength at this time of the year is widely known as the Santa Claus Rally, but the term is somewhat misunderstood. Discovered in 1972 by Yale Hirsch, creator of the Stock Trader’s Almanac (carried on now by his son Jeff Hirsch), the real Santa Claus Rally is the final five trading days of the year and first two trading days of the following year, not just December. In other words, the official Santa Claus Rally is set to begin Monday, December 27. Fun trivia this is the latest any Santa Claus Rally can start and latest it has started in 11 years.

So how likely are these seven trading days to be higher? Well, there isn’t a single seven-day combo out of the full year that is more likely to be higher than the 78.9% of the time higher we’ve seen previously during the Santa Claus Rally. Additionally, these seven days are up an average of 1.33%, which is the third-best seven-day combo of the year. Do you believe yet?

View enlarged chart.

Taking a bigger picture view, here is the win rate of any single day. We are in the middle of an incredible 11 day streak with each day having a greater than 50% chance of being higher.

View enlarged chart.

“Why are these seven days so strong?” asked LPL Financial Chief Market Strategist Ryan Detrick. “Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books—or the holiday spirit—the bottom line is that bulls tend to believe in Santa.”

The LPL Chart of the Day illustrates how the Santa Claus Rally has performed since 2000. Usually these seven days are higher, which leads to strength in January and beyond. But what stands out to us is that the times Santa didn’t come, January was lower each time. Now do you believe?

View enlarged chart.

Let’s take a closer look at what happens when things don’t go according to plan. Remember, Yale Hirsch told us, “If Santa should fail to call, bears may come to Broad and Wall.” This is because the New York Stock Exchange is at the corner of Broad and Wall Streets.

Going back to the mid-1990s, there have been only six times Santa failed to show in December. January was lower five of those six times, and the full year had a solid gain only once (in 2016, but a mini-bear market early in the year). “Considering the bear markets of 2000 and 2008 both took place after one of the rare instances that Santa failed to show makes believers out of us. Should this seasonally strong period miss the mark, it could be a warning sign,” explained Santa Claus believer Detrick.

View enlarged chart.

We wish everyone a great end to 2021 and happy holidays!

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

Tuesday, December 21, 2021

At the conclusion of last week’s Federal Reserve (Fed) meeting, the Fed released its dot plot, which showed the median forecast among officials is now for three rate hikes in 2022. Moreover, it showed eight rate hikes over the next three years, which would take the fed funds rate to 2.125%. Finally, the Fed stuck with its view that the long-term “terminal’ rate of 2.5% is still appropriate.

“After last week’s Fed meeting, it looks like interest rate hikes are almost surely coming next year,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “Our main question remains how high and how fast will the Fed hike? The Fed’s ability to hike meaningfully may be limited at this point though so we’re likely staying in a lower rate environment for the foreseeable future.

One of the big risks associated with Fed rate hikes, though, is when the fed funds rate is pushed higher than longer term Treasury yields. In this instance, the yield curve becomes inverted, which means shorter maturity securities out-yield longer maturity securities. Generally, the opposite is true and the yield curve is upward sloping. The slope of the yield curve is an important economic gauge as an inverted yield curve has presaged every recession since the 1970s. So, as seen in the LPL Research Chart of the Day, the Fed’s ability to substantially raise interest rates before yield curve inversion has been trending lower over the last few decades. That is, because the 10-year Treasury yield has been in a secular decline, since the mid-80s really, the Fed’s ability to raise short-term has been impacted.

We think the Fed could start to raise short-term interest rates as early as June 2022 but acknowledge that an earlier timetable is possible. More important, though, is how high the Fed tries to raise interest rates and how quickly it tries to get there. A slow deliberate pace of rate hikes, regardless of when liftoff takes place, will likely lead to a better outcome for the economy, and thus markets, than an overly aggressive one. Certainly the Fed is aware of the risk of hiking interest rates to the point where the yield curve inverts. So, as it stands now, we think the Fed will likely tread lightly after the first few rounds of interest rate hikes next year.

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

December 17, 2021

For those of us who haven’t already started holiday vacations, we all know this was Federal Reserve (Fed) meeting week. In anticipation of how much investors would be focused on the Fed this winter, we put a chart in Outlook 2022: Passing the Baton showing how well stocks have historically handled the start of rate hiking cycles, shown below.

The chart in the Outlook 2022 publication showed stock performance in the 12 months leading up to initial rate hikes over the past 60 years. The numbers are great—an average gain of 11.5% and positive in all 9 cases. But now that the Fed has made its big pivot, the first rate hike may be closer to 6 months away (our expectation is still September). Either way, smaller gains may be more reasonable to expect over the shorter period until the first hike.

As seen in the LPL Chart of the Day, over the past 6 cycles, the S&P 500 has gained 9.5% on average during the 6 months leading up to the first hike (Source: Strategas). Taking a deeper dive, we can see what sectors performed best during this pre-Fed hike periods—materials, industrials and energy.

“The cyclical value sectors such as energy, materials, and industrials have historically done well leading up to the start of Fed rate hkes,” said LPL Financial Equity Strategist Jeffrey Buchbinder.” Every cycle is different but we wouldn’t be surprised to see value stocks make another run as the economy picks up some speed after the latest waves of COVID-19 variants fade—hopefully soon.”

Relative valuations still suggest value may still have some days in the sun ahead of it. But stronger momentum in growth stocks over the past several months suggest keeping any tilt minimal—or leveling out style exposure. Technical analysis still points toward growth.

Bottom line, we think accelerating economic growth and attractive valuations may outweigh the strong technical momentum and pandemic resilience of growth stocks in the near term. So for now, we’re sticking with our recommended modest value tilt, but we plan to stay nimble.

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