Wealth Management

Posted by lplresearch

Thursday, December 16, 2021

The Federal Reserve (Fed) ended its two-day Federal Open Market Committee (FOMC) meeting yesterday and there were some notable shifts to monetary policy, although these shifts were largely expected by markets. After months of carefully communicating the Fed’s plan to reduce its asset purchases toward the middle of 2022, Fed Chairman Jerome Powell confirmed that an accelerated plan to reduce its asset purchases and to end its asset purchases altogether by March of next year was now warranted. Powell has noted in the past that the Fed would likely not raise rates while still providing accommodation through its asset purchase plans. By ending the purchase programs quicker, this gives the Fed the “optionality” to increase interest rates as early as May, if necessary.

“This was a bit more hawkish shift than expected,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “Quicker tapering was expected but three rate hikes projected next year is slightly more than what was expected. That said, the Fed’s job, especially from this point forward, is to prove that it can manage the removal of monetary accommodation without slowing the economic recovery.”

Also released was the updated “dot plot”, which provides the individual member’s projections on the future path of interest rates. As shown in the LPL Research Chart of the Day highlighting the Fed’s dot plot, there were some meaningful changes from the previous version. Now, the median dot of the Committee, in aggregate, reflects three interest rate hikes in 2022. Three months ago, the Committee was evenly split between rate hikes starting in 2022 and 2023. Additionally, there was much more agreement among participants that expect rate hikes in 2023 and 2024. The previous release showed much more disparate views between the doves and hawks on the Committee.

While these dot plot projections are not official policy, it does show that there has been a hawkish shift by the Committee over the last few months. That said, left undecided after the meeting is what the future construct of the FOMC will look like. Recently, President Joe Biden officially nominated Jay Powell to a second four-year term as Chairman and elevated current Fed Governor Lael Brainard to Vice Chair of the Committee. However, there are three open seats remaining to be filled. We’ve been told announcements are coming but until those positions are filled, we won’t know for sure how these dot plots today may change in the new year with the new Committee.

View enlarged chart.

Also of note, four times a year, the Fed updates its economic projections for the next several years as well as its longer-term forecasts. The Fed sees 4.0% GDP growth in 2022 (up from 3.8% in September), and higher inflation expectations with Personal Consumption Expenditure headline and core metrics, their preferred inflation measures, at 2.6% and 2.7% (up from 2.2% and 2.3% in September), respectively. However, the Committee sees inflation falling back to its longer-term trend in 2023.

These releases have pulled forward our view on when rate hikes will take place as well. Previously, we had followed Powell’s guidance and thought the beginning of 2023 or late 2022 was when the first hike could take place. Now, with this Powell Pivot, we think September is the likely start date of rate hikes but acknowledge rate hikes could come earlier. However, what is more important to markets, we believe, is how high and how fast the actual interest rate hiking campaign takes place. A slow deliberate pace of rate hikes, regardless of when lift-off takes place, will likely lead to a better outcome for the economy, and thus markets, than an overly aggressive one.

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 15, 2021

As we head into the end of 2021, here are five charts that caught our attention.

First up, last week was one of the best weeks of the year for stocks, and that could be a good sign. “It turns out that big weeks like last week usually have the bulls smiling,” explained LPL Financial Chief Market Strategist Ryan Detrick. “23 out of the past 25 times the S&P 500 Index gained at least 3.8% in a week, it was higher three months later.”

As shown in the LPL Chart of the Day, the S&P 500 closed up more than 3.8% in a week on 25 occasions since March 2009, with last week being number 26. As you can see, the future returns 1-, 2-, and 3-months out are extremely strong.

View enlarged chart.

Second, we are nearing the second half of December, which historically is when stocks tend to do well during this usually bullish month. In fact, returns actually get better if the S&P 500 is negative in November (check) and up more than 20% heading into the final month of the year (check).

View enlarged chart. 

Third, the second year of the Presidential Cycle tends to be the worst of the four-year cycle and it is up the least often as well. Although we expect stocks to still do well in 2022, this is a reminder it likely won’t be another run-away bull market like we saw in 2021.

View enlarged chart.

Breaking this down by new Presidents versus re-elected Presidents and it is quite clear that year 2 under a new President historically has been quite weak. Then again, this said year 1 shouldn’t be very good and that sure hasn’t been the case this year.

View enlarged chart. 

Lastly, breaking things down by quarters, it becomes very clear the next three quarters are some of the worst of the four-year cycle, before a very strong fourth quarter.

View enlarged chart.

For more of our thoughts on these things, along with the Fed meeting, inflation, and more, please watch our latest LPL Market Signals podcast 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

Thursday, November 18, 2021

The S&P 500 closed at a record high on Friday, but only two of its eleven underlying sectors could say the same. The first was technology, which as we noted last month, has been showing consistent relative strength since May and was boosted by a more than 10% gain from Apple for the week. However, the other sector to do so may surprise people: consumer staples.

We haven’t talked much about consumer staples recently, because as one would expect in a strong bull market, they have consistently lagged the broad market. Since the S&P 500 bottomed in March 2020, staples have underperformed the S&P 500 by more than 30% and the sector’s 14.9% year-to-date return is just over half that of the broader benchmark.

Why is that? Well consumer staples consist of some of the most steady and reliable companies on the planet, and are a classic defensive sector. No matter the economic environment, people still need to buy their core essentials, whether that is food, beverages, alcohol, tobacco, or household items like paper towels and detergent. Sectors like this have historically outperformed during recessionary or risk-off environments, but the price for that is usually underperformance in strong bull markets like we have seen over the past year and a half. That dynamic is what has actually got our attention, because as shown in the LPL Chart of the Day, not only have consumer staples broken out in absolute terms, but relative to the S&P 500 they have recently broken a downtrend that stretches back to this year’s first quarter.

“The S&P 500 has rallied back to its highs,” said LPL Financial Technical Market Strategist Scott Brown. “But since Thanksgiving the top performing sectors are technology, utilities, consumer staples, and healthcare, while many cyclical sectors are still down. Though we remain positive on stocks over the intermediate-term, the recent action makes us skeptical of the rally so far in December.”

To be clear, we still believe the economic environment shapes up favorably for stocks in 2022. And the recent flight to safety may just be investors adding some protection ahead of Wednesday’s much-anticipated Federal Reserve (Fed) meeting where the Fed is expected to speed up the pace of its bond buying program, and possibly offer clues into future rate hikes. But regardless of what the Fed says, more relative strength from defensive sectors is not something that equity bulls want to see over the next few weeks.

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

Friday, December 10, 2021

The Consumer Price Index, the most well known measure of inflation, climbed 6.8% over the last year through November, according to data released today by the Labor Department. While in line with economists’ consensus expectation, that’s the highest level since 1982. The “core” inflation reading, which excludes the more volatile food and energy components, also continued to climb and while substantially lower, at 4.9%, stood at a 30-year high. We believe inflation will peak relatively soon and see inflation starting to settle down as supply chain constraints loosen and the labor pool expands, but the key question is when?

“We expect the path for inflation over the next year is decisively lower,” said LPL Financial Asset Allocation Strategist Barry Gilbert, “but we may still push higher for the next 1-3 months. The most recent COVID-19 surge, the unknown threat from Omicron, and still restrained labor force participation do continue to cloud the outlook and the Federal Reserve is watching.”

As seen in the LPL Chart of the Day, the core reading also continues to climb, although part of this continues to be the most COVID-impacted prices, such as new cars, used cars, and apparel, which in the current context aren’t acting very core-like. Rent inflation, the most important core element, is showing a pick-up but at a slower rate, climbing 0.4% in November and 3.5% year over year.

This report has been somewhat de-risked because of the market’s adjustment to nearly pricing in 3 rate hikes by year-end 2022. As a result we would not expect this report to meaningfully move rates or Federal Reserve rate expectations. The initial response from markets this morning was slightly bullish for both bonds and stocks. Some of the most hawkish market participants may find some comfort from an in-line report, but overall we do not think it changes the Fed’s thinking at this point.

Bottom line, we see a first quarter peak in inflation, Fed bond purchases to end in March/April, and liftoff potentially in September 2022. However, further progress balancing labor supply and resolution of supply chain disruptions that generate more persistent elevated inflation than we anticipate could potentially pull the Fed’s timetable 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 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 9, 2021

The U.S. Bureau of Labor Statistics (BLS) released its monthly Job Openings and Labor Turnover Survey (JOLTS) report this week revealing that the number of American workers who are voluntarily quitting their jobs may have peaked, after hitting record levels in September. The overall quit rate fell from 3% in September to 2.8% in October, but this still equates to almost 4.2 million people who left their jobs during the month. While not always true, the most common reason for voluntarily leaving a job is to start a new one. Private sector quit rates also dipped to 3.1% from the record 3.3% levels seen in August and September.

“It may still be too early to call, but based on the latest JOLTs report, we could have seen “peak quit” as less people voluntary left their jobs in October compared to September” explained LPL Financial Chief Market Strategist Ryan Detrick “In the intermediate term, fewer quits should help ease wage-inflation pressures, but it has been a relatively advanced leading indicator for wage growth so inflationary pressures could continue well into 2022”

As shown in the LPL Research Chart of the Day, private sector quit rates have fallen from recent record levels, but the quit rate has tended to lead wage growth by up to 12 months:

View enlarged chart. 

Most industries have seen a reduction in their quit rates from prior month’s peaks with only mining and logging, and professional and business services having more trouble holding onto staff in October than prior highs. Accommodation and food services continued to have the highest quit rate at 6%, down from a peak of 6.6% in August, with retail trade next highest at 4.4%, but again this was down from an August peak of 4.8%.

The JOLTS report also showed signs that the U.S. labor market was tightening as job openings jumped to 11.03 million – within a whisker of the 11.1 million record set in June of this year. The demand for labor increased as Delta worries subsided and the economy continued to reopen, but hires failed to keep up – falling slightly to 6.46 million new hires in October. As a result of the expansion in labor demand combined with the reduction in new hires, the ratio of unemployed to job openings hit a record low of 0.67:

View enlarged chart.

All eyes and ears will be on the Federal Reserve (Fed) next week for December’s Federal Open Market Committee (FOMC) as it digests this jobs data. The FOMC will consider how close we could be to full employment and the potential for further wage inflation to contribute to overall inflation above 2% for an extended period. The Fed defines maximum employment, somewhat ambiguously, as a “broad-based and inclusive goal that is not directly measurable and changes over time, owing largely to nonmonetary factors that affect the structure and dynamics of the labor market”. A decent proxy for maximum employment over the past two cycles has been when the pool of available labor (PAL) has fallen to around 11 million people. Former Fed chair Alan Greenspan created the term pool of available labor, and it’s defined as people who are currently unemployed plus people who are not in the labor force but say they want a job. Based on the latest numbers, this level will probably be reached at some point in 2022.

View enlarged chart.

The FOMC will likely look at the jobs data as pointing to an inflation jump in the short-to-intermediate term; however, we believe that longer-term inflation will remain reasonably well contained. Market-based measures can tend to overshoot in both directions based on prevailing sentiment, and we think ultimately that it’s unlikely that inflation remains elevated in the long run.  Restarting the economy after a recession often creates supply disruptions (including labor) that feed into inflation, but we anticipate in the long term that the forces limiting inflation, such as globalization and technology, will prove stronger than short-term inflationary pressures.

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 7, 2021

After months of carefully communicating the Federal Reserve’s (Fed) plan to reduce its asset purchases toward the middle of 2022, Fed Chairman Jerome Powell seemingly sped up that timetable during his Congressional testimony last week. While not officially announced policy yet, the expectation is that the Fed will now accelerate its tapering plans and end its asset purchases altogether by March or April of next year. Markets took this hawkish pivot as a sign that the Fed would also accelerate its plans to increase short-term interest rates. As a result, we’ve seen a notable reaction out of the Treasury market recently.

“We’ve seen a lot of volatility out of bond markets recently, but we think the markets are getting ahead of themselves here,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “Next week’s Fed meeting is an important one and one that will hopefully help calm markets.

As seen in the LPL Research Chart of the Day, the yield curve has flattened recently as the spread between short-term and long-term Treasury yields has narrowed significantly to the lowest levels since December 2020. As a reminder, the shape of the yield curve is an important economic barometer and is seen as a reliable predictor of recessionary risks. That is, as the spread between short-term and longer-term interest rates narrows, the probability of recession has historically increased. Moreover, an inverted yield curve, when that spread becomes negative, has been one of the strongest signals that a recession is likely to occur over the next twelve months. hile we’re still a long way from full inversion, the yield curve flattening as aggressively as it has—before the Fed has even started to raise interest rates—may be a sign that the Fed won’t be able to hike rates too much before negatively impacting economic growth.

Last week’s “Powell pivot” and the resultant action in the bond market makes next week’s Fed meeting all the more interesting. With the yield curve flattening as drastically as it has, Powell may need to reassure markets that the Fed won’t raise short-term interest rates as aggressively as markets are expecting. We continue to think the inflationary pressures that have caused the recent hawkish shift will abate over the course of next year, which should allow the Fed to hold off on aggressive rate hikes. As we point out in our 2022 Outlook: Passing The Baton, we think the Fed would like to be patient in removing monetary accommodation but a Fed policy error is a risk that we continue to watch out for.

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

Friday, December 3, 2021

The domestic economy added just 210,000 jobs during November, well below Bloomberg-surveyed economists’ consensus forecast for a gain of 550,000 and below October’s revised tally of 546,000. The net revision to prior months was positive but only by 82,000.

The modest 23,000 gain in leisure and hospitality jobs, which were up 170,000 in October, and a 20,000 drop in retail jobs don’t make much sense given solid retail sales data of late. That could set up a positive reversal from revisions next month, though that potential bump will play some tug-of-war with the emergence of the Omicron COVID-19 variant, which came after the November survey period ended.

As shown in the LPL Chart of the Day, for the past four months the pace of job gains has been well below the pre-Delta variant levels of near 1 million back in June and July. However, there are a number of reasons to be optimistic that job growth picks up in early 2022, assuming the Omicron variant doesn’t get in the way.

“The job growth number is disappointing, no doubt, especially considering the survey period fell before we even know the name of the newest Covid-19 variant,” noted LPL Financial Equity Strategist Jeffrey Buchbinder. “While Omicron may curb hiring a bit over the next month or two, we remain confident in our expectation for strong job gains and above-average growth in the U.S. economy in 2022.”

View enlarged chart.

The story was clearly better when looking at the unemployment rate, derived from the household survey rather than from employers. The unemployment rate unexpectedly fell from 4.6% to 4.2% in November as workers—in an encouraging sign—came off the sidelines (1.14 million of them), lifting the participation rate by 0.2% to 61.8%, a post-recession high but still well off pre-pandemic levels.

Inflation data also painted a somewhat reassuring picture. The year-over-year increase in average hourly earnings rose less than expected at 4.8% (+0.3% month over month), below consensus expectations of 5.0% and 0.4%, and not enough to keep up with the Consumer Price Index (CPI) over the same period. It’s reasonable to conclude that the increase in labor participation helped limit wage increases, but we have a long way to go there still. The labor market is still 3.9 million jobs below pre-pandemic levels and the labor market remains under-supplied, as noted above. In other words, further improvement in participation will still be needed to help contain inflation pressure.

Some will argue that this report will make the Federal Reserve (Fed) think twice before accelerating tapering of its bond purchases, but we’re not so sure.

“There were a number of positives with this jobs report,” explained LPL Financial Fixed Income Strategist Lawrence Gillum. “Labor force participation increased and the unemployment rate fell—both of which point to a continued strong jobs market. That may give the Fed reasons to speed up its tapering plans.”

Overall, this report is a disappointing reminder that we’re going to have to wait longer for the booming jobs numbers that we still expect to see. We continue to expect more people to get back to work in the months ahead, in an environment of strong labor demand, which can help alleviate wage pressure and firm up the economic growth outlook. Omicron is a risk but based on the information we have today, we do not expect that variant, or any others, to meaningfully slow the job market recovery 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.

This Research material was prepared by LPL Financial, LLC.

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

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

If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.

These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:

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

Posted by lplresearch

Thursday, December 2, 2021

With recent concerns about Federal Reserve (Fed) policy and the Omicron variant, it’s easy to forget that we’re in a period of economic acceleration, although now with some added uncertainty. Yesterday’s manufacturing data confirmed that overall positive trend. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) remained elevated at 61.2 in November, basically in line with the consensus expectation. The competing manufacturing PMI from Markit, at 59.1, was a solid upside surprise versus consensus.

“Manufacturing is still facing supply chain challenges, but demand remains strong and factory activity is accelerating to meet it,” said LPL Financial Chief Market Strategist Ryan Detrick. “There is added uncertainty looking ahead, but manufacturing still looks well positioned for continued growth.”

The report had strong internals. As shown in the LPL Chart of the Day, new orders, an important leading indicator, climbed back above 60 after dipping below that level last month. The reading on production also improved. The combined story is that demand remains strong, and while businesses remain constrained by supply chains they are highly motivated to find solutions or workarounds.

But while there are some tentative signs that supply chain problems have peaked, key readings remain at challenging levels. Supplier deliveries and prices paid, while off the peaks hit in May and June respectively, are still areas of concern. And hiring growth, while showing expansion for the third straight month, remains tepid as businesses continue to struggle to find qualified workers.

Overall, the report did not change the general narrative on the state of the economy, but did reinforce that overall economic activity, as well as the near-term outlook, are quite solid despite headwinds. We received similar feedback from the release of the Fed’s Beige Book yesterday, a qualitative assessment of the economy in each of the Fed’s 12 districts based on conversations with local banks and businesses. Similar concerns appeared but the overall assessment remained optimistic.

We’re currently in a “cup half full or half empty” economy, depending on your focus, with the truth that both are correct. The economy is still being confronted by unusual challenges and an uncertain outlook, but at the same time households and businesses remain extraordinarily resilient. Overall, we still expect solidly above-trend growth well into 2022, and yesterday’s data provided confirmation that we’re still heading in that direction.

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
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• May Lose Value

Posted by lplresearch

Market Blog

Wednesday, December 1, 2021

Here comes December, historically a pretty solid month for stocks, but now we have the Omicron variant wreaking havoc on markets. “What a difference a week makes. A week ago stocks were at all-time highs and the economy was strong. Now all we have are uncertainties and questions,” explained LPL Financial Chief Market Strategist Ryan Detrick. “As of now we’re optimistic that stocks will sidestep the new variant worries, but we recommend investors buckle up their seatbelts, as the end of 2021 could be a bumpy one.”

Here are six things to think about as we head into the jolliest month of them all.

First, historically, the S&P 500 Index has gained 1.5% on average in December, which is the third best month of the year with only April and November better. But as you can see here, over the past 10 years, December has been much weaker. Of course, much of this was due to a huge 9.2% drop in 2018 (which we’ll get to soon enough).

View enlarged chart.

Second, some more good news is December has been up 74.3% of the time, more than any other month of the year.

View enlarged chart.

Third, back to that massive drop in 2018. Only once in history was December the worst month of the year for the S&P 500 and it was indeed in 2018. Three times it was the second worst month of the year, in 1968, 1980, and 1996. The worst monthly return so far this year was a 4.8% drop in September.

Fourth, stocks usually don’t get moving until the second half of the month, right as the holiday good feel vibes start to come out.

View enlarged chart.

Fifth, this year is in rare air, as all 11 months have made a new all-time high so far. Should the S&P 500 make new highs in December that would be a perfect 12 for 12, matching 2014 as the only years to complete this incredible feat.

View enlarged chart.

Sixth, as we show in the LPL Chart of the Day, it turns out that when stocks are up more than 20% for the year heading into December (like 2021), the final month actually does better, up 1.7% versus 1.5%. Also, it has been higher eight of the past nine times the year was up more than 20% heading into the final month.

View enlarged chart.

Lastly, for more of our views on December, Omicron, another four years for Powell, and more, please watch our latest LPL Market Signals podcast 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

For Public Use – Tracking 1-05218076

Posted by lplresearch

Tuesday, November 30, 2021

Financial markets tend to be relatively quiet the day after Thanksgiving but this year was a notable exception. With the news that a new COVID-19 variant—Omicron—had been discovered and is spreading quickly, prices of risk assets fell and safe-haven assets rallied on Friday. Within the U.S. Treasury market specifically, yields collapsed dramatically across the yield curve (yields fall when prices go up and vice versa) once again reasserting Treasury securities as safe-haven assets. As shown in the chart below, the yield on 10-year Treasury securities fell by more than 16 basis points (0.16%) on Friday, which was the largest one-day decline in yields since the COVID-19 lockdowns in March 2020. With this price action though, investors were left wondering if the bond market is signaling a return to COVID-19 induced lockdowns and thus a meaningful economic slowdown to follow.

“Bond markets are on edge right now. With a new COVID variant and potential changes in monetary policy expectations, we’ve seen rate volatility increase lately” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “And these concerns are being exacerbated by poor liquidity in the Treasury market. Unfortunately, that means we’re likely to continue to see elevated levels of volatility in the near term.”

While it’s still too early to know the severity of the new variant and the economic implications, we think the bond market’s reaction on Friday wasn’t solely due to the Omicron news. While certainly serious, the Omicron news was likely exacerbated by poor liquidity in the Treasury market. As seen in the LPL Research Chart of the Day, the Bloomberg U.S. Government Securities Liquidity Index, which is an index that measures the prevailing liquidity conditions in the U.S. Treasury market (higher index levels equal less liquidity), shows that liquidity conditions in the Treasury market are the worst they’ve been since March 2020. As such, we caution reading too much into daily price moves, in either direction, as the Treasury market is currently set up to, frankly, overreact to news flow. We think the big move lower in yields on Friday was an example of this overreaction. That said, Friday’s directional price action within the Treasury market is a reminder that Treasury securities continue to be the best diversifier during equity market sell-offs and they still likely make sense within a diversified asset allocation.

IMPORTANT DISCLOSURES

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

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. They are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

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