November Client Letter

November 7, 2018

Dear Valued Investor:

The potential outcomes of the midterm elections have been dominating the news cycle lately, and we know from history that the markets typically do not like uncertainty. With the Democrats taking control of the House of Representatives, and Republicans maintaining their majority in the Senate, this clarity may bring some reassurance for investors.

Throughout the course of 2018, we have been expecting a return to more normal levels of market volatility (after experiencing very little in late 2016 and 2017), driven by forces such as economic growth, inflation concerns, rising interest rates, trade tensions, and political uncertainty. And in fact, the S&P 500 Index has slipped into “correction territory,” defined as a 10% decline from a recent high, on three separate occasions this year. While potential tariffs and Federal Reserve policy may have garnered most of the headlines, the underlying uncertainty around the U.S. midterm elections has probably also been pressuring markets.

Historically, midterm election years are the most volatile of the four-year presidential cycle. The equity markets are typically unable to sustain any lasting momentum because investors are awaiting the outcome and considering how it may influence policy, the economy, and in turn, the markets. Sometimes, market participants conclude that the potential for political “gridlock”—a divided Congress—is a favorable outcome, as that suggests any extreme political or economic measures are unlikely. Either way, since 1950 the U.S. stock market has displayed a sort of “relief rally” after the midterm elections; so if history repeats itself, we may see strong performance through the rest of 2018 and into the first half of 2019.

Although clarity may be all that the stock market is looking for, there are several important policy implications for investors to consider in light of this year’s results. With the Democrats taking control of the House, “gridlock” may in fact mean a better sense of political balance for many market participants, as it limits the potential for the policy pendulum to swing too far in any one direction. We may also see an infrastructure spending deal and progress on trade, which could provide further support for the markets. On the other hand, the debt ceiling debate may create renewed uncertainty if the Democrats attempt to roll back some of the recent tax cuts in order to reach a deal on the federal budget, and increased scrutiny of the administration may periodically weigh on market sentiment.

 

Overall, the traditional post-midterm election rally may ensue, as investors attempt to identify asset classes, sectors, and industries positioned to benefit from the election results.Although considering the deep domestic political divide, as well as the ever-present global challenges, it would be prudent for investors to prepare for further bouts of market volatility in the year ahead. At the same time, it’s also important to stay focused on those factors that traditionally drive markets in the long run: not political headlines, but rather the solid fundamentals supporting economic growth, the direction of interest rates, and the impact of corporate profits on the financial markets.

As always, if you have any questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

 

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IMPORTANT INFORMATION

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Historical references to the stock market are represented by the S&P 500. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

Tracking #1-789887 (Exp. 11/19)

 

October Client Letter

October 4, 2018

Dear Valued Investor:

The first day of fall may be in September, but the beginning of October is when that autumn feeling really kicks in. Whether you’re mourning the end of long summer days or embracing the return of pumpkin spice at your local coffee shop, October also signals that we’ll soon be closing the books on another year. And while the start of the fourth quarter may trigger a look back on the year so far, it doesn’t mean things are slowing down. 

The third quarter of 2018 was the best quarter for stocks in nearly five years. These market gains were driven by a strong U.S. economy, supported by robust manufacturing activity and job growth. Corporate profits were also a key driver, with corporate America on track for another quarter of 20% growth in the third quarter (based on Thomson Reuters’ estimates). Another positive sign is that both consumers and business owners continue to exhibit high levels of confidence.

The strong stock gains in the third quarter came despite several potential obstacles—pockets of stress in emerging markets, continued trade tensions, another Federal Reserve (Fed) interest rate increase, and uncertainty surrounding the midterm elections. In addition, although the overwhelming majority of recent data reflects a solid backdrop, the housing and auto markets have cooled, tariffs have started to curb some business investment, and growth in Europe is slowing. The positives still appear to outweigh the negatives, but it’s always prudent to keep the full picture in mind—particularly as we begin what historically has been a volatile month.

October is known for its volatility because it has seen some of the most dramatic stock market drops (including 1987 and 2008). However, the other side of the story is that October has been one of the best performing months for stocks in recent decades, especially during a midterm election year.

The upcoming midterms have been dominating media headlines. The outcome may put the future of certain policies in question; e.g., a Democratic Congress could seek to roll back some of the recently enacted tax cuts next year. Yet, the important takeaway for investors right now is that it’s often the uncertainty leading up to the elections that causes more market volatility. Regardless of the results, investors may respond well once we have some political clarity post-election.

Factors like the midterms, trade negotiations, emerging market performance, and additional Fed rate hikes do have the potential to impact stocks, and they capture our attention. It’s important to continue watching all of these developments closely, including how they may influence the economy and markets in the coming months. Looking at the drivers of recent positive performance, however, this momentum could potentially carry us through the end of the year and into 2019.

As always, if you have any questions, I encourage you to contact me.

Sincerely, 

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__________________________

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. 

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. 

This research material has been prepared by LPL Financial LLC.

Tracking #1-1-778093 (Exp. 10/19)

September Client Letter

,

September 6, 2018

Dear Valued Investor:

It’s back to school for students all across the country, and whether it’s the first week in kindergarten, high school, or college, parents and students alike are excited yet probably nervous at the same time. What will the new school year bring—and can it live up to our hopeful expectations? This is likely how many investors may feel about the markets right now, with reasons for excitement and some causes for concern. Overall, when it comes to market fundamentals, the positives may outweigh the negatives—and hopefully the same will be the case for the 2018–19 school year.

Strength in several economic and market indicators is driving optimism among consumers and businesses. The Institute for Supply Management manufacturing index has soared to a 14-year high, while the job market also continues to show robust growth. As we await the figures for August, the economy has produced an average of 215,000 new jobs during the first seven months of the year. These positive economic indicators cement expectations of an additional interest rate increase at the Federal Reserve’s (Fed) September meeting; given the Fed’s gradual and transparent rate hike campaign, however, investors in U.S. markets have thus far taken these increases in stride. 

Along with a steady economy, corporate America continues to deliver solid performances, as second quarter earnings season delivered very strong profit growth. Meanwhile, generally upbeat forward-looking guidance, along with high business and consumer confidence, helps support the outlook for earnings over the balance of the year and into 2019. With this backdrop, the now longest bull market in history may have further to go. 

Although stocks have been performing well, there are some areas of concern. September is historically the weakest month of the year for stocks. There are also some trouble spots in emerging markets, including Turkey and Argentina, which have led to year-to-date losses in emerging market investment strategies. Policy risk remains in the background with the ongoing trade tensions and the upcoming midterm elections. These factors may lead to a pickup in near-term market volatility, but stocks still have the potential to push higher from current levels over the rest of the year.

The longest bull market, and one of the longest economic expansions, means investors may worry that the good times will soon come to an end. But it appears that both the bull market and expansion have room to run. The U.S. economy is enjoying solid momentum, bolstered by the new tax law; business spending is picking up; the manufacturing sector is healthy; and the latest earnings season was one of the strongest on record. So although there are areas to keep a close eye on, and the potential for some ups and downs in the market, we can retain a positive outlook for the final months of 2018. Let’s hope that students, teachers, and parents can also put their worries aside and enjoy their return to another school year.

As always, if you have any questions, I encourage you to contact me.

Sincerely,

pastedGraphic.png

Wayne Rigney

 

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Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. 

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

This research material has been prepared by LPL Financial LLC.

Tracking #1-768037

July Client Letter

July 10, 2018

Dear Valued Investor:

The recently released LPL Research Midyear Outlook 2018: The Plot Thickens is filled with investment insights and market guidance to take us through the rest of the year. So far this year, the return of the business cycle has brought the fiscal policy changes that were expected to propel economic activity and the financial markets higher in 2018. 

Policy remains a key theme to watch. Tax cuts, a more business-friendly regulatory environment, and increased government spending should support consumer spending, business investment, and corporate profits—key drivers of LPL Research’s economic and stock forecasts. The biggest risk to investor confidence this year has been around trade, including new tariffs. When comparing the fiscal measures with the potential impact of increased tariffs, however, the benefits appear to outweigh the costs. With these factors in mind, policy changes should have a positive influence on the economy and markets. 

Another theme that may garner more attention this year is that certain economic and market indicators may have peaked, and that we may have seen the best out of this expansion. However, the context is critically important here. Reaching these points with a strong economic backdrop is expected and indicates the potential for continued growth; in addition, historically, we’ve seen an average of four more years of stock gains after triggering these market signals. So, although we are in the later stages of the economic cycle, it does not appear that a recession is looming.

Against this backdrop, LPL Research maintains the forecasts that were set forth at the beginning of 2018, following the passage of the new tax law. Expectations are for 3% gross domestic product growth for the U.S. economy, with tax cuts, government spending, and deregulation measures providing support. As expected, accelerating economic growth and rising interest rates continue to pressure bonds; thus, flat to low-single-digit returns are projected for bonds (as measured by the Bloomberg Barclays U.S. Aggregate Bond Index). However, it’s prudent to note that high-quality bonds may provide diversification benefits for investors’ portfolios.

Strong earnings are expected to remain the key driver of stock gains, thanks to the benefits of the new tax law. Given that we are in the later stages of this economic cycle, with factors such as increased trade tensions and geopolitical uncertainty at play, greater market volatility may be ahead. But it’s important to remember that experiencing these ups and downs is a normal aspect of our market environment. Also, within the context of steady economic growth and strong corporate profits, there is the potential for stock gains of 10% or more (as measured by the S&P 500 Index).

Overall, economic and market growth is expected to continue in 2018 and beyond, and the LPL Research Midyear Outlook 2018 is here to provide insightful commentary to help you navigate the year ahead. If you have any questions, I encourage you to contact me.

Sincerely,

pastedGraphic.png           

Wayne Rigney              

 

 

 

 

 

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. 

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not ensure against market risk.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency).

Additional descriptions and disclosures are available in the Midyear Outlook 2018: The Plot Thickens publication.

This research material has been prepared by LPL Financial LLC.

Tracking #1-745055 (Exp. 07/19)

August Client Letter

August 2, 2018

Dear Valued Investor,

As we look back on the month of July, the standout stories for the summer so far have been strong U.S. economic growth and surging corporate profits. Although tariffs continue to grab headlines and may raise investor concern, it doesn’t seem that they will have a meaningful impact on second quarter earnings season and, despite more volatility, LPL Research continues to see further stock market gains over the balance of 2018.

Corporate profits are a key element of LPL Research’s stock forecast, so naturally it’s prudent to keep a close eye on the quarterly earnings reports. In addition, one of the big earnings stories so far in 2018 has been whether earnings have “peaked” and if we’ve seen the best results of this bull market. Although this may be true, what’s important to remember here is that earnings growth is still very strong. 

Heading into this season, consensus estimates were calling for another quarter of 20% or higher growth—which would also mark the eighth straight quarterly increase for earnings. Factors such as tax cuts, strong manufacturing activity, higher oil prices (supporting energy), and a lower U.S. dollar (compared with the year-ago quarter) are also supportive of earnings growth. The primary watch-out for corporate profits is the ongoing tension surrounding trade; although some companies are more affected by tariffs, this isn’t expected to impact overall results.

Turning to the U.S. economy, the Federal Reserve (Fed) summed it up well after its two-day policy meeting this week (July 31 – August 1). “Economic activity has been rising at a strong rate,” the Fed’s statement said, thanks to strong consumer spending and business investment. The U.S. economy grew 4.1% in the second quarter to post its strongest quarter since the third quarter of 2014, with fiscal stimulus having a clear impact on consumer and business spending. As expected, the Fed also opted not to raise interest rates at its recent meeting, with the market anticipating the next meeting in September will result in a rate increase.

The reports we’ve seen in the last month continue to support LPL Research’s expectations for continued economic growth and stock market gains. Fundamentals are solid and there don’t appear to be signs of a recession on the immediate horizon. A pickup in market volatility may be ahead, due to the ongoing trade negotiations, upcoming midterm elections, and possibly even the Fed; but it’s important to continue to focus on the fundamental factors that are driving this business cycle forward.

As always, if you have any questions, I encourage you to contact me.

Sincerely,

pastedGraphic.png

Wayne Rigney

 

 

________________________

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. 

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

This research material has been prepared by LPL Financial LLC.

Tracking #1-756185

June 2018 LPL Client Letter

Dear Valued Investor,

The summer months are almost underway, which means that both vacations and midyear check-ins are ahead. As we approach the midpoint of 2018, many of us will take this opportunity to reflect on what we’ve seen so far and what may be ahead for the rest of the year. But we’re not quite there yet! So as we kick off the month of June, here are some valuable takeaways coming out of recent action in Italy and a quick check-in on the U.S. economy.

The impact of Italy’s shift in government has been a hot topic during the past couple of weeks. Three months after Italy’s election, political uncertainty led to heightened concern that Italy’s populist coalition may try to pull out of the European Union and Eurozone (countries that use the euro as their currency). The potential for Italy to operate outside of the Eurozone prompted investors to reassess the risk of Italy’s government debt, leading to large sell-off in Italian government bonds and triggering stocks to fall globally.

In hindsight, markets may have overreacted to Italian political risk. These moves partially reversed after markets digested the news and backed off the worst-case-scenario mindset. Italy isn’t expected to leave the Eurozone, although political unrest may continue, which could weigh on Europe’s outlook. One positive takeaway from the market’s initial reaction, however, is the role that high-quality bonds played. Investors reacted to the sell-off by flocking to U.S. Treasuries, reaffirming that high-quality bonds can be an important element of a well-balanced portfolio, particularly amid stock market volatility.

In U.S. economic news, the big headline was the May jobs report, which was generally positive. The report indicated that job growth may be accelerating, wage growth is increasing, and the unemployment rate is near a 50-year low. Wage growth is not at a level that would alarm the Federal Reserve (Fed), but likely keeps the Fed on track to increase interest rates at its next meeting this month (June 12–13), which is widely anticipated by the markets. This healthy labor market may continue to provide support for the economy and consumer spending.

Overall, the global economic backdrop, particularly in the U.S., appears to remain intact. Although the situation in Italy is an ongoing risk worth monitoring, LPL Research does not believe it indicates a change in the trajectory of the global economy.

Rest assured that as the days become longer and summer unfolds, I will continue to keep a close eye on developments in Italy and around the globe, watching for any potential investment impacts.

As always, if you have any questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

This research material has been prepared by LPL Financial LLC.

RES 81904 0618 For Public Use

Tracking #1-737767 (Exp. 06/19)

May 2018 LPL Client Letter

May 3, 2018

Dear Valued Investor,

May’s arrival has brought warmer weather to many parts of the U.S. (finally), but it also brings talk of one of the most widely cited stock market clichés in history. “Sell in May and go away” is a longstanding investment adage because historically, the six-month period from May through October has been the weakest stretch of the year. However, before you spring into action, it’s important to step back and look at the big picture of what’s really driving our current market environment. The fundamentals of impressive earnings, modest valuations, and a strong economic backdrop may be better indicators to watch.

Looking at these underlying factors of today’s economic and market environment suggests opportunity for further growth, despite this historically weaker season. Here are a few highlights to note:

  • Impressive earnings season. With most companies having reported first quarter results, earnings for the quarter are tracking to a double-digit increase (more than 20%) compared to the first quarter of last year. Guidance for future earnings has also been positive.
  • Solid economic growth. The initial estimate for gross domestic product for the first quarter was a slowdown from the prior three quarters, but it still exceeded expectations. The slowdown seems to be a result of temporary factors, and leading indicators suggest continued growth for the U.S. economy.
  • Reasonable stock valuations. Although stock valuations are slightly above average right now, when considering the positive earnings outlook, low inflation, and low interest rates, stocks don’t appear to be as expensive as some would suggest.

Combined, these factors paint a favorable picture overall for the potential of further market gains. At the same time, it’s prudent not to dismiss the possibility for some seasonal weakness or other risk factors that could impact the markets. The possibility for a modest pullback during this upcoming period remains; for suitable investors, this could present an opportunity to rebalance portfolios and potentially add to equity positions. All in all, for many investors, the main takeaway is to stay focused on the long term, as reacting to seasonal weakness by selling stocks could prove detrimental to the long-term performance of portfolios.

While keeping an eye on historical trends and seasonal patterns is important, as they can provide valuable context to the market environment—they shouldn’t dictate your investment strategy. So don’t let the “sell in May” adage bring you down. Enjoy the warmer weather and extra hours of sunlight, and stick to your long-term investment plan.

If you have any questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

____________________________________

IMPORTANT INFORMATION

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Economic forecasts set forth may not develop as predicted. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This research material has been prepared by LPL Financial LLC.

RES 67364 0518

For Public Use – Tracking #1-726641 (Exp. 05/19)

April 2018 LPL Client Letter

April 5, 2018

Dear Valued Investor:

The month of April has opened with some volatile market swings, accompanied by speculation of an escalating trade war. It’s during times like this that we need to take a step back, avoid getting caught up in the headlines, and look at the big picture of the economic and market environment. In this case, that means focusing on the fundamentals of positive economic growth, a strong earnings outlook, and still low interest rates. These are the factors that may ultimately lead to this market’s recovery and get us back into positive territory.

We’ve been experiencing volatility in the markets since early February of this year, driven first by wage inflation fears (which have since been discounted), and now the big stories are trade concerns and regulatory risk in technology. Concerning trade, the war of words between China and the United States has escalated, but it’s important to note that nothing has been put into effect yet. There is room for negotiation, and a compromise may be reached before these proposed tariffs are put in place. That said, uncertainty about the outcome is weighing on the markets.

However, it’s important to remember that volatility and the process of the stock market bottoming out is often not a one-time sell-off. For example, looking back to late 2015, we experienced a market decline in August but—despite a temporary rebound—volatility continued and the decline did not hit bottom until February 2016. So essentially, this period of volatility extended from August 2015 until February 2016. The important takeaway here is that this volatility could continue for a period of time and it doesn’t necessarily mean we’re entering a bear market.

In fact, having begun 2018 expecting a degree of volatility, LPL Research continues to maintain its forecast for positive stock returns for the year.* They also remain confident in their expectation that a “return of the business cycle”—driven by fundamentals and fiscal stimulus—will lead to continued growth and stock market gains.

The following factors may be supportive of positive market returns:

  • Increased fiscal stimulus thanks to tax cuts and increased government spending
  • Estimated double-digit earnings growth throughout 2018*
  • Still low interest rates, relative to historical averages

The bottom line is that wavering market sentiment can last over a period of weeks (or months). And although you should never be dismissive of risk, the fundamentals may win out. Back in 2015, there were low interest rates but economic growth was slowing and earnings were weakening. Now, we have strong profits and coordinated global growth to support the recovery process.

Market declines and alarming headlines are always going to grab our attention. But that’s when I encourage you to remain focused on the underlying factors that have a longer-term impact on the markets and economy. These factors suggest that the market has the potential to weather this bout of volatility, and we may see positive stock market returns for the year.

If you have any questions, I encourage you to contact me.

Sincerely,

Wayne Rigney

Important Information

*LPL Research’s S&P 500 Index total return forecast of 8–10% (including dividends), is supported by a largely stable price-to-earnings (PE) ratio of 19 and LPL Research’s earnings growth forecast of 8–10%. Earnings gains are supported by LPL Research’s expectations of better economic growth, with potential added benefit from lower corporate tax rates.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

RES 45978 0418

Tracking #1-716923 (Exp. 03/19)

 

Market Watch March 2018

March 22, 2018

Dear Valued Investor:

The first quarter of 2018 is wrapping up, and it’s time to spring forward and look ahead to what we could expect in the coming months. After a large market drop kicking off the month of February, March has been relatively calm for stocks so far. The biggest event of the month was the Federal Reserve (Fed) meeting held on March 21—the first with new Fed Chair Powell at the helm.

As anticipated by the markets, the Fed raised the fed funds rate by 0.25% (25 basis points), bringing its target interest rate to 1.50–1.75%. The Fed also upgraded its outlook on economic growth and kept its inflation projection unchanged.

So what does this latest step forward mean for markets overall? Although sometimes markets react negatively to rate hikes, these increases tend to signal the Fed’s confidence in the U.S. economy. The Fed’s dual mandate seeks to balance the often-competing goals of maximum employment and low, stable inflation. With the economy growing above potential and job growth steady, the Fed’s attention has been increasingly focused on finding a rate hike path that does not lead to any bubbles in markets or cause the economy to overheat.

One of the contributing factors to the market decline in early February was the January employment report, which showed a surprise uptick in wage growth. As a result, this increased concerns regarding inflation and whether a faster path of rate hikes was on the horizon. Since then, fears of escalating inflationary pressures may have faded somewhat, although price pressures could continue to build in the coming months. LPL Research continues to believe the Fed will need to see a sustained pace of higher inflation, and potentially a wage growth number as high as 4% annually, before becoming significantly more aggressive.

In addition to the Fed and inflation, there are a number of factors that could have meaningful implications down the line, including:
• Economic growth: Market participants generally expect the U.S. economy to get a boost from the new tax law, which supports both consumer spending and business spending.
• Earnings: Corporate America produced the best earnings growth in several years during the fourth quarter of 2017, while 2018 has seen the biggest upward revision to S&P 500 Index earnings to start a year since these data have been collected.
• Trade policy: LPL Research believes trade policy is among the biggest risks facing stocks right now. The recently announced tariffs may have limited immediate economic impact, but the big concern is China’s intellectual property trade practices.

Although there may never be a dull moment when watching the markets and economy in this day and age, the latest action by the Fed was taken in stride. However, it is important to acknowledge the possibility for further volatility, given geopolitics and trade protectionism.

Overall, LPL Research’s outlook remains positive for the remainder of 2018, as continued economic and earnings growth may help offset trade tensions.
If you have any questions, I encourage you to contact me.

Sincerely,
John Lynch
EVP, Chief Investment Strategist
LPL Research

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Economic forecasts set forth may not develop as predicted. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.

RES 39195 0318

Tracking #1-712538 (Exp. 03/19)

Market Watch February 2018

February 6, 2018

Dear Valued Investor:

After more than 18 months of nearly uninterrupted advances, the U.S. equity markets started declining last week, with a large sell-off on February 5, 2018. Although it is always difficult to endure these declines when they’re occurring, it’s important to focus on the underlying fundamentals of the economy and the markets, which are pointing to the potential for continued growth in 2018 and beyond.

There are several conditions that help explain this current sell-off. The biggest factor is a stronger than expected January jobs report showed rising wage pressures, which has increased concerns about inflation and possible changes to monetary policy. Certainly, employee costs make up the largest percentage of business expenses, which are typically passed on to consumers in the form of higher prices. Inflation can also subtract from the “fixed” income offered by bonds, causing investors to demand higher yields. In these instances, the Federal Reserve (Fed) usually attempts to slow down demand by raising interest rates. Thus, investors may now fear that monetary policymakers will increase rates more than expected in 2018.

As market interest rates started to climb in response to the wage growth concerns, this triggered further selling among some of the crowded trades. Also contributing to overall investor concerns, further deficit spending measures loom as federal budget negotiations continue, with the potential for another government shutdown set for February 8, 2018. Finally, several leading technology and energy companies reported disappointing profits, despite an otherwise strong earnings season.

While market volatility is never pleasant, it is important for investors to appreciate that market pullbacks are a normal part of investing, and we have not experienced even a 5% drop in the S&P 500 Index since the Brexit vote in June 2016. Indeed, the markets have produced a series of record-setting gains recently amid an absence of volatility. Also consider that volatility has historically increased in midterm election years and the market has a propensity to test a new Fed chair. Given these developments, this market weakness may have been overdue.

LPL Research continues to expect the Fed to increase rates three times this year. As a reminder, although interest rates have begun their climb from historically low levels, the benchmark 10-year Treasury yield has only begun to breach LPL Research’s projected trading range of 2.75–3.25% for 2018. In addition, the Treasury yield curve actually steepened by more than 0.2% last week, a sign of investors’ confidence in the future growth prospects of the economy; there is also a lack of stress in credit markets. As always, fixed income remains a critical part of diversified portfolios, providing liquidity, income, and an ability to help mitigate portfolio risk during periods of equity market weakness.

Investors are encouraged to focus on the many solid fundamentals supporting economic and profit growth. The LPL Research Outlook 2018: Return of the Business Cycle highlighted the transition from monetary to fiscal leadership as a powerful tailwind consisting of tax reform, government spending, and reduced regulation. This combination may support growth in personal consumption and business investment, enabling U.S. gross domestic product (GDP) growth to climb to 3.0% in 2018. Global growth also appears strong, projected to potentially rise 3.7%, as emerging markets continue to benefit from increased investment and Europe continues to improve.

One thing that we all have to remember, as investors, is that market volatility can still occur in healthy markets. It’s important to try and resist the urge to react or let our emotions take hold. Remaining focused on the underlying fundamentals supporting the economy and markets, while maintaining a long-term view, is a valuable strategy toward a better position for potential success.

As always, I encourage you to contact me with any questions.

Sincerely,

Wayne Rigney

 

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IMPORTANT INFORMATION

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. 

Economic forecasts set forth may not develop as predicted.

All market indexes discussed are unmanaged and are not illustrative of any particular investment. Indexes do not incur management fees, costs and expenses, and cannot be invested into directly.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing involves risks, including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. 

Additional descriptions and disclosures are available in the Outlook 2018: Return of the Business Cycle publication.

This research material has been prepared by LPL Financial LLC.

Securities offered through LPL Financial LLC. Member FINRA/SIPC.

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