One constant in life is change. During the past year and a half, we have experienced more change than any of us bargained for. Change is disruptive—but also brings opportunities. For investors right now, there is no shortage of changes to think about, but those changes may set the stage for the next leg higher for this powerful and still relatively young bull market.
The trajectory of the U.S. economy has changed recently because of the Delta variant of COVID-19 and related disruptions to companies’ supply chains. According to the Federal Reserve Bank of Atlanta’s estimate, the growth rate of gross domestic product (GDP) for the third quarter is tracking to just 1%, down from 6% two months ago. Rather than the start of a new downtrend, however, we expect growth to pick up through year-end as further progress is made beating COVID-19.
The stock market changed paths last month (consistent with historical seasonal patterns) as the S&P 500 Index experienced its first 5% pullback since October 2020. The good news, however, is that the fourth quarter has historically been the best for stocks with an average gain of 4%. As we look to next year, if the U.S. economy produces above-average growth as we expect, double-digit gains for stocks would be a reasonable expectation.
The Federal Reserve (Fed) may experience a big change early next year. Fed Chair Jerome Powell’s term is up in February and his reappointment by President Biden is not assured. Mr. Powell’s progressive critics don’t believe he is tough enough on banks. The Fed is also about to start tapering its massive $120 billion per month bond-buying program before embarking on an interest rate−hiking campaign. That’s a lot of change.
One thing we hope doesn’t change is that the U.S. government keeps paying its bills. The debt ceiling, which has been raised 78 times since 1960, will need to be raised by October 18, according to Treasury Secretary Janet Yellen—or the country could (inconceivably) default on its debt. Congress will figure out a way to get this done but the political game of chicken could cause some jitters for markets if not resolved quickly.
Democratic policymakers are trying to effect a lot of change with the nearly $5 trillion in proposed spending on infrastructure and social programs. The two proposals will likely be scaled back closer to a combined $3 trillion to secure support from moderate Democrats (the $1.2 trillion hard infrastructure package has bipartisan support). This spending will come with tax increases to help pay for it, but that won’t stop the federal debt from piling up. Thankfully that debt is cheap to service with interest rates still low.
That’s a lot of change. These changes create uncertainty, but markets may have already priced them in. The outlook for the U.S. economy still looks bright. Corporate profits are growing strongly. Low interest rates are supportive, and while inflation is still elevated, the worst of it may be behind us.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
Important Information
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.
All data is provided as of October 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
The bull market continues, with the S&P 500 Index now up seven months in a row. Stocks have impressively gained 20% year-to-date, with the S&P 500 making 53 new all-time highs before the end of August—another new record. All of this has happened with very little volatility, as the S&P 500 hasn’t had so much as a 5% pullback since last October.
We came into this year expecting a stronger economy and robust stock market, but even we are surprised at just how resilient things have been. Earnings help drive long-term stock gains, and what we’ve seen from earnings so far in 2021 is a big reason stock returns have been so impressive. A record-breaking second quarter earnings season saw more than 86% of S&P 500 companies beat their consensus earnings estimates, the highest ever recorded and well above the 75% five-year average. S&P 500 earnings are now 26% above pre-COVID-19 levels based on the 2021 consensus estimate, helping to justify stocks at current levels.
Another reason stocks have been so strong is Federal Reserve (Fed) monetary policies. The Fed is expected to begin to taper its monthly bond purchases (currently $120 billion), but it appears to be committed to leaving rates low for the foreseeable future. The Fed likely won’t consider increasing rates until the employment picture improves significantly, and it will be leery of quickly removing stimulus after the deepest recession of our lifetimes, especially if COVID-19 is still influencing behavior. We believe this historic Fed accommodation will continue to be a tailwind for equities.
Worries are adding up though, even as stocks hit new highs. Supply chain disruptions are contributing to higher input prices in select industries. There are concerns about the future of Afghanistan. The highly contagious Delta variant has nearly 100,000 Americans nationwide currently hospitalized. And, China’s regulatory crackdowns could lead to further bouts of volatility. As a result, domestic consumer confidence has taken a hit recently, which could lead to a weaker-than-expected third quarter for the U.S. economy. However, if Delta concerns ease, any consumption that is lost in the third quarter will likely be made up in the fourth quarter.
Additionally, late summer through early fall has been a seasonally volatile period for stocks historically. Although stocks shook off the traditionally weak August, September is upon us—and this month is historically the worst of the year for stock returns. Not to mention October is historically the most volatile month of the year for stocks. Also, the second year of a bull market has historically seen stocks pull back after big gains in year one.
Looking ahead to the final four months of the year, we remain positive on stocks and the U.S. economy. However, stocks haven’t pulled back 5% for nearly a year, and we believe investors should be on alert for potential seasonal volatility, aiming to use it as an opportunity when stocks go on sale. They say the stock market is the only place where everyone runs out of the store screaming when things go on sale. It’s good to have a plan in place when that sale comes along.
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.
All data is provided as of September 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Six months and counting. That is the current monthly winning streak for the S&P 500 Index. To take that a step further, this key equity benchmark has posted gains in 13 of the last 16 months—dating back to the March 2020 low. With stocks nearly at a double from those lows, it has indeed been hard to quibble about what stocks have provided recently.
The primary upside equity catalyst in July appeared to be another healthy earnings season. So far, with over 60% of S&P 500 companies reporting results, 88% have beaten their earnings estimates. This would be the highest ever recorded if it stands, according to FactSet—and well above the 75% five-year average. There’s more. Add in the steady recent decline in interest rates, which help with equity valuation calculations, and you get an equity market on a hot streak.
Meanwhile, the Federal Reserve Bank (Fed) has, so far, remained relatively quiet about its plans to roll back its historic accommodation. Its recent two-day meeting closed with little fan-fare and negligible new information. Monetary policymakers are still discussing a plan to taper bond purchases that we expect to see uncovered in the fall.
Second-quarter U.S. GDP was reported in the last week of July. Although the 6.5% reading (quarter-over-quarter annualized) was below the Bloomberg consensus forecast of 8.4%, consumer spending exceeded expectations. Moreover, inventories declined at their second-worst rate in 12 years, setting up a possible boost in coming quarters when those inventories are replenished. While the post-COVID economic rebound has certainly been robust, supply chain issues continue to take some edge off growth.
Although we booked a lot of good news in recent months, we have now come upon a typically volatile period for stocks. The months of August and September have historically been a bit choppy as trading volume tends to dissipate and it may take less selling to move the major averages lower. That could be something investors will want to keep an eye on now that August has arrived. Also, consider that the second year of a bull market has historically brought more ups and downs.
Looking ahead, our stock market outlook remains positive as fundamental drivers have been robust, though we acknowledge that valuations are elevated. The latter point puts us on the lookout for a pullback that we believe is overdue, given the S&P 500 has not fallen as much as 5% since October 2020. The typical trading year brings several 5%-plus pullbacks and potentially one correction of the 10% variety. Should we get one, we believe investors may want to step in to do some quick bargain-hunting, as we would not expect a drawdown to last uncomfortably long. That said, stocks have come a long way and investors may want to double-check their allocations against their risk tolerance. Getting too far out over one’s skis is never a good idea.
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.
All data is provided as of August 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had
expected. As we were writing our Outlook for 2021 in late 2020, our economic views were
significantly more optimistic than consensus forecasts—but in retrospect, not nearly
optimistic enough. Our theme was getting back on the road again and powering forward.
But as the economy accelerates to what may be its best year of growth in decades, power
has been converted to speed and we’re trading highways for raceways.
Speed can be exhilarating, but it can also be dangerous. The overall economic picture
remains sound, likely supporting strong profit growth and potential stock market gains. But
the pace of reopening also creates new hazards: Supply chains are stressed, some labor
shortages have emerged, inflation is heating up—at least temporarily—and asset prices
look expensive compared to history.
Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021:
Picking Up Speed, we help you keep your eyes on the road ahead. The next stretch may
be a fast one and will have its share of opportunities, but also new risks to navigate. As
always, sound financial advice can be as important as ever to help steer you through the
environment and put in the miles toward meeting your long-term financial goals.
https://secureservercdn.net/198.71.233.153/16c.563.myftpupload.com/wp-content/uploads/2021/08/Screen-Shot-2021-08-16-at-10.35.58-AM-1.png?time=16343639142881074Hollyhttps://secureservercdn.net/198.71.233.153/16c.563.myftpupload.com/wp-content/uploads/2017/03/RigneyHorizontalLogo.pngHolly2021-08-16 11:24:162021-08-16 11:42:11Mid Year Outlook 2021
In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had expected. Speed can be exhilarating, but it can also be dangerous. In our view, the overall economic picture remains sound and will likely support strong profit growth and additional stock market gains. But the pace of reopening also creates new hazards: supply chains are stressed, some labor shortages have emerged, inflation is heating up—at least temporarily—and asset prices look expensive compared to historical figures.
Markets are always forward looking, and in LPL Research’sMidyear Outlook 2021: Picking Up Speed (Due out on July 13), we help you keep your eyes on the road ahead. The next stretch may be a fast one and will have its share of opportunities, but also new risks to navigate. As always, sound financial advice can be as important as ever to help steer you through the environment and put in the miles toward meeting your long-term financial goals.
The U.S. economy has surprised nearly everyone to the upside as it speeds along—thanks to vaccinations, reopenings, and record stimulus. The growth rate of the U.S. economy may have peaked in the second quarter of 2021, but there is still plenty of momentum left to extend above-average growth into 2022. Despite the natural challenges of ramping back up, the recovery still seems capable of providing upside surprises, and in the end, we could have our best year of real GDP growth since the early 1980s.
Although higher taxes and more regulation are likely coming, an extraordinary amount of support from the Federal Reserve (Fed) and more than $5 trillion in fiscal stimulus so far (with more coming) should continue to support the stock market and economy for the rest of 2021.
Speaking of the stock market, we expect the robust economic recovery to continue to drive strong earnings growth and support further gains for stocks. Don’t forget though, after a more than 90% gain off the March 23, 2020, lows for the S&P 500 Index, some choppy action during the historically challenging year two of a bull market would be perfectly normal.
Turning to bonds, it has been a historically tough year, as yields surged earlier this year. Should the economy continue to improve, the door would be open for stocks to continue to do quite well, but we will always appreciate bonds’ important role in a portfolio as a source of income and as a potential diversifier during equity declines.
Midyear Outlook 2021: Picking Up Speed was designed to help you navigate a year in which economic conditions may continue to improve. Understanding the road immediately ahead is essential for navigating its twists and turns, but it will be thoughtful planning and sound financial advice that will keep us on the journey.
The first half has been a good one for investors. While the road ahead may bring more gains in the second half, it might be a bumpy ride. Please contact me if you have any questions.
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.
All data is provided as of June 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
As we move into June, a path to normalcy is coming quickly with stadiums allowing full capacity, restaurants filling up, and summer vacations in full swing. Meanwhile, the U.S. economy continues to recover remarkably quickly and the stock market is near all-time highs. Although there are many positives, a lot of this good news could very well be priced into stocks. Companies are having trouble finding workers, while higher inflation has many wondering whether this means the Federal Reserve is behind the curve and will need to quickly tighten monetary policy to stave off inflation. Add to that higher taxes and more deficit spending are likely on the way, causing a lot of things for investors to worry about.
The U.S. economy continues to open up faster than even the most optimistic economists expected at the start of the year. Much of this is due to COVID-19 cases hitting new lows and restrictions being lifted across our country. The U.S. economy has likely already recovered all of its lost output from 2020, with U.S. gross domestic product (GDP) expected to grow close to 10% in the second quarter of 2021 (source: Bloomberg). As of now, this year is on pace to be the best year for GDP growth since the early 1980s, bolstered by fiscal and monetary stimulus.
First-quarter earnings season is over, and it was simply amazing. The percentage of S&P 500 companies beating earnings per share targets (87%) and upside to revenue growth (over 4 percentage points) were both the highest that earnings data aggregator FactSet has ever recorded. The 52% year-over-year increase in S&P 500 Index earnings per share came in more than double the 24% estimate as of April 1. Lastly, overall earnings estimates for 2021 have increased 12% this year, right in line with the return from equities.
Strong economic growth and massive stimulus has brought with it major worries over the economy potentially overheating. The Consumer Price Index (CPI) for April sparked much of the worries, with the core reading (excluding volatile food and energy prices) rising 0.8% month over month, the hottest since the early 1980s (U.S. Bureau of Labor Statistics). You are likely seeing higher prices when you go to the grocery store or fill up your car, making this a real concern. Problems filling jobs and supply chain issues are adding to the inflation pressures on top of the pent-up demand coming through as the economy fully reopens.
Although these concerns are real, longer-term inflation should come back to trend. Technology, globalization, the Amazon effect, increased productivity and efficiency, automation, and high debt (which puts downward pressure on inflation) are among the major structural forces that have put a lid on inflation the past decade plus—and will likely continue to do so.
The next several months are historically the most volatile of the year for investors and I wouldn’t be surprised to see that happen once again. In general, investors should continue to favor stocks over bonds in their portfolios, as appropriate. And should there be any downside volatility, you may want to consider using the weakness to buy stocks at cheaper prices given the still favorable economic backdrop and strong company fundamentals.
Most importantly, go out there and plan a fun vacation this summer!
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.
All data is provided as of June 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
As the calendar has turned to May, the popular “Sell in May and Go Away” stock market cliché is getting a lot of airtime. This is the idea that the stock market tends to be weakest between May and October (and strongest between November and April). Stocks have done so well recently that preparing for a pause in the rally makes sense. A lot of good news is priced into stocks. Worries about the Federal Reserve tightening its monetary policy may intensify this summer as inflation picks up, potentially pushing interest rates higher. Tax increases are probably coming in 2022, and deficit spending continues largely unabated.
Investors have not been well served recently by following the “Sell in May” pattern and avoiding stocks from May through October. Over the past decade, during that six-month period the S&P 500 Index was higher eight out of 10 times, with an average gain of 3.8%. Going back to 1950, even though the May-through-October period has been the weakest, stocks have gained 1.7% on average and have been higher 65% of the time—hardly a disaster worth avoiding.
The U.S. economy continues to storm back from the pandemic lockdown-driven recession. After growing at a solid 6.4% annualized pace during the first quarter of 2021, U.S. gross domestic product (GDP) is just a small fraction away from recovering all of its lost output from 2020. Economists’ consensus forecast for U.S. economic growth of 8.1% in the second quarter of 2021 (source: Bloomberg) may be too low given the additional progress toward a fully reopened economy and continued steady vaccine distribution. With more fiscal stimulus likely coming soon, GDP growth in 2021 may be the strongest in four decades, hardly supportive of a bearish view. Nearly 1 million jobs were created in March, and April’s number due out on May 7 could be even bigger.
First-quarter earnings season has been a record setter. The percentage of S&P 500 companies beating earnings per share targets (88%) and upside to revenue targets (over 4%) are both the highest that earnings data aggregator FactSet has ever recorded. The year-over-year increase in S&P 500 Index earnings will likely double—yes double—the 24% estimate as of April 1—one of the biggest earnings upside surprises ever, and frankly hard to believe!
The strong earnings growth has allowed stocks to grow into their valuations. In fact, stock valuations remain quite reasonable compared with bonds given still-low interest rates, suggesting a “Sell in May” decision based on elevated stock valuations may be a mistake. This fundamental backdrop suggests any market selloffs may be shallow and short-lived, and therefore difficult to time.
Volatility is like a toll investors pay on the road to solid long-term investment returns. In general, we think investors should pay that toll and favor equities over bonds in their portfolios. For those with extra cash on the sidelines, we would look to buy on weakness given the favorable fundamental backdrop. But for investors with extra risk in portfolios, now might be a good time to consider taking a little bit off the table.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
Important Information
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.
All data is provided as of May 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
“The real key to making money in stocks is not to get scared out of them.” Peter Lynch
They say April showers bring May flowers. Well, after a lot of showers and storms over the past year, flowers are starting to bloom and things are looking a lot better.
Last month marked the one-year anniversary of the bottom of the vicious pandemic-induced bear market for the S&P 500 Index. Despite the turmoil of the past year, investors who did not get scared out of stocks have had a lot to smile about. The S&P 500 completed its greatest one-year rally from a bear market low in history, gaining nearly 75% as the arrival of vaccines facilitated the reopening of the economy.
While the first year of a new bull market can provide a relatively easy investing environment, year two of that bull market has a knack for challenging investors. That second year has still historically provided solid returns for stock investors, yet often comes with greater volatility. In fact, stocks have never been lower during the second year of a new bull market. But gains over the next year may not come as easily considering the average pullback in that second year following a 30% bear market has been more than 10%.
However, there continues to be plenty of reasons to remain positive on the investment landscape going forward. It may be early to declare victory against COVID-19, but significant progress in that battle has been made this year, even in the face of new variants. According to the Centers for Disease Control and Prevention (CDC), half of the U.S. population above the age of 65 has been fully vaccinated, while a third of the total population has received at least one dose of the vaccine. We expect this trend to accelerate in the coming weeks, as many millions more Americans become eligible.
The progress against the virus combined with historic stimulus measures have certainly helped the U.S. economy emerge from the shadow of the pandemic. Roughly $1.9 trillion in pandemic relief was signed into law on March 11, including additional direct payments to households to help provide a bridge to the end of the pandemic. A $3 trillion infrastructure bill could be coming later this year, which would represent yet another shot in the arm to the economy.
Sir John Templeton once said, “People who think they know all the answers probably don’t even know the questions.” We don’t have all the answers, but we do know that the battle with COVID-19 is likely winding down, the U.S. economy could see its best year of growth since 1951, and we should continue to see benefits from record monetary and fiscal stimulus. These developments are likely to provide the ingredients for solid stock market gains through the remainder of the year.
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.
All data is provided as of April 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
It’s now been over a year since COVID-19 first hit American shores. While the pandemic has affected everyone to varying degrees, we can all agree that everyone’s life is different today than it was a year ago. It’s difficult to remember what normal looks like at this point.
Now that Johnson & Johnson’s vaccine has been approved, we have three vaccines available in the United States—and some semblance of normal is fast approaching. COVID-19 cases and hospitalizations have dropped significantly over the past two months. More businesses have reopened. Kids are going back to school. More diners are headed to restaurants. Air travel has picked up.
The US economy—though not back to normal yet—is poised to potentially recover all of its lost output from last year’s recession during the first half of this year. Shoppers are doing their part as retail sales jumped 5.3% in January—the strongest month-over-month increase in seven months. Consumers’ coffers were replenished by the federal government’s roughly $900 billion stimulus package passed in December 2020. US household savings are now $1.4 trillion above last year’s levels, according to the Bureau of Economic Analysis, which should provide fuel for more pent-up spending after restrictions are lifted.
The bridge policymakers began to build a year ago to the end of the pandemic is getting even stronger. Congress is expected to pass another fiscal stimulus package in mid-March, potentially worth over $1.5 trillion and including more direct aid to consumers and supplemental unemployment insurance. Meanwhile, the Federal Reserve continues to provide unwavering support for the economy. Our economy’s resilience, coupled with this significant fiscal and monetary support, has enabled stocks to do even better than normal—and early in bull markets, normal is pretty good.
Some fear the economy has too much support. A healing labor market with about 10 million fewer jobs than a year ago suggests that more help is needed. But, as the economy fully opens, we will have to watch inflation closely for signs of overheating. The Federal Reserve may have to pump the brakes sooner than anticipated.
Normal is approaching—or at least the post-pandemic version of normal—and it’s looking pretty good. Stocks and bonds are both telling us we have a lot to look forward to as the economy moves closer to a full reopening. COVID-19 still presents risks of course, and stocks may be due for a pause after such a strong run. But ultimately, we believe the backdrop of improving economic growth, supportive fiscal and monetary policy, rebounding corporate profits, and improving COVID-19 trends will be a favorable one for stocks over the balance of the year.
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.
All data is provided as of March 4, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
“In the short-term, the market is a popularity contest. In the long-term, the market is a weighing machine.” Warren Buffett
2021 is under way, as our nation and the rest of the world look to begin to put the global pandemic behind us. The path forward for the US economy, as well as that of the global economy, will continue to depend heavily on the success of combatting the virus.
While many of the risks presented by the outbreak of COVID-19 persist, it appears we may be in the later innings of the pandemic. Following increased restrictions to quell the holiday surge, new daily COVID-19 cases and hospitalizations have peaked, and are down significantly the past few weeks (source: COVID Tracking Project). Reopening is taking place as well, highlighted by New York City’s plans to bring back indoor dining by Valentine’s Day. Meanwhile, the distribution of currently approved vaccines is well underway—and accelerating. The United States has added over 1 million shots per day over the past week (source: CDC) and 1.5 million per day is quite possible soon. Adding to this optimistic trend, new vaccine candidates from Johnson & Johnson and Novavax have also shown efficacy in combatting the effects of the virus and new mutations. If these two candidates are authorized for use as most experts expect, the boost in supply will be a welcome development in the US and abroad.
Despite the positive trends in COVID-19 data, volatility began to return to the stock market in the final days of January, as retail traders set their eyes on GameStop (GME) stock and other heavily shorted securities, captivating the nation’s imagination. As Warren Buffett explained above, while many of these securities may be popular now, the real winners will likely be investors with longer-term horizons. While these developments could be another sign of excessive optimism in certain segments of the equity markets, we do not believe they represent a sign of a broader market bubble or indicate a major correction is forthcoming.
After the powerful snapback of economic growth seen in the third quarter, the economy continued to grow at a solid 4% in the fourth quarter despite the holiday surge in COVID-19 cases. This improving economic backdrop has provided tailwinds to corporate profits, which should help stocks grow into their elevated valuations. S&P 500 Index earnings for the fourth quarter are impressively tracking 9 percentage points ahead of consensus expectations, while more than 80% of companies have beaten earnings estimates (source: FactSet). Meanwhile, housing remains extremely strong nationally and manufacturing data continues to show an economy that is firmly on the mend.
The improving economic backdrop, along with US government and Federal Reserve policies designed to boost the economy, suggest the environment for risk assets may remain favorable in 2021. Don’t get complacent though; after the S&P 500 Index rallied more than 70% since the March 2020 lows, some volatility would be perfectly warranted. Remember, they say that the stock market is the only place where things go on sale, yet people run out of the store screaming. Have a plan in place to be ready to take advantage when the sales come, and don’t run out screaming.
Stay healthy and please contact me with any questions.
Sincerely,
Wayne Rigney
_______________________________
Important Information
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
October 2021 Client Letter
Client LettersOctober 7, 2021
Dear Valued Investor:
One constant in life is change. During the past year and a half, we have experienced more change than any of us bargained for. Change is disruptive—but also brings opportunities. For investors right now, there is no shortage of changes to think about, but those changes may set the stage for the next leg higher for this powerful and still relatively young bull market.
The trajectory of the U.S. economy has changed recently because of the Delta variant of COVID-19 and related disruptions to companies’ supply chains. According to the Federal Reserve Bank of Atlanta’s estimate, the growth rate of gross domestic product (GDP) for the third quarter is tracking to just 1%, down from 6% two months ago. Rather than the start of a new downtrend, however, we expect growth to pick up through year-end as further progress is made beating COVID-19.
The stock market changed paths last month (consistent with historical seasonal patterns) as the S&P 500 Index experienced its first 5% pullback since October 2020. The good news, however, is that the fourth quarter has historically been the best for stocks with an average gain of 4%. As we look to next year, if the U.S. economy produces above-average growth as we expect, double-digit gains for stocks would be a reasonable expectation.
The Federal Reserve (Fed) may experience a big change early next year. Fed Chair Jerome Powell’s term is up in February and his reappointment by President Biden is not assured. Mr. Powell’s progressive critics don’t believe he is tough enough on banks. The Fed is also about to start tapering its massive $120 billion per month bond-buying program before embarking on an interest rate−hiking campaign. That’s a lot of change.
One thing we hope doesn’t change is that the U.S. government keeps paying its bills. The debt ceiling, which has been raised 78 times since 1960, will need to be raised by October 18, according to Treasury Secretary Janet Yellen—or the country could (inconceivably) default on its debt. Congress will figure out a way to get this done but the political game of chicken could cause some jitters for markets if not resolved quickly.
Democratic policymakers are trying to effect a lot of change with the nearly $5 trillion in proposed spending on infrastructure and social programs. The two proposals will likely be scaled back closer to a combined $3 trillion to secure support from moderate Democrats (the $1.2 trillion hard infrastructure package has bipartisan support). This spending will come with tax increases to help pay for it, but that won’t stop the federal debt from piling up. Thankfully that debt is cheap to service with interest rates still low.
That’s a lot of change. These changes create uncertainty, but markets may have already priced them in. The outlook for the U.S. economy still looks bright. Corporate profits are growing strongly. Low interest rates are supportive, and while inflation is still elevated, the worst of it may be behind us.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
Important Information
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.
All data is provided as of October 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05198627
September 2021 Client Letter
Client LettersSeptember 2, 2021
Dear Valued Investor:
The bull market continues, with the S&P 500 Index now up seven months in a row. Stocks have impressively gained 20% year-to-date, with the S&P 500 making 53 new all-time highs before the end of August—another new record. All of this has happened with very little volatility, as the S&P 500 hasn’t had so much as a 5% pullback since last October.
We came into this year expecting a stronger economy and robust stock market, but even we are surprised at just how resilient things have been. Earnings help drive long-term stock gains, and what we’ve seen from earnings so far in 2021 is a big reason stock returns have been so impressive. A record-breaking second quarter earnings season saw more than 86% of S&P 500 companies beat their consensus earnings estimates, the highest ever recorded and well above the 75% five-year average. S&P 500 earnings are now 26% above pre-COVID-19 levels based on the 2021 consensus estimate, helping to justify stocks at current levels.
Another reason stocks have been so strong is Federal Reserve (Fed) monetary policies. The Fed is expected to begin to taper its monthly bond purchases (currently $120 billion), but it appears to be committed to leaving rates low for the foreseeable future. The Fed likely won’t consider increasing rates until the employment picture improves significantly, and it will be leery of quickly removing stimulus after the deepest recession of our lifetimes, especially if COVID-19 is still influencing behavior. We believe this historic Fed accommodation will continue to be a tailwind for equities.
Worries are adding up though, even as stocks hit new highs. Supply chain disruptions are contributing to higher input prices in select industries. There are concerns about the future of Afghanistan. The highly contagious Delta variant has nearly 100,000 Americans nationwide currently hospitalized. And, China’s regulatory crackdowns could lead to further bouts of volatility. As a result, domestic consumer confidence has taken a hit recently, which could lead to a weaker-than-expected third quarter for the U.S. economy. However, if Delta concerns ease, any consumption that is lost in the third quarter will likely be made up in the fourth quarter.
Additionally, late summer through early fall has been a seasonally volatile period for stocks historically. Although stocks shook off the traditionally weak August, September is upon us—and this month is historically the worst of the year for stock returns. Not to mention October is historically the most volatile month of the year for stocks. Also, the second year of a bull market has historically seen stocks pull back after big gains in year one.
Looking ahead to the final four months of the year, we remain positive on stocks and the U.S. economy. However, stocks haven’t pulled back 5% for nearly a year, and we believe investors should be on alert for potential seasonal volatility, aiming to use it as an opportunity when stocks go on sale. They say the stock market is the only place where everyone runs out of the store screaming when things go on sale. It’s good to have a plan in place when that sale comes along.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
___________________________________________________________
Important Information
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.
All data is provided as of September 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05186398
August 2021 Client Letter
Client LettersAugust 5, 2021
Dear Valued Investor:
Six months and counting. That is the current monthly winning streak for the S&P 500 Index. To take that a step further, this key equity benchmark has posted gains in 13 of the last 16 months—dating back to the March 2020 low. With stocks nearly at a double from those lows, it has indeed been hard to quibble about what stocks have provided recently.
The primary upside equity catalyst in July appeared to be another healthy earnings season. So far, with over 60% of S&P 500 companies reporting results, 88% have beaten their earnings estimates. This would be the highest ever recorded if it stands, according to FactSet—and well above the 75% five-year average. There’s more. Add in the steady recent decline in interest rates, which help with equity valuation calculations, and you get an equity market on a hot streak.
Meanwhile, the Federal Reserve Bank (Fed) has, so far, remained relatively quiet about its plans to roll back its historic accommodation. Its recent two-day meeting closed with little fan-fare and negligible new information. Monetary policymakers are still discussing a plan to taper bond purchases that we expect to see uncovered in the fall.
Second-quarter U.S. GDP was reported in the last week of July. Although the 6.5% reading (quarter-over-quarter annualized) was below the Bloomberg consensus forecast of 8.4%, consumer spending exceeded expectations. Moreover, inventories declined at their second-worst rate in 12 years, setting up a possible boost in coming quarters when those inventories are replenished. While the post-COVID economic rebound has certainly been robust, supply chain issues continue to take some edge off growth.
Although we booked a lot of good news in recent months, we have now come upon a typically volatile period for stocks. The months of August and September have historically been a bit choppy as trading volume tends to dissipate and it may take less selling to move the major averages lower. That could be something investors will want to keep an eye on now that August has arrived. Also, consider that the second year of a bull market has historically brought more ups and downs.
Looking ahead, our stock market outlook remains positive as fundamental drivers have been robust, though we acknowledge that valuations are elevated. The latter point puts us on the lookout for a pullback that we believe is overdue, given the S&P 500 has not fallen as much as 5% since October 2020. The typical trading year brings several 5%-plus pullbacks and potentially one correction of the 10% variety. Should we get one, we believe investors may want to step in to do some quick bargain-hunting, as we would not expect a drawdown to last uncomfortably long. That said, stocks have come a long way and investors may want to double-check their allocations against their risk tolerance. Getting too far out over one’s skis is never a good idea.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
____________________________________________________________________________
Important Information
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.
All data is provided as of August 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05175384
Mid Year Outlook 2021
Client LettersINTRODUCTION: PICKING UP SPEED
In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had
expected. As we were writing our Outlook for 2021 in late 2020, our economic views were
significantly more optimistic than consensus forecasts—but in retrospect, not nearly
optimistic enough. Our theme was getting back on the road again and powering forward.
But as the economy accelerates to what may be its best year of growth in decades, power
has been converted to speed and we’re trading highways for raceways.
Speed can be exhilarating, but it can also be dangerous. The overall economic picture
remains sound, likely supporting strong profit growth and potential stock market gains. But
the pace of reopening also creates new hazards: Supply chains are stressed, some labor
shortages have emerged, inflation is heating up—at least temporarily—and asset prices
look expensive compared to history.
Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021:
Picking Up Speed, we help you keep your eyes on the road ahead. The next stretch may
be a fast one and will have its share of opportunities, but also new risks to navigate. As
always, sound financial advice can be as important as ever to help steer you through the
environment and put in the miles toward meeting your long-term financial goals.
WANT TO LEARN MORE? Read the full article here.
July 2021 Client Letter
Client LettersJuly 8, 2021
Dear Valued Investor:
In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had expected. Speed can be exhilarating, but it can also be dangerous. In our view, the overall economic picture remains sound and will likely support strong profit growth and additional stock market gains. But the pace of reopening also creates new hazards: supply chains are stressed, some labor shortages have emerged, inflation is heating up—at least temporarily—and asset prices look expensive compared to historical figures.
Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021: Picking Up Speed (Due out on July 13), we help you keep your eyes on the road ahead. The next stretch may be a fast one and will have its share of opportunities, but also new risks to navigate. As always, sound financial advice can be as important as ever to help steer you through the environment and put in the miles toward meeting your long-term financial goals.
The U.S. economy has surprised nearly everyone to the upside as it speeds along—thanks to vaccinations, reopenings, and record stimulus. The growth rate of the U.S. economy may have peaked in the second quarter of 2021, but there is still plenty of momentum left to extend above-average growth into 2022. Despite the natural challenges of ramping back up, the recovery still seems capable of providing upside surprises, and in the end, we could have our best year of real GDP growth since the early 1980s.
Although higher taxes and more regulation are likely coming, an extraordinary amount of support from the Federal Reserve (Fed) and more than $5 trillion in fiscal stimulus so far (with more coming) should continue to support the stock market and economy for the rest of 2021.
Speaking of the stock market, we expect the robust economic recovery to continue to drive strong earnings growth and support further gains for stocks. Don’t forget though, after a more than 90% gain off the March 23, 2020, lows for the S&P 500 Index, some choppy action during the historically challenging year two of a bull market would be perfectly normal.
Turning to bonds, it has been a historically tough year, as yields surged earlier this year. Should the economy continue to improve, the door would be open for stocks to continue to do quite well, but we will always appreciate bonds’ important role in a portfolio as a source of income and as a potential diversifier during equity declines.
Midyear Outlook 2021: Picking Up Speed was designed to help you navigate a year in which economic conditions may continue to improve. Understanding the road immediately ahead is essential for navigating its twists and turns, but it will be thoughtful planning and sound financial advice that will keep us on the journey.
The first half has been a good one for investors. While the road ahead may bring more gains in the second half, it might be a bumpy ride. Please contact me if you have any questions.
Sincerely,
Wayne Rigney
______________________________________________________________________________________
Important Information
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.
All data is provided as of June 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05163980
June 2021 Client Letter
Client LettersJune 3, 2021
Dear Valued Investor:
As we move into June, a path to normalcy is coming quickly with stadiums allowing full capacity, restaurants filling up, and summer vacations in full swing. Meanwhile, the U.S. economy continues to recover remarkably quickly and the stock market is near all-time highs. Although there are many positives, a lot of this good news could very well be priced into stocks. Companies are having trouble finding workers, while higher inflation has many wondering whether this means the Federal Reserve is behind the curve and will need to quickly tighten monetary policy to stave off inflation. Add to that higher taxes and more deficit spending are likely on the way, causing a lot of things for investors to worry about.
The U.S. economy continues to open up faster than even the most optimistic economists expected at the start of the year. Much of this is due to COVID-19 cases hitting new lows and restrictions being lifted across our country. The U.S. economy has likely already recovered all of its lost output from 2020, with U.S. gross domestic product (GDP) expected to grow close to 10% in the second quarter of 2021 (source: Bloomberg). As of now, this year is on pace to be the best year for GDP growth since the early 1980s, bolstered by fiscal and monetary stimulus.
First-quarter earnings season is over, and it was simply amazing. The percentage of S&P 500 companies beating earnings per share targets (87%) and upside to revenue growth (over 4 percentage points) were both the highest that earnings data aggregator FactSet has ever recorded. The 52% year-over-year increase in S&P 500 Index earnings per share came in more than double the 24% estimate as of April 1. Lastly, overall earnings estimates for 2021 have increased 12% this year, right in line with the return from equities.
Strong economic growth and massive stimulus has brought with it major worries over the economy potentially overheating. The Consumer Price Index (CPI) for April sparked much of the worries, with the core reading (excluding volatile food and energy prices) rising 0.8% month over month, the hottest since the early 1980s (U.S. Bureau of Labor Statistics). You are likely seeing higher prices when you go to the grocery store or fill up your car, making this a real concern. Problems filling jobs and supply chain issues are adding to the inflation pressures on top of the pent-up demand coming through as the economy fully reopens.
Although these concerns are real, longer-term inflation should come back to trend. Technology, globalization, the Amazon effect, increased productivity and efficiency, automation, and high debt (which puts downward pressure on inflation) are among the major structural forces that have put a lid on inflation the past decade plus—and will likely continue to do so.
The next several months are historically the most volatile of the year for investors and I wouldn’t be surprised to see that happen once again. In general, investors should continue to favor stocks over bonds in their portfolios, as appropriate. And should there be any downside volatility, you may want to consider using the weakness to buy stocks at cheaper prices given the still favorable economic backdrop and strong company fundamentals.
Most importantly, go out there and plan a fun vacation this summer!
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
______________________________________________________________________________
Important Information
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.
All data is provided as of June 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05150287
May 2021 Client Letter
Client LettersMay 6, 2021
Dear Valued Investor:
As the calendar has turned to May, the popular “Sell in May and Go Away” stock market cliché is getting a lot of airtime. This is the idea that the stock market tends to be weakest between May and October (and strongest between November and April). Stocks have done so well recently that preparing for a pause in the rally makes sense. A lot of good news is priced into stocks. Worries about the Federal Reserve tightening its monetary policy may intensify this summer as inflation picks up, potentially pushing interest rates higher. Tax increases are probably coming in 2022, and deficit spending continues largely unabated.
Investors have not been well served recently by following the “Sell in May” pattern and avoiding stocks from May through October. Over the past decade, during that six-month period the S&P 500 Index was higher eight out of 10 times, with an average gain of 3.8%. Going back to 1950, even though the May-through-October period has been the weakest, stocks have gained 1.7% on average and have been higher 65% of the time—hardly a disaster worth avoiding.
The U.S. economy continues to storm back from the pandemic lockdown-driven recession. After growing at a solid 6.4% annualized pace during the first quarter of 2021, U.S. gross domestic product (GDP) is just a small fraction away from recovering all of its lost output from 2020. Economists’ consensus forecast for U.S. economic growth of 8.1% in the second quarter of 2021 (source: Bloomberg) may be too low given the additional progress toward a fully reopened economy and continued steady vaccine distribution. With more fiscal stimulus likely coming soon, GDP growth in 2021 may be the strongest in four decades, hardly supportive of a bearish view. Nearly 1 million jobs were created in March, and April’s number due out on May 7 could be even bigger.
First-quarter earnings season has been a record setter. The percentage of S&P 500 companies beating earnings per share targets (88%) and upside to revenue targets (over 4%) are both the highest that earnings data aggregator FactSet has ever recorded. The year-over-year increase in S&P 500 Index earnings will likely double—yes double—the 24% estimate as of April 1—one of the biggest earnings upside surprises ever, and frankly hard to believe!
The strong earnings growth has allowed stocks to grow into their valuations. In fact, stock valuations remain quite reasonable compared with bonds given still-low interest rates, suggesting a “Sell in May” decision based on elevated stock valuations may be a mistake. This fundamental backdrop suggests any market selloffs may be shallow and short-lived, and therefore difficult to time.
Volatility is like a toll investors pay on the road to solid long-term investment returns. In general, we think investors should pay that toll and favor equities over bonds in their portfolios. For those with extra cash on the sidelines, we would look to buy on weakness given the favorable fundamental backdrop. But for investors with extra risk in portfolios, now might be a good time to consider taking a little bit off the table.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
Important Information
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.
All data is provided as of May 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking #1-05141136
April 2021 Client Letter
Client LettersApril 1, 2021
Dear Valued Investor:
“The real key to making money in stocks is not to get scared out of them.” Peter Lynch
They say April showers bring May flowers. Well, after a lot of showers and storms over the past year, flowers are starting to bloom and things are looking a lot better.
Last month marked the one-year anniversary of the bottom of the vicious pandemic-induced bear market for the S&P 500 Index. Despite the turmoil of the past year, investors who did not get scared out of stocks have had a lot to smile about. The S&P 500 completed its greatest one-year rally from a bear market low in history, gaining nearly 75% as the arrival of vaccines facilitated the reopening of the economy.
While the first year of a new bull market can provide a relatively easy investing environment, year two of that bull market has a knack for challenging investors. That second year has still historically provided solid returns for stock investors, yet often comes with greater volatility. In fact, stocks have never been lower during the second year of a new bull market. But gains over the next year may not come as easily considering the average pullback in that second year following a 30% bear market has been more than 10%.
However, there continues to be plenty of reasons to remain positive on the investment landscape going forward. It may be early to declare victory against COVID-19, but significant progress in that battle has been made this year, even in the face of new variants. According to the Centers for Disease Control and Prevention (CDC), half of the U.S. population above the age of 65 has been fully vaccinated, while a third of the total population has received at least one dose of the vaccine. We expect this trend to accelerate in the coming weeks, as many millions more Americans become eligible.
The progress against the virus combined with historic stimulus measures have certainly helped the U.S. economy emerge from the shadow of the pandemic. Roughly $1.9 trillion in pandemic relief was signed into law on March 11, including additional direct payments to households to help provide a bridge to the end of the pandemic. A $3 trillion infrastructure bill could be coming later this year, which would represent yet another shot in the arm to the economy.
Sir John Templeton once said, “People who think they know all the answers probably don’t even know the questions.” We don’t have all the answers, but we do know that the battle with COVID-19 is likely winding down, the U.S. economy could see its best year of growth since 1951, and we should continue to see benefits from record monetary and fiscal stimulus. These developments are likely to provide the ingredients for solid stock market gains through the remainder of the year.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
____________________________________________________________________________________
Important Information
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.
All data is provided as of April 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking # 1-05128812
March 2021 Client Letter
Client LettersMarch 4, 2021
Dear Valued Investor:
It’s now been over a year since COVID-19 first hit American shores. While the pandemic has affected everyone to varying degrees, we can all agree that everyone’s life is different today than it was a year ago. It’s difficult to remember what normal looks like at this point.
Now that Johnson & Johnson’s vaccine has been approved, we have three vaccines available in the United States—and some semblance of normal is fast approaching. COVID-19 cases and hospitalizations have dropped significantly over the past two months. More businesses have reopened. Kids are going back to school. More diners are headed to restaurants. Air travel has picked up.
The US economy—though not back to normal yet—is poised to potentially recover all of its lost output from last year’s recession during the first half of this year. Shoppers are doing their part as retail sales jumped 5.3% in January—the strongest month-over-month increase in seven months. Consumers’ coffers were replenished by the federal government’s roughly $900 billion stimulus package passed in December 2020. US household savings are now $1.4 trillion above last year’s levels, according to the Bureau of Economic Analysis, which should provide fuel for more pent-up spending after restrictions are lifted.
The bridge policymakers began to build a year ago to the end of the pandemic is getting even stronger. Congress is expected to pass another fiscal stimulus package in mid-March, potentially worth over $1.5 trillion and including more direct aid to consumers and supplemental unemployment insurance. Meanwhile, the Federal Reserve continues to provide unwavering support for the economy. Our economy’s resilience, coupled with this significant fiscal and monetary support, has enabled stocks to do even better than normal—and early in bull markets, normal is pretty good.
Some fear the economy has too much support. A healing labor market with about 10 million fewer jobs than a year ago suggests that more help is needed. But, as the economy fully opens, we will have to watch inflation closely for signs of overheating. The Federal Reserve may have to pump the brakes sooner than anticipated.
Normal is approaching—or at least the post-pandemic version of normal—and it’s looking pretty good. Stocks and bonds are both telling us we have a lot to look forward to as the economy moves closer to a full reopening. COVID-19 still presents risks of course, and stocks may be due for a pause after such a strong run. But ultimately, we believe the backdrop of improving economic growth, supportive fiscal and monetary policy, rebounding corporate profits, and improving COVID-19 trends will be a favorable one for stocks over the balance of the year.
Please contact me if you have any questions.
Sincerely,
Wayne Rigney
____________________________________________________________________________________
Important Information
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.
All data is provided as of March 4, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Tracking # 1-05117671
February 2021 Client Letter
Client LettersFebruary 4, 2021
Dear Valued Investor,
“In the short-term, the market is a popularity contest. In the long-term, the market is a weighing machine.” Warren Buffett
2021 is under way, as our nation and the rest of the world look to begin to put the global pandemic behind us. The path forward for the US economy, as well as that of the global economy, will continue to depend heavily on the success of combatting the virus.
While many of the risks presented by the outbreak of COVID-19 persist, it appears we may be in the later innings of the pandemic. Following increased restrictions to quell the holiday surge, new daily COVID-19 cases and hospitalizations have peaked, and are down significantly the past few weeks (source: COVID Tracking Project). Reopening is taking place as well, highlighted by New York City’s plans to bring back indoor dining by Valentine’s Day. Meanwhile, the distribution of currently approved vaccines is well underway—and accelerating. The United States has added over 1 million shots per day over the past week (source: CDC) and 1.5 million per day is quite possible soon. Adding to this optimistic trend, new vaccine candidates from Johnson & Johnson and Novavax have also shown efficacy in combatting the effects of the virus and new mutations. If these two candidates are authorized for use as most experts expect, the boost in supply will be a welcome development in the US and abroad.
Despite the positive trends in COVID-19 data, volatility began to return to the stock market in the final days of January, as retail traders set their eyes on GameStop (GME) stock and other heavily shorted securities, captivating the nation’s imagination. As Warren Buffett explained above, while many of these securities may be popular now, the real winners will likely be investors with longer-term horizons. While these developments could be another sign of excessive optimism in certain segments of the equity markets, we do not believe they represent a sign of a broader market bubble or indicate a major correction is forthcoming.
After the powerful snapback of economic growth seen in the third quarter, the economy continued to grow at a solid 4% in the fourth quarter despite the holiday surge in COVID-19 cases. This improving economic backdrop has provided tailwinds to corporate profits, which should help stocks grow into their elevated valuations. S&P 500 Index earnings for the fourth quarter are impressively tracking 9 percentage points ahead of consensus expectations, while more than 80% of companies have beaten earnings estimates (source: FactSet). Meanwhile, housing remains extremely strong nationally and manufacturing data continues to show an economy that is firmly on the mend.
The improving economic backdrop, along with US government and Federal Reserve policies designed to boost the economy, suggest the environment for risk assets may remain favorable in 2021. Don’t get complacent though; after the S&P 500 Index rallied more than 70% since the March 2020 lows, some volatility would be perfectly warranted. Remember, they say that the stock market is the only place where things go on sale, yet people run out of the store screaming. Have a plan in place to be ready to take advantage when the sales come, and don’t run out screaming.
Stay healthy and please contact me with any questions.
Sincerely,
Wayne Rigney
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
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All index data from FactSet.
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