July 6 2020

ELECTION PREVIEW

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

2020 is an election year, and as we get closer to November, we expect this to replace COVID-19 and the recession at the top of investors’ minds. The makeup of Congress may influence stock market performance, and how stocks and the economy perform prior to the election may forecast who will win.

THE MAKEUP OF CONGRESS IS VERY IMPORTANT

Although all election years feel different, 2020 no doubt may be one of the most unique election years ever. We have a pandemic, a deep recession, extremely heightened partisanship, a mail-in ballot controversy, an unpredictable president, and the oldest presidential candidate ever.

Amazingly, 1940 was the last time the S&P 500 Index was lower during an election year with an incumbent in the White House. Historically, when a president has been up for reelection, it has tended to boost stocks. Stocks were down big in 2008—but President George W. Bush had finished his two terms. It isn’t about Republican or Democrat—it’s about incumbents trying to boost the economy and stock prices by the time voters go to the polls. Some good news on the economy in the coming months or progress toward a vaccine

could potentially get the S&P 500 back to positive territory for the year, after being down 30% year to date in March, and it’s possible that may help President Donald Trump’s reelection chances.

June 29, 2020

THE FUTURE OF FIXED INCOME

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial

Although the US economic recovery has picked up and we expect yields to rise in the second half of 2020, structural forces may help limit the size of the move. The pandemic-driven demand shock, the Federal Reserve, and disinflationary pressures may likely keep yields low for quite some time.

June 22, 2020

5 REASONS WE FAVOR US STOCKS

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Among developed markets, we maintain our preference for US equities over international, but the bout of strong performance for the MSCI EAFE Index relative to the S&P 500 Index in late May through early June and the latest weakness in the US dollar are noteworthy. We share our latest thoughts on international equities and reiterate our positive emerging markets view.

June 22, 2020

5 REASONS WE FAVOR US STOCKS

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Among developed markets, we maintain our preference for US equities over international, but the bout of strong performance for the MSCI EAFE Index relative to the S&P 500 Index in late May through early June and the latest weakness in the US dollar are noteworthy. We share our latest thoughts on international equities and reiterate our positive emerging markets view.

June 22, 2020

5 REASONS WE FAVOR US STOCKS

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Among developed markets, we maintain our preference for US equities over international, but the bout of strong performance for the MSCI EAFE Index relative to the S&P 500 Index in late May through early June and the latest weakness in the US dollar are noteworthy. We share our latest thoughts on international equities and reiterate our positive emerging markets view.

June 15, 2020

POTENTIAL PATHS FOR STOCKS IN THE SECOND HALF

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Stocks staged perhaps the strongest rally in history—a more than 44% gain for the S&P 500 Index from March 23 through June 8—before pulling back about 6% late last week. With so much economic healing ahead of us and a still-uncertain path for COVID-19, the key question for investors is whether stocks are pricing in an overly optimistic scenario for the recovery in economic activity and corporate profits.

MARKETS REFLECT A LOT OF OPTIMISM

Our expectations for a gradual economic recovery in the second half, discussed here last week, appear to be in conflict with the stock market’s rapid ascent over the past 12 weeks. On one hand, gains appear appropriate based on the likelihood that the recession—officially declared on June 8—may be the shortest ever, aided by the massive stimulus response by policymakers and initial progress toward a vaccine.

On the other hand, the risk of a second wave of COVID-19 remains, particularly as some southern and western states have seen increases in infections and hospitalizations. In addition, some of the 20 million jobs lost in March and April as reported by the Labor Department will take a while to come back due to social distancing constraints and potentially lasting changes in consumer behavior.

The uncertainty around these paths suggests stocks may have come too far too fast. Although some recessions see stocks quickly recover bear market losses (1980, 1990), most of the time the journeys back to record highs take a year or more [Figure 1].

June 8, 2020

PROSPECTS FOR A SWOOSH-SHAPED RECOVERY

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial
Ryan Detrick, CMT, Senior Market Strategist, LPL Financial
Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial

The strongest 50-day rally in the S&P 500 Index in over 70 years has sent a signal that the economic recovery is gaining steam and may look more like a “V” than a “U,” a square root, checkmark, or swoosh. We assess the probabilities of these various scenarios for recovery and reiterate our 2020 economic growth forecasts.

GOES THE VIRUS, SO GOES THE ECONOMY AS

The US economy almost certainly entered a recession in March 2020 as a result of the lock downs and business closures to contain the COVID-19 pandemic. After gross domestic product (GDP) contracted by 5% during first quarter 2020 on an annualized basis, consensus expectations for the second quarter are calling for a mind boggling 32% contraction on an annualized basis [Figure 1]. We see a strong second-half rebound in economic growth as more of the economy opens up, and this recession may end up as one of the shortest ever, but the recovery is unlikely to be strong enough to return economic activity to 2019 levels by year-end.

The path of the economy over the rest of the year depends on whether COVID-19 infection rates continue to fall, facilitating more and faster re-openings and a return to some semblance of normal consumer behavior. Alternatively, a potential second wave of the virus could lead to lock downs being put back in place and consumers staying home. This recession has been consumer led and consumers—with help from the government, medical professionals, and perhaps Mother Nature—will have to lead us out.

June 1 2020

STOCKS RALLY AND ROLL

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

Scott Brown, CMT, Analyst, LPL Financial

The rally continued as the S&P 500 Index closed out May on the positive side. The disconnect between stocks and the economy generated widespread concern among some investors. At the same time, reopening optimism and massive stimulus overshadowed some concerns about a second wave of COVID-19 infections and increasing US-China tensions.

 EARNINGS SEASON'S MIXED RESULTS

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial

First quarter earnings season offered something for everyone. On the positive side, corporate America produced solid results outside of the COVID-19 pandemic trouble spots, which included retailers, travel related businesses, and banks. At the same time, 2020 earnings estimates have plunged, and a return to "normal" earnings could be two years or more away.

DOWNSIDE RISK REMAINS

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Ryan Detrick, CMT, Senior Market Strategist, LPL Financial