Weekly Market Commentary
Each week the LPL Financial Research team assembles thoughtful insight on market news.
A Busy (and Perhaps Historic) Week for Central Banks
March 18, 2024 | LPL Research
Since 2016, the main policy rate for the BOJ has been stuck at -0.10%. But with improved wage negotiations, markets are expecting a 0.10% rate hike this week from the BOJ, the first hike since 2007. Additionally, markets expect the main policy rate to climb to 0.25% by year-end.
Gold Shines Brighter Than Ever, Rallying to Record High
March 11, 2024 | LPL Research
Macro conditions remain supportive for gold, including elevated geopolitical tensions, receding yields, and a weaker dollar. The transition to Fed interest rate cuts could provide an additional catalyst for gold. Global central bank demand remains another key factor to gold’s rally and has shown little signs of slowing down.
Super Six Drives Solid Earnings Season
March 4, 2024 | LPL Research
We also wrote about the mega cap technology companies (usually referred to as the Magnificent Seven) in our earnings season preview in January, pointing out that results for this group would be a key factor in determining whether S&P 500 companies could deliver attractive earnings upside. Well, that comment proved prescient because this group delivered on lofty expectations and then some.
Buybacks Are Back
February 26, 2024 | LPL Research
This year, buyback activity appears to be back in action as inflationary pressures subside and the Federal Reserve (Fed) gets closer to transitioning from rate hikes to rate cuts. Economic activity and earnings are also improving. While Treasury yields have recently moved higher due to the repricing of Fed rate cuts further out on the calendar, higher rates have not eroded confidence in the potential for a soft-landing scenario.
Treasuries: Who’s Buying and Why it Matters
February 20, 2024 | LPL Research
Currently, the Fed owns slightly more than $5 trillion in Treasury securities, or roughly 25% of issuance, but is on pace to reduce its exposure by several trillion by the end of 2024. While the Fed will likely not be able to get its balance sheet back to pre-COVID-19 levels, it likely won’t be a large buyer of Treasury securities in the near term either (unless an unforeseen macro event causes the Fed to implement quantitative easing again). So, the biggest buyer of Treasuries is likely on the sidelines for now.
Outlook for U.S. Economy Continues to Brighten
February 12, 2024 | LPL Research
Services spending experienced something drastically different. The pandemic took a toll on services demand and after several years, consumers are finally back on trend for services. We think consumer spending will revert to the mean this year, but the strong momentum we have from jobs and credit suggest the reversion to the mean will be pushed out later — just like the timing of the first Federal Reserve (Fed) rate cut, which may not come until June.
Will the January Barometer Come Through?
February 5, 2024 | LPL Research
The January Barometer tells us that stocks are likely to gain ground between now and the end of 2024. Meanwhile, over the course of the year, we expect easing inflation, stable or lower interest rates, and an expected ramp-up in earnings to support additional modest gains for stocks — potentially above our year-end fair value target of 4,950. Meanwhile, the presidential cycle may give the economy and stocks an added push to keep this still-relatively young bull market marching higher. The path to more gains won’t be linear given the macroeconomic and geopolitical challenges that lie ahead. Valuations are on the high side and corrections frequently happen during election years, even in bull markets.
Is Too Much Optimism Priced In?
January 29, 2024 | LPL Research
Earnings are an accounting measure that can be distorted and shifted around, even while following generally accepted accounting practices (GAAP). For that reason, we view cash flows as potentially more important than earnings and a purer measure of the profits a business generates over time.
Will Shipping Disruptions Alter Fed Plans?
January 22, 2024 | LPL Research
So why is the current problem different? Right after the start of the pandemic, firms struggled to set market-clearing prices and many initially thought inflation was transitory, a forecast that ended embarrassingly. However, since the beginning of 2023, the annual rate of inflation for durable goods was negative. So, although supply disruptions will likely bring upward pressure on goods prices, we don’t think the temporary shock will change the Fed’s pivot from hiking rates to cutting rates. And if the data support it, we could see the first cut in March.
Magnificent Seven and Margins Are Keys to Q4 Earnings Season
January 16, 2024 | LPL Research
The STAAC recommends large cap growth-style equities over their large cap value counterparts. The Committee believes growth-style large cap equities may benefit from lower inflation and stabilization of interest rates in the intermediate term.
China 2024 Faces Demanding Economic Challenges
January 8, 2024 | LPL Research
As China emerged a year ago from the shadow of the stringent zero COVID-19-related measures that all but shut down its economy for over two years, much was expected in terms of its economic growth prospects. There were numerous reports suggesting the world’s second largest economy would ignite a bout of inflation as its industrial base would require vast quantities of commodities to power a newly energized China. Clearly that didn’t happen. Here we explore why and provide our updated thoughts on investing in China and emerging markets.
Lessons Learned in 2023: “This Time Is Different” in Post-Pandemic Economy
January 2, 2024 | LPL Research
As the economy continued to exceed expectations, interest rates went up by more than anticipated, and the chances for a recession went down, which in turn led the Fed to stick to its “higher for longer” approach—rather than lowering rates to stave off a looming recession.
Key Equity Themes for 2024
December 18, 2023 | LPL Research
The technical backdrop for U.S. equity markets continues to improve. The S&P 500 has staged an impressive comeback after briefly entering a correction period this fall. Broad-based buying pressure outside of just the mega-cap space likely has underpinned the recovery.
Discord in the OPEC+ Oil Patch
December 11, 2023 | LPL Research
Despite a heavy lobbying effort to cajole OPEC+ members to agree to a unified cut in oil production, Saudi Arabia, the de facto leader of the energy cartel, was unable to orchestrate anything more than pledges on a “voluntary” basis. Accordingly, benchmark oil prices continued to slide lower following the announcement, and without a catalyst to propel prices higher, oversupply in the market coupled with concerns over the global economic landscape, have steadfastly kept prices lower.
Market Opportunities Amid An Economic Rotation
December 04, 2023 | LPL Research
Opportunities abound in the markets, even during periods when the economy appears ripe for a regime shift. Recent growth metrics surprised to the upside, but leading indicators point toward some downside risk. In this edition of the Weekly Market Commentary, we examine potential opportunities amid a rotation in housing, buying patterns, and inflation.
Anatomy of a Market Rally: Looking at Key Catalysts
November 20, 2023 | LPL Research
As the market appears to be taking a rest and consolidating its $2.7 trillion rally leading up to the Thanksgiving holiday, the historical pattern over the last five years suggests the shortened holiday week typically enjoys modest gains. With concerns over the resiliency of consumer spending, however, the market can be affected by any indication that Black Friday doesn’t witness the throngs of consumers out hunting for bargains, or indications that the start to Cyber Monday won’t result in the billions of dollars that are spent online.