Weekly Market Commentary

Each week the LPL Financial Research team assembles thoughtful insight on market news.

India at the Crossroads: Election Impact on India’s Economy

June 10, 2024 | LPL Research

Indian Prime Minister Narendra Modi’s recent victory in the national elections was muted at best. While he secured a rare third term in the nation’s highest office, his decisive legislative supermajority failed to materialize. Modi has made revitalizing the Indian economy and increasing foreign direct investment (FDI) a cornerstone of his pro-business platform. With markets adjusting to the unexpected outcome and new legislative circumstances, he and his party now pursue cementing the economic gains generated in his earlier terms, to ensure India continues making strides towards a modern capitalist economy that includes the wider populations and supports all Indians.

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Adjusting the Sector Sails: Strong May Takeaways and a June Stock Setup

June 03, 2024 | LPL Research

To say May was an eventful month for the market is an understatement. Investors navigated around the latter half of first-quarter earnings, a breakout to record highs for the broader market, elevated volatility across fixed income and currency markets, and a mixed bag of economic data — not to mention elevated political uncertainty stemming from the conviction of former President Donald Trump. Overall, markets shrugged off political uncertainty, bad economic data was mostly taken as good news for stocks by reviving hope for interest rate cuts, while good news helped write the goldilocks narrative of economic conditions being just right.

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Earnings Are Doing Their Part: Exploring Q1 Earnings

May 28, 2024 | LPL Research

Better-than-expected profit margins played a role in the strong first quarter numbers. The S&P 500 net margin is tracking to 12.3% for the first quarter, up from 12.2% in the seasonally stronger fourth quarter. That doesn’t sound great, but given consumers are starting to push back against higher prices, a developing theme echoed by Starbucks (SBUX), McDonald’s (MCD), Target (TGT), and others, and the first quarter is seasonally weak, this is a solid result.

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How's It Going? Depends on Who You Ask in a Post-Pandemic Economy

May 20, 2024 | LPL Research

The post-pandemic economy is treating people very differently, creating a headache for central bankers. The extreme differences can often get traced back to living situations, as renters have a very different experience than homeowners. Since millions of homeowners refinanced mortgages to extremely low rates a few years ago, the economy is less sensitive to interest rate policy. 

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Preferred Securities: Still Our Preferred Non-Core Bond Sector

May 13, 2024 | LPL Research

Preferred securities (preferreds) are often referred to as “hybrid” securities as they have both bond and equity characteristics. This hybrid nature results in preferred securities being senior to common stock but subordinated, or junior to bonds within a company’s capital stack.

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Sell in May? Maybe Not. More Rhyme Than Reason

May 6, 2024 | LPL Research

This week’s Fed meeting (May 1–2) will be of particular interest for markets as expectations point to a more “hawkish” stance from policymakers as they underscore the “higher for longer” narrative that interest rates may stay on hold until there’s conclusive evidence that inflation has regained downward momentum.

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That Was Quite a Week: A Pivotal One for the Markets

April 29, 2024 | LPL Research

This week’s Fed meeting (May 1–2) will be of particular interest for markets as expectations point to a more “hawkish” stance from policymakers as they underscore the “higher for longer” narrative that interest rates may stay on hold until there’s conclusive evidence that inflation has regained downward momentum.

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Volatility Is Back: Understanding Ever-Changing Market Narrative

April 22, 2024 | LPL Research

Treasury yields are inversely related to rate cut expectations. As the market repriced the probability of the Fed keeping things on hold for longer than originally anticipated, yields jumped higher across the curve. The closely watched 10-year Treasury yield surged over 40 basis points this month to around 4.60%, a far cry from the 3.88% starting point of the year.

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Revisiting Energy: How Rate Cuts Could Benefit the Space

April 15, 2024 | LPL Research

Economic growth forecasts issued by OPEC+ continue to estimate stronger global growth for 2024 and 2025, which would provide an important tailwind for oil demand. The cartel views the economies of China, the U.S., and India reinforcing its forecast. Although the goal of OPEC+ is to keep prices elevated, the consortium is also careful not to cut production dramatically, which could ignite a serious economic downturn denting oil prices.

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What to Watch This Earnings Season

April 8, 2024 | LPL Research

Estimates have been remarkably resilient over the past several quarters as the economy has surprised to the upside. Given the continued resilience of the economy, executives are unlikely to find much of a reason to cut their outlooks — especially after holding estimates in January and February, a logical time to lower the bar at the start of the new year. If estimates hold up again this quarter, markets are likely to react positively to results. AI spending should help prop up estimates, though currency headwinds have stiffened.

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IPOs as a Market Tell: What a Recent Uptick Could Mean

April 1, 2024 | LPL Research

Hope for the 2024 IPO season still suggests optimism, and the performance of early entrants into the public market could assuage the host of concerns that hover over the market at large. Certainly, a more defined market consolidation, coupled with indications that inflation remains too markedly stubborn for the Fed to initiate an easing cycle, would temper enthusiasm for a successful 2024; however, hope springs eternal as investment bankers outwardly maintain that 2024 will be the year IPOs finally emerge from hibernation. The improved performance by these offerings last year and so far in 2024 offers an encouraging sign.

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Navigating the Strategic Investing Landscape: The Differences

March 25, 2024 | LPL Research

On the other hand, investing in tactical time horizons resembles the dynamic nature of changing tides, responding to short-term market conditions like unpredictable surges and waves in the sea. Here we compare and contrast these two distinct processes and recap our recent strategic asset allocation change.

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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.

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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. 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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