Archive

Markets Blog Posted by lplresearch

12/10/2020

This week we released Outlook 2021: Powering Forward, with our 2021 market and economic views.

In the past several Outlook publications, we have favored the United States over developed international in equity allocations (international developed markets are composed primarily of Europe and, to a lesser amount, Japan). Each time we settled on those views, and as valuations for stocks outside the United States got relatively cheaper, we had thought we might be getting closer to an eventual sustainable rotation. But we didn’t get there. It’s been like taking a road trip with the kids and hearing, “Are we there yet?” too many times.

Continue to Favor the United States

This year is shaping up in a similar way. We continue to favor US equities over their developed international counterparts, as we noted in Outlook 2021, even though the valuation gap between the US and these international markets has widened further over the past year.

But as we look ahead, we can envision a scenario at some point in 2021 when markets may respond to a coordinated global economic expansion after the developed world gets through the pandemic. A weaker US dollar may help. Japan may get a boost from the massive amount of fiscal and monetary stimulus the Japanese government and the Bank of Japan have implemented to boost its economy. A rising tide may lift all boats—including those that have not been the strongest in recent years. We simply think now is too early to make that shift in a meaningful way.

Favorable Emerging Markets Outlook

The outlook for emerging markets stocks looks better to us as 2021 approaches. This asset class is made up mostly of Chinese equities but includes several other Asian, European, and Latin American countries that index-provider MSCI classifies as emerging or developing.

“We expect emerging market economies to lead the global economic rebound in 2021,” said LPL Financial Chief Market Strategist Ryan Detrick. “We believe growth in international developed economies may lag behind the United States, although a strong fiscal response may help Japan.” LPL Research forecasts global gross domestic product (GDP) growth in the 4.5–5% range in 2021, as shown in the LPL Chart of the Day.

View enlarged chart.

For more of our 2021 market insights and forecasts, please read our new LPL Research Outlook 2021: Powering Forward.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

2020 has been a tumultuous year, and as we near its close, we are pleased to present Outlook 2021: Powering Forward, which outlines our views on markets, the economy, and policy into 2021 and beyond.

Policy changes should be relatively benign, as we believe a split Congress is the most likely outcome, which should reduce the likelihood of more dramatic changes.

• A fifth COVID-19 relief bill may be passed, but recent headlines have suggested the bill will be smaller in scale.
• The Federal Reserve (Fed) is unlikely to reverse course on its accommodative policies.
• Inflation risks may be skewed to the upside, an important consideration for the Fed going forward.

Economic growth should reaccelerate in 2021. Rising COVID-19 cases present the opportunity for a soft spot to begin the year, but may prove transitory.

• We forecast 4–4.5% gross domestic product (GDP) growth in the United States and expect global gross domestic product (GDP) growth of 4.5–5%.
• A swoosh-shaped recovery, characterized by a quick, sharp decline and then a partial snapback followed by a gradual recovery is the most likely scenario, in our view.
• The rollout of a COVID-19 vaccine is needed to lift up the heavily impacted segments of the economy such as service industries.
• A soft US dollar environment may persist amid the backdrop of dovish central bank policy and continued budget and trade deficits.

Stocks should see modest gains in 2021, and a strong earnings rebound could allow stocks to grow into their current valuations.

• We see an S&P 500 Index fair value target range of 3,850–3,900 in 2021 with potential for further upside if the production of a vaccine exceeds expectations.
• Growth-style stocks may continue to perform well next year, but we expect participation to broaden, which could boost cyclical value stocks.
• Early-cycle positioning and prospects of a strong earnings rebound may provide a tailwind to small caps.
• We maintain our preference for emerging markets equities over developed international given the stronger growth prospects of the region.

Bonds will present a more nuanced challenge for investors as interest rates rise amid the backdrop of an economic recovery and normalizing inflation.

• Our target range for the 10-year Treasury yield is between 1.25% and 1.75%.
• With modest return expectations for high-quality bonds, we recommend suitable investors consider positioning for a rising-rate environment.
• We prefer an overweight to mortgage-backed securities and investment-grade corporates for suitable investors.

We believe 2021 could provide similar market performance as 2020—particularly if progress on a vaccine exceeds expectations—although we sincerely hope the path will be much smoother than what we experienced in 2020. Markets are forward-looking mechanisms, and as we receive further clarity on what the world may look like after the pandemic, we expect markets will reflect this.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and Bloomberg.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

The pace of US jobs growth slowed further in November, adding fuel to what’s been borne out by recent high-frequency data: The economic recovery is increasingly cooling in the face of rising COVID-19 cases and renewed lockdowns.

The US Bureau of Labor Statistics released its monthly employment report the morning of December 4th, revealing that the domestic economy gained 245,000 jobs in November, falling short of Bloomberg-surveyed economists’ forecasts for a 460,000 gain. The unemployment rate fell to 6.7% from 6.9% as the labor force participation rate edged lower by 0.2% to 61.5%. Average hourly earnings rose 0.3% month over month and 4.4% year over year, likely signaling lower wage workers remain under pressure. While directionally this jobs number still represents positive jobs growth, as seen in the LPL Chart of the Day, jobs gains are beginning to plateau before coming close to recapturing the historic loss of jobs in April.

View enlarged chart.

A decline in retail jobs headlined this month’s jobs report, as major in-person retailers shunned the seasonal hiring ramp-up of past years. Clothing goods, sports merchandising, and general merchandising stores experienced declines in employment in November as consumers continued to show a preference to shop online and avoid person-to-person contact. Manufacturing and construction jobs showed slight improvements month over month, and leisure and hospitality jobs showed surprising resilience in the face of declining in-person interaction. Healthcare services were characteristically strong, adding more than 59,000 jobs in November.

“November gave us a lot of positive vaccine news, which should start helping the job market over the next few months,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In the meantime, we need to limit the number of people who get left behind against the backdrop of a stalling recovery.”

Always a closely watched economic report, investors and politicians alike have been assigning an increased level of importance to November’s report given its potential to impact fiscal stimulus negotiations. Policymakers in Washington, DC have publicly clashed over the need for another round of fiscal stimulus, in terms of both overall size and timing. A less sanguine jobs report today could give the prominent actors in the negotiations the political cover needed to come off their hardened positions and compromise on a deal before year-end, providing a much-needed jolt to the recovery.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

If your representative is located at a bank or credit union,  please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.

These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

COVID-19 cases have been on the rise in the US, particularly in the Midwest. This latest wave of the virus and related restrictions have begun to hamstring economic growth at a time when momentum was already fading as we entered the fourth quarter, based on the December iteration of the Federal Reserve (Fed)’s Beige Book.

In the Beige Book, the Fed presents qualitative observations made by community bankers and business owners—or “Main Street”—about economic (housing, labor market, manufacturing, nonresidential construction, prices, tourism, wages) and banking conditions (lending conditions, loan demand, loan quality). At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB) to gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the text.

There were no new revelations in the industry segments, as housing and manufacturing activity remain robust while the retail, leisure, and hospitality sectors remain under pressure. As shown in the LPL Chart of the Day, the Beige Book Barometer rose for the fourth straight iteration since April, as economic momentum continued despite rising COVID-19 cases:

View enlarged chart.

However, about a quarter of the Fed’s survey respondents cited little to no growth in their district. In particular, recent COVID-19 hotspots in the Midwest noted that economic activity began to slow in early November as cases surged—affirming our view in Weekly Market Commentary COVID-19 May Threaten the Recovery.

“While the economy has come a long way, we’re not out of the woods yet, and rising COVID-19 cases present a risk for an economic soft-patch as we head into 2021.” Added LPL Chief Market Strategist Ryan Detrick.

The Beige Book also revealed that momentum in the labor market has stalled—raising fear unemployment could rise through the winter—and some companies are finding it difficult to hire as childcare and other health concerns are creating labor-supply issues. The good news for workers has been that companies are seeing increased pressure to raise wages for low-skilled employees—a segment of the labor market that has been particularly affected by the outbreak of COVID-19.

A curious development was the rather widespread citation of supply disruptions and rising transportation costs, which have largely been passed on to consumers. When the management of COVID-19 improves, lifting consumer confidence and spending, this could set the stage for greater inflationary pressure.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and Bloomberg.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

What a month November was! Here are some of the highlights:

• Best month for Dow since January 1987 (11.9%) and best November since 1928
• Best month ever for the STOXX 600 (16.7%)
• Best month ever for the Russell 2000 (18.3%)
• Best month for the S&P 500 (10.8%) and Nasdaq (11.8%) since April 2020
• Best month for Dow Transports since October 2011 (12.1%)
• Best month from PHLX Semiconductor Index since March 2003 (18.4%)
• Best month for Industrials (16.0%) and Financials (16.8%) since April 2009
• Second best month ever for energy (28.0%)*

“A way better than expected earnings season, a likely split Congress, and major breakthroughs on the vaccine front all helped stocks soar last month,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Add ongoing support from the Federal Reserve as the cherry on top and we are looking at a truly historic month on many levels.”

Here’s all the Dow monthly returns since 1900. Last month was the best return since January 1987. Now before you go out and sell because you see 1987, remember the S&P 500 added another 20% the seven months after the huge gains in early 1987.

View enlarged chart.

It was the best November for the S&P 500 since November 1928.

View enlarged chart.

Small caps soared on the likelihood of taxes staying lower due to a divided Congress and vaccine progress, with the Russell 2000 adding more than 18% for the best month ever, topping the previous record from February 2000.

View enlarged chart.

What happens after a big month? Well, history says a 10% monthly gain is quite bullish. In fact, we had a 10% plus rally back in April 2020 and shared this same chart at that time. Sure enough, returns have been strong this time around as well. “The bottom line is the huge gains in November could actually be the start of something much stronger,” according to Ryan Detrick. “Also, this was the second month of 2020 with a 10% gain. The only other year to do that? 1982, which kicked off a historic bull market.”

View enlarged chart.

Turning to December, this month is widely known to be quite bullish, as Santa comes to town, people feel good, and stocks tend to do well. As shown in the LPL Chart of the Day, since 1950, December has been the second best month of the year, with only November better. December had been the best month of the year until the historic 9.2% drop in 2018. As a result, December hasn’t been quite as strong over the past 10 and 20 years.

View enlarged chart.

Breaking it down even more, a big rally in November can potentially steal some of December’s thunder. As after a 5% or 10% rally in November, the returns in December are more muted. The flipside to this though is if the S&P 500 is up more than 10% for the year (like 2020), then stocks have benefited from some performance chasing and have tended to do better.

View enlarged chart.

What does it all mean? After the historic move in November we wouldn’t be surprised to see below average returns in December. We do believe this is a new bull market and lasting economic cycle of growth, but overall sentiment is getting quite stretched and this increases the potential for some near-term weakness. Please read COVID-19 May Threaten The Economic Recovey for more of our near-term thoughts.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Market Blog Posted by lplresearch

As 2020 winds down, it has been an extremely tough year on all of us. Still, there are many reasons to be thankful and today we will share some reasons investors should be thankful.

Stocks have had one of the largest reversals ever in 2020, something to be thankful for. In fact, this could be the first year ever to see the S&P 500 down more than 30% peak-to-trough and finish higher.

View enlarged chart.

We should also be thankful that Congress was split in 2020, likely marking the 11^th consecutive year the S&P 500 gained under a split Congress. Gridlock is good they tell us and that very well could be true yet again.

Want something else to be thankful for? We likely will have a split Congress for another two years after the two Georgia runoffs are official.

View enlarged chart.

Let’s be thankful that it is looking like stocks once again will be higher the year a President is up for re-election. In fact, you have to go back to FDR in the ‘40s the last time the S&P 500 was lower for the year when a President was up for re-election.

View enlarged chart.

Let’s be thankful that the fastest bear market in history (only 16 days) is officially a thing of the past.

View enlarged chart.

We are thankful that we are in a new bull market, which if history plays out once again, could have a lot of life left to it. In fact, the average bull market has lasted more than five years.

View enlarged chart.

“Let’s be thankful that the huge move off the March lows was a major clue of more strength,” explained LPL Financial Chief Market Strategist Ryan Detrick. “We noted at the time (many different ways) that the enormous move we saw off the March lows likely suggested significantly higher prices, while many ignored the market signals and instead looked for a re-test for months on end.”

The 20-days off the March lows was the second best 20-day rally ever and sure enough, the returns have been very strong.

View enlarged chart.

We are finally seeing many stocks participate in this bull market, another reason to be thankful. In fact, the Value Line Arithmetic Index recently made new all-time highs. This index is a great look at what the ‘average’ stock is doing and is a sign that this move isn’t being led by just a few large cap tech stocks.

View enlarged chart.

Let’s be thankful that the NYSE Cumulative Advance/Decline line is at new highs. This looks at how many stocks are going up versus down and new highs are a sign of very healthy participation.

View enlarged chart.

Emerging markets have started to turn higher and we are thankful that this group could be on the verge of a major breakout to new highs, clearing their peak from 2007. As we move into ’21, this is one group we think could continue to do quite well for investors.

View enlarged chart.

Global investors should be thankful, as the MSCI Global Index broke out to new highs as well, suggesting this rally isn’t only about the US anymore.

View enlarged chart.

We upgraded our view on small caps in September and the Russell 2000 Index is currently on pace to have its best monthly return ever. Investors should be thankful that this group is finally participating, as there are many more small caps than large caps, another sign of improving breadth, while small caps are also more domestic by nature and could be suggesting a strong US economy next year.

View enlarged chart.

Investors should be thankful for the incredible strength around the election, as the S&P 500 gained more than 1% four consecutive days. This is extremely rare, yet, extremely bullish going out a year.

View enlarged chart.

As we showed in Frothy Sentiment Rides Bullish Technicals, the huge number of stocks in the S&P 500 making new monthly highs should make bulls quite thankful.

View enlarged chart.

Earnings are expected to see a major bounce back, as the global economy gets back online next year, making many investors quite thankful.

Economic forecasts may not develop as predicted.

View enlarged chart.

As shown in the LPL Chart of the Day, the final reason to be thankful? Down 30,000!

View enlarged chart.

We wish everyone a happy and filling Thanksgiving! For more of our thoughts on the recent market action, please watch our latest LPL Market Signals video from our YouTube channel below.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

It may be a year or more before the end of the recession is officially called, but gauging from the growth we’ve seen since April, it may already be over. If that’s true, it’s a good time to take a look at what US Treasury yields do early in a new economic cycle. As shown in the LPL Chart of the Day, in the last seven recessions, dating back to 1970, the difference between the 10-year Treasury and 3-month Treasury yield, referred to as a yield spread, at peak has been at least 2% every time—and above 3% in the last four recessions. (Looking at the spread between the 10-year and the 3-month Treasury makes it easier to compare times when the absolute rate level was different.)

“The four scariest words in market forecasting are ‘this time it’s different,’” said LPL Financial Chief Market Strategist Ryan Detrick. “But with the Bloomberg-surveyed economists’ consensus for the 10-year Treasury yield at just 1.2% for the end of 2021, the consensus view is that bond yields will behave differently coming out of this recession than they have in the past.”

View enlarged chart.

The 3-month Treasury yield is unlikely to move much over the next year, with the Federal Reserve’s (Fed) updated policy framework allowing the Fed to keep rates lower for even longer. As long as the Fed’s policy rate is near zero, the 3-month Treasury yield is unlikely to push much over 0.25%, and it has generally been lower.

For example, let’s say it hovers around 0.1%, just to get a lowball estimate on where rates may go. Using the flattest of all the early expansion peaks, a 2.41% spread in 1970 would still give you a 10-year Treasury yield forecast of around 2.5%, nearly double the current forecast. So what are economists seeing?

• Global growth may remain muted. Prior to COVID-19, global growth was already persistently more tepid than it had been in prior decades. While pent-up demand may lead to temporarily elevated growth, long-term factors weighing on economic growth from before the recession are still in play, such as demographic headwinds and weak productivity growth. Also, the economic disruption from COVID-19 may have done some structural damage to the economy that will not be repaired easily.
• Inflationary pressure may be limited. Central banks have spent the last decade trying to give inflation a modest boost with little effect. While the scope of both monetary and fiscal stimulus leaves some room for an unexpected pickup in inflation down the road, spare capacity and slack in the labor market may keep inflation limited.
• Central banks are still active. Central banks continue to purchase bonds to help limit the increase in longer-term bonds yields.
• US yields are still attractive to global investors. If US yields climb relative to other international developed economies, Treasuries will become more attractive to international investors, potentially helping to limit additional increases. If the US dollar falls, however, some of this benefit may be lost.

All of these points have merit, and we also anticipate less steepening than we’ve seen in the past. Nevertheless, our rate outlook for 2021 sits above consensus. While we still see a historically flat post-recession yield curve peak, history still carries some weight, and the more upside we potentially get to economic expectations, the more history may be our guide. Overall, we’re targeting a 10-year Treasury yield of 1.25–1.75% in 2021, with a bias toward the lower end.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. They are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog Posted by lplresearch

COVID-19 cases have been rising in several regions around the world, prompting many countries to implement new restrictions to curb the spread of the virus. Governments in a few European countries have rolled out what has been dubbed “lockdown 2.0,” and high-frequency data in the region, highlighted in our blog Europe’s Lockdown 2.0 May Be Smarter, has shown a reduction in economic activity. While new restrictions are more targeted than those used in the spring, economies currently are in a more fragile position and some could even be at risk of a “double-dip” recession.

As shown in the LPL Chart of the Day, COVID-19 data in the United States has gotten worse in the fourth quarter. With conditions deteriorating and the weather getting colder, there is a growing risk that more restrictions will be enacted in the United States as well.  California and New York have already implemented some initial rollbacks such as nighttime curfews and school closings, while additional measures are being considered elsewhere.

View enlarged chart.

The US economy appears to be in a better position to withstand these curbs than it was in the spring, but unemployment remains high at 6.9%, and economic data for service-oriented industries has shown fading momentum in recent months. If the uptick in jobless claims last week is the beginning of a trend, consumer spending may decline, which could affect roughly 70% of the US economy.

“The worsening trends in COVID-19 data present a very real risk to an economy that remains on soft ground,” noted LPL Chief Market Strategist Ryan Detrick. “While recent news on vaccine progress has been a welcome development, the actual rollout of a vaccine could take longer than people realize.”

Even without new lockdowns, it appears that consumer behavior has already begun to react to the rise in cases, presenting a risk to economic activity regardless of any policy decisions to curb activity. Real-time data series like restaurant bookings through OpenTable have been declining in recent weeks, particularly since the acceleration in new case growth in October.

View enlarged chart.

Curiously, however, the stock market appears to be discounting the chances of new lockdowns—or at least the nature of them. As the S&P 500 Index sits near all-time highs, cyclical stocks are outperforming defensives, small caps have outperformed large caps, Treasury yields have been rising, and there’s been a rotation out of the “stay at home” stocks—certainly a very different market environment than we saw leading up to the March volatility. Recent progress on the path forward for a vaccine is a material development for a forward-looking mechanism like the stock market, and this may be what is altering the market’s perception of the risk of additional restrictions.

While a double-dip recession is not our base case and we are encouraged by the market’s resilience, the worrisome trend in COVID-19 data may have raised the chances of tripping up the recovery. We’ll continue to monitor real-time data indicators for insight on the path forward for the virus and the economy.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and Bloomberg.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value

Economic Blog  Posted by lplresearch

Leading economic indicators are confirming what high-frequency data has been telling us for weeks: The rate of the domestic economic recovery, while still positive, is slowing.

On November 19, the Conference Board released its October report detailing the latest reading for its Leading Economic Index (LEI), a composite of data series that tend to lead changes in economic activity. For the second straight month, the index’s value grew 0.7% month over month, suggesting still-positive economic growth, but at a significantly lower level than earlier in the recovery. For context, the monthly growth rate peaked in June at 3.1%, and was growing at a rate of 1.6% just two months ago, as seen in the LPL Chart of the Day.

View enlarged chart. 

Seven of the LEI’s ten component series increased in October, while two remained constant and one declined. The Institute for Supply Management (ISM) New Orders Index, average weekly initial claims for unemployment insurance (inverted), and the Leading Credit Index (inverted) led the way among positive contributors. Building permits and average consumer expectations for business conditions held steady, but manufacturers’ new orders for nondefense capital goods, excluding aircraft—one proxy for business investment—declined in October.

“It’s no surprise that we are seeing a soft patch in some of the real-time economic data,” said LPL Financial Chief Market Strategist Ryan Detrick. “The prospect of a widely distributed vaccine by mid-2021 is helping to lift optimism for the future, but in the meantime, the economy is having to contend with new highs in daily case counts and the specter of renewed targeted lockdowns.”

We are certainly heartened by the recent news regarding  efficacy rates in major vaccine trials. The flipside to this, however, is that seeing the light at the end of the tunnel may reduce Congress’s appetite to enact a major stimulus bill to see us through to the other side.  We continue to monitor high-frequency economic data, as well as positive case counts, to gauge the economy’s resilience and determine whether any worsening could force Congress’s hand on a stimulus bill.

IMPORTANT DISCLOSURES

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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

• Not Insured by FDIC/NCUA or Any Other Government Agency
• Not Bank/Credit Union Guaranteed
• Not Bank/Credit Union Deposits or Obligations
• May Lose Value