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Economic Blog Posted by lplresearch

Real-time European COVID-19 and economic data provides an insight into how the pandemic is affecting economies around the world. We’re monitoring real-time data because traditional economic data is too slow to pick up the changes that are occurring.

Europe is now in the midst of a significant second wave of COVID-19 infections, and local governments have implemented new restrictions, or “lockdown 2.0,” across much of the continent. “The high-frequency data we monitor shows the new round of targeted lockdowns have limited people’s mobility in recent weeks,” said LPL Financial Equity Strategist Jeffrey Buchbinder. “The smarter restrictions will hopefully help mitigate the economic impact until a vaccine is widely available in 2021.”

In recent weeks, Europe has been facing a surge in COVID-19 infections with more than 2 million new cases reported by European nations last week. This is slightly down from the prior week as a new wave of targeted government lockdowns has taken effect across much of Europe.

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These new lockdowns aimed at curbing the second wave in Europe have been instituted either nationally, such as in France, or on a more regional basis, like Italy and Spain. The one thing that most of lockdowns 2.0 have in common is that they appear to be “smarter” compared with those that were hastily put into place in the spring. Most of the new lockdowns are targeting areas of the economy that have been more closely linked to community outbreaks of COVID-19, like hospitality and recreation, while allowing lower-risk areas of Europe’s economies, like manufacturing and construction, to continue to operate.

Using data from the online restaurant booking system Opentable, we are able to see that lockdown 2.0 has targeted this industry and decimated in-person dining activity in Germany, Ireland, and the United Kingdom (UK). These are now back at levels near zero as seen during the first lockdowns. Earlier in the summer, dining in these countries had enjoyed recoveries back to above 2019 levels.

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As shown below in the LPL Chart of the Day, the targeted nature of many of the new “smart” lockdowns appears to have allowed more people in Europe to continue to go to work, as measured by data from Google’s COVID Community Mobility Reports. During the initial lockdowns, the number of people going to work in the UK, France, and Italy fell by about 70%, compared to pre-pandemic levels, but so far have declined by only 10–20% since recent highs in mid-October. Germany appears to have coped the best, helped by the larger proportion of its workforce in the manufacturing and industrial sectors. Its citizens frequent their workplaces at a rate only 15% lower than in 2019 (up from a lockdown 1.0 low of down 52%).

View enlarged chart.

The high-frequency data on lockdown 2.0 in Europe suggests that Eurozone and British gross domestic product (GDP) will take hits in the fourth quarter 2020, and potentially the first half of 2021, until a vaccine is widely available. However, the economic effects likely will not be as catastrophic as in the first set of lockdowns. The data reinforces our expectation that economies in Europe likely will contract more than the economy of United States in 2020 and underpins our preference for emerging markets equities over those in developed international markets.

LPL Research continues to monitor high-frequency data from around the globe and will keep you updated, real-time, as appropriate.

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

First, the big economic data point this week was retail sales. Although the headline number was a little light at 0.3% versus an expected 0.5% gain month-over-month, it still hit another new all-time high along the way (source: US Census Bureau). “The miss could be a sign the consumer is finally starting to slow amid record COVID-19 cases and more restrictions, with restaurant sales dipping for the first time since April,” explained LPL Financial Chief Market Strategist Ryan Detrick.

The good news is retail sales has hit a new high for five consecutive months, and the economy has never been in a recession after three consecutive new highs—yet another sign the recession may be over, even if it hasn’t been called officially.

View enlarged chart.

How strong has the recent rally been? Well, as of Tuesday’s close, the S&P 500 Index was on pace to have its second-best month of November ever. November isn’t over yet of course, but this could open the door to a potential late-month snap back lower after a huge move, which would be perfectly normal and healthy.

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After Monday’s record close, the S&P 500 now has 24 new all-time high closes in 2020.

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The surge after the election was historic in many ways. The number of stocks in the S&P 500 recently making new monthly highs caught our attention. As shown in the LPL Chart of the Day, previous surges in new monthly highs opened the door for near-term weakness, but the weakness was a nice buying opportunity. In fact, a year after previous major breadth thrusts saw stocks higher every single time, not something we want to ignore.

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Last, more than 85% of the stocks in the S&P 500 recently were above their 200-day moving average—another sign of impressive participation in this recent market strength. Once again, future results would suggest this extreme strength is a sign of potential future strong performance and weakness could be used as a buying opportunity.

View enlarged chart.

For more of our thoughts on the recent market strength, please watch the 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

Market Blog  Posted by lplresearch

Fixed income investors aren’t used to having to deal with the volatility of stocks, but in the year that is 2020, that is exactly what has happened thus far. Unfortunately, while we don’t see the volatility of Q1 2020 continuing in 2021, we do believe that interest rates may continue to rise in 2021, and this may put more near-term pressure on bond returns.

Two technical reasons lead us to believe that the yield on the 10-year Treasury note has not only bottomed, but could be headed higher in 2021.

Inverse Head and Shoulders Pattern

One of the most well-known patterns in technical analysis is the Head and Shoulders Pattern. A reversal pattern, noted for its three points (left shoulder, head, and right shoulder) as well as the neckline, this pattern can also signal a reversal from a downtrend to an uptrend when the pattern appears to be upside down. As shown in Figure 1, we believe we are close to completing an inverse Head and Shoulders Pattern on the yield of the 10-year Treasury. A weekly close above the neckline near 0.95% would signal confirmation and target a move to just above 1.3%. The range from 1.3% to 1.5% also marks significant resistance for yields, as it was support for nearly a decade before breaking down in February.

View enlarged chart.

Lower for Longer Is Now Consensus

The fundamental arguments against higher rates are numerous. The economy is still recovering from a historic recession, COVID-19 cases are rising or hitting all-time highs in multiple regions of the country, and the Federal Reserve (Fed) has signaled it plans to keep short-term rates at zero for the foreseeable future. However, from a contrarian perspective, we believe there is a case to be made that “lower for longer” is now too consensus of a position, and that if the masses are already positioned for lower rates, those lower rates may be behind us. As shown in Figure 2, after consistently predicting higher interest rates throughout 2020 and revising forecasts lower as they fell, economists have been slow to revise forecasts higher even as yields have risen in recent months. In fact, the average forecast for the 10-year Treasury yield is now just 1.01% by the end of Q2 2021, implying barely a 10 basis point (.1%) move in rates over the next seven months.

View enlarged chart.

According to LPL Financial Chief Market Strategist Ryan Detrick, “The consensus expectation is that lower rates are here to stay. But with a vaccine potentially on the horizon, and parts of the economy recovering faster than expected, the biggest risk for fixed income investors may be a sharp move higher in rates.”

As a reminder, bond prices move inversely to interest rates, and a move toward 1.3–1.5% in 2021, combined with the low absolute level of interest rates could mean near-zero returns for the Barclays Aggregate Bond Index in 2021. The poor near-term outlook for bond returns remains one of several key reasons we continue to favor stocks over bonds heading into next year.

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 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

It took more than two years, but small caps finally broke out to new highs, as the Russell 2000 Index on Friday closed at its first new high since August 31, 2018.

This capped off one of the longest stretches ever without a new high.

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“We’ve seen large cap strength for years, but it is great to finally see the little guys join the party,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Don’t forget there are many more small cap than large cap names, so this is yet another sign that overall market breadth and participation is improving.”

As shown in the LPL Chart of the Day, when the Russell 2000 has gone more than one full year without a new high, the future returns going out a year have been quite strong, suggesting the recent strength could have plenty of legs.

View enlarged chart.

Small caps are more domestic by nature, and seeing small caps significantly outperform their large cap brothers the past few months could be another clue that the US economy may improve next year—maybe more than what most economists expect.

We recently upgraded our view on small caps, and you can read more in Three Reasons We Like Small Caps.

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

This year’s Masters Golf Tournament teed off Thursday at the Augusta National Course in Georgia. While there will be some familiar sights as the players compete for the coveted green jacket, it will also be a year unlike any other.

Due to the ongoing effects of the COVID-19 pandemic, the tournament is being played in November, rather than its usual spring slot, which means that Tiger Woods is still the defending champion 19 months after his comeback victory in 2019. This change in season will suit players who can adjust to the very blustery, rainy conditions, as demonstrated on the first day when play was suspended due to thunderstorms. The biggest change will be that there will be no fans at the course—no yells of “get in the hole!” and none of the famous atmosphere that some players revel in so much.

We at LPL Research have been trying to decide who we should be rooting for this year so we decided to take a light-hearted look at whether who wins the Masters had any predictive power for the stock market. As seen in the LPL Chart of the Day below we looked at the nationalities of all Masters Winners since 1974, when South African Gary Player won, and how the S&P 500 Index performed over the next four quarters.

View enlarged chart. 

Based on this data, an unlikely repeat for 2000 winner (and unwitting dot-com-bust harbinger), Fijian, Vijay Singh would be the worst signal for the market returns in 2021. But don’t worry—he’s currently a 2000 to 1 shot. Unfortunately, the nationalities with the best forward returns—Argentina, Canada, and Australia—don’t have any realistic prospects this time, so we are going to throw our irons behind the 10 to 1 shot, Spain’s John Rahm. On the five occasions that a Spaniard has triumphed, the S&P 500 has never been down over the next four quarters, with an average positive 16% return. Additionally, a winner from anywhere in Europe has led to an average 14% forward S&P 500 return versus 6% for the rest of the world!  “Once this year’s Masters winner is crowned on Sunday, we’ll be watching if this market predictor is up to par or, more likely, ends up in the rough,” joked LPL Chief Market Strategist Ryan Detrick.

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

Third quarter earnings season has been outstanding relative to expectations by many measures. Some of the highlights:

• S&P 500 Index earnings are tracking to a 7.5% year-over-year decline, as shown in the LPL Chart of the Day, more than 14 percentage points above expectations when earnings season began.

View enlarged chart.

• If the earnings beat rate of 86% holds with 10% of companies yet to report, it would mark the highest percentage of companies to exceed consensus earnings estimates since FactSet began tracking this statistic in 2008.
• On average, S&P 500 companies have beaten consensus earnings estimates by more than 18%, below last quarter’s 22% clip when analysts were pretty much guessing, but one of the best numbers recorded in recent decades.
• While S&P 500 earnings fell compared with prior-year levels, earnings for the Russell 1000 Growth Index actually rose 14% year over year during the quarter.
• Earnings estimates for the fourth quarter rose 1.8% during October, the best increase during the first month of a quarter since the first quarter of 2018, which was artificially boosted by corporate tax cuts via the Tax Cut and Jobs Act of 2017. Historically estimates tend to drop during earnings season.

“We believe the huge upside surprise in earnings may get more attention as more political uncertainty clears,” said LPL Financial Equity Strategist Jeffrey Buchbinder. “S&P 500 companies have a shot at returning to pre-pandemic levels of corporate profits in 2021, which we didn’t think was possible just a couple of months ago. We have to re-evaluate how much earnings power corporate America will have post-pandemic.”

Looking forward, it’s fair to say that—after seeing such strong third quarter results and record progress on vaccine development—we expect corporate America in aggregate to reach pre-pandemic levels of profitability sooner than we had anticipated just a month ago. The cost efficiencies companies have gained during the pandemic will bear fruit once the pandemic is over, and we think analysts will be surprised by how profitable S&P 500 companies will be once the economy is fully reopened.

At the same time, recent COVID-19 spread and renewed restrictions that may follow could slow the pace of the economic recovery and remain a risk to the earnings rebound while we wait for a vaccine(s) to be distributed in the months ahead. We also must watch the political landscape and tax and regulatory changes that may come along.

Look for more on the strong third quarter earnings season in our next Weekly Market Commentary due out Monday.

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

Posted by lplresearch

Economic Blog

Bond markets have had quite a ride since Election Day. The 10-year Treasury yield had been climbing very slowly in the months leading up to the election as the economy improved, but possibly also in anticipation of a potential Democratic sweep that could lead to a larger stimulus package. As shown in the LPL Chart of the Day, as polls were starting to close on Election Day, the 10-year Treasury yield had moved above 0.90%, a level at which it had not closed since June and then only barely. But then early results out of Florida and North Carolina let us know that this would be a closer election than many thought, and yields fell dramatically.

“Stock investors seemed to embrace the prospect of divided government as results came in, but bond traders were focused on other things,” said LPL Chief Market Strategist Ryan Detrick. “Part of it may have been weakening stimulus prospects. Part of it might have been increased election uncertainty as the race tightened. Either way, it looked like the reflation trade was off the table.”

View enlarged chart.

The “reflation trade” was simply market rotation that reflected improving prospects of a return to economic normalcy, potentially with the help of government stimulus. Leading up to the election, It was reflected not only in yields, but the relative performance of value style stocks and small caps, which had delivered improving relative performance in September and October after lagging sharply on a year-to-date basis through August.

As the new week opened on Monday, however, we were reminded that stimulus prospects were not the only signal for a reflation trade. Preliminary reports of encouraging vaccine trial results pushed the 10-year Treasury yield above election-day highs. At the same time, a badly beaten up Russell 1000 Value Index had its single best day versus the Russell 1000 Growth Index in its history. Small caps, not surprisingly, also had a strong day. Even as early broad stock market enthusiasm settled down to just a solid day of returns, yields largely held on to most of their early move.

Is this a sign of things to come? Really, it’s an extension of a trend that’s been in place since early September, but we would caution getting too excited about a single day. We do think interest rates are likely to extend their slow march higher, and we recommend bond allocations emphasize below-benchmark rate sensitivity. (Bond prices fall when interest rates rise.) For value and small cap stocks, it may be more part of the process of a slow thaw. In response to that, we did recently upgrade our view of small caps to neutral and do favor the more value-style oriented material sector. That single day of trading did at least signal that one potential avenue to a more durable return of the reflation trade is clear, as the work of doctors and scientists continues to have the potential to be a major market catalyst.

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

Posted by lplresearch

Market Blog

Stocks just had their best week since April, with the S&P 500 Index incredibly a chip shot away from new all-time highs. Joe Biden will be the next President of the United States, but markets are confident Republicans will maintain the Senate, and this means gridlock in Washington. Remember, gridlock is good, as it pulls policy towards compromise and avoids extremes. Also, any legislative changes to taxes, regulation, and capital gains will have meaningful input from both parties.

As shown in the LPL Chart of the Day, a split Congress tends to mean stronger stock returns, almost ignoring whether a Democrat or Republican is in the White House. The most likely outcome from the election at this point is a Democratic president with a divided Congress—a scenario that historically has produced solid S&P 500 returns of 15.9% a year.

View enlarged chart.

Assuming President-elect Joe Biden takes over in January 2021, it is important to note that historically stocks haven’t done as well the first and second years of a new president compared with an incumbent winning. This makes sense though, as  historically voters may have chosen new leadership in part because of economic weakness, and the uncertainty of a new president’s policies could also hold things back some. If things are good, the president tends to win reelection. Things turn around significantly by the third year in office, though, if there’s new leadership. Of course, it’s worth noting that the first year of a new president has seen the S&P 500 higher recently, with stocks up nearly 20% the first year under President Donald Trump (2017) and 23% under President Barack Obama (2009).

View enlarged chart.

Lastly, the strength from stocks around the election has been rather historic. “The S&P 500 added 1% on four consecutive days, which hasn’t happened since late 1982,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Although there are only three other times this rare blast of strength happened since WWII, it is worth noting that strong returns going out a year took place after each instance.” The bottom line: Extreme buying pressure has a funny way of resolving higher, and we don’t anticipate this time being any different.

View enlarged chart.

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

Posted by lplresearch

Economic Blog

The US labor market shrugged off election uncertainty and continued to add jobs in October. Despite the waning effects of fiscal stimulus and rising COVID-19 cases, per the US Bureau of Labor Statistics, the US economy added 638,000 jobs, ahead of Bloomberg survey estimates calling for 580,000. The headline number was depressed by a 268,000 drop in government employment, including 147,000 temporary census workers. Meanwhile, the unemployment rate fell from 7.9% to 6.9% despite a rise in the labor force participation rate, a reversal of the dynamic we saw in September when unemployment fell while the labor force participation also declined.

However, a troubling trend remains beneath the surface. As shown in the LPL Chart of the Day, the number of long-term unemployed—those out of work for 27 weeks or longer—continues to rise as a share of the total unemployed:

View enlarged chart.

“While the labor market has continued to show improvement, there are still many people out there who are having a hard time getting back to work,” noted LPL Chief Market Strategist Ryan Detrick. “With total jobs in the US around 10 million below pre-pandemic levels and rising COVID-19 cases, there’s a lot of room for improvement despite the declining unemployment rate.”

COVID-19 cases in the United States have reached record highs with a weekly trend growth rate above 20%, according to the COVID Tracking Project. As the weather cools and more activity shifts indoors, additional restrictions to limit the spread of the virus could slow the fragile labor market recovery.

In particular, much of the private sector gains in this month’s jobs report were in the services sector, where previous jobs reports had shown strength in goods-oriented industries. Many countries in Europe have reinstated restrictions or even gone as far as implementing new lockdowns. While we don’t expect lockdowns in the United States like we saw in March, restrictions on activity could limit future job gains.

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
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Posted by lplresearch

Market Blog  

As of Thursday morning, a winner to the 2020 presidential election has yet to be “officially” declared as several battleground states have yet to be called. Even as more clarity emerges from remaining votes being counted in Arizona, Nevada, and Pennsylvania today and tomorrow, recounts and legal challenges could draw this out longer.

A Democratic capture of the Senate appears much less likely now than it did Tuesday. Barring an extraordinary event, we seem destined for a divided Congress.

This is in stark contrast to the Democratic sweep that markets had been pricing in leading up to the election. We look to market price action as a dispassionate and impartial guide as to where consensus among market participants lies.

Markets are now adjusting rapidly to a scenario in which a President Joe Biden—should he win—may not be able to enact large parts of his agenda because of a Republican-controlled Senate, or to a second term for Donald Trump and a status quo Congress.

Here we offer 10 significant observations based on currently available information:

Treasury Yields Down

Treasury yields are down sharply post-election as the market digests the narrative that a divided Congress could likely mean a smaller stimulus package, whenever it does come, under a Biden or Trump presidency compared to under a Democratic sweep. Treasury yields are strongly correlated to economic growth potential, and the market had appeared optimistic over a large fiscal stimulus package’s ability to inflect a slowing economic recovery higher. Further, the decline in yields may also be accounting for softer inflation expectations because of delayed stimulus. Breakeven inflation rates—measured by the difference in the yield of inflation-protected bonds and their nominal counterparts—have fallen on the week as the odds of a blue wave have declined.

Financials Lag

Financials had risen sharply in recent days in response to climbing Treasury yields and a steeper yield curve. A cyclical sector, financials would have stood to benefit from a larger fiscal stimulus package. Some regulatory fears hovering over certain industries may be dampened, however, under a divided Congress.

Industrials and Materials Lag

Investors were hoping that a large part of any stimulus package passed under a Democratic sweep would focus heavily on infrastructure spending, which would benefit companies levered to a major building initiative. While still a priority for both parties, the scale is likely smaller under a divided Congress.

Growth over Value

While areas of the equity market tied to the size of an eventual stimulus package struggled in the immediate aftermath of the election, stocks with elevated long-term growth rates that are less sensitive to fluctuations in the economy are receiving renewed interest. These stocks, including FAANG stocks, have been the overwhelming victors so far this year, but had been selling off somewhat leading up to the election.

Dollar Volatility

The US dollar has had a wild ride since election results have started rolling in. On the one hand, a divided Congress reduces a potential Biden presidency’s ability to enact major corporate tax increases, which would be negative for the dollar. On the other hand the United States would likely have a less aggressive trade policy under a potential Biden win, which had been one thing propping up the currency in the first three years of Trump’s term. In aggregate, though, the dollar is down slightly, which is consistent with the prevailing trend in the last several months.

Emerging Markets Up

Emerging markets equities are receiving a large bid post-election as the dollar weakens slightly and investors begin to make a bit of an explicit bet on a Biden victory. Foreign policy is largely driven without major input from Congress, and a Biden presidency is perceived to be less confrontational with China, the dominant weight in the emerging markets equities index.

Technology Up

Technology has been stuck in somewhat of a rut since its blow-off top late this summer. Prices are up sharply following the election as they stand to benefit from several factors including a weaker dollar (extremely international sector), lowered threat of tax increases (one of the more highly taxed sectors), and a major bid for growth stocks following a murkier outlook for stimulus-related stocks. There is, however, still bipartisan appetite for increased regulation in the sector.

Price Action for Munis

Municipal bonds stood to gain from a Democratic sweep, as we wrote about in our LPL Research blog Why Munis May Want Joe Biden to Win. The lack of a Democratic sweep likely means a lesser chance of rising income taxes, which reduces the relative attractiveness of federal tax-free municipal bonds. Moreover, there is likely less money for state and local governments under a bipartisan, watered down stimulus bill than one constructed under a blue wave Congress. Still, lower rates are supporting price action today.

Healthcare Up

Major healthcare reform is one priority for which Biden likely would have needed to control both chambers of Congress in order to enact significant change. As the possibility for an all-blue Congress dims, healthcare is rallying as the threat of disruption to its industry subsides somewhat.

Renewable Energy

Perhaps the posterchild for the Democratic sweep trade, renewable energy stocks, which have seen a significant run-up since the end of September, were down sharply in the immediate election aftermath. Major climate-change spending initiatives would require sign-off from Congress, which is much less likely under a Republican Senate.

For more of our immediate reaction to the election so far, please watch our latest LPL Market Signals video here.

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