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Economic Blog

Following the massive beat in May nonfarm payrolls, many wondered if last month’s job gains pulled forward hiring ahead of the expiration of the Paycheck Protection Program to ensure small business loans were forgivable. Recall that the US labor market added 2.5 million jobs in May (revised up to 2.7 million in the June report) versus Bloomberg consensus expectations for a loss of 7.5 million jobs.

The June report helped put those concerns to rest, as the US economy added 4.8 million jobs, surpassing Bloomberg’s median consensus estimate of 3.2 million. As shown in the LPL Chart of the Day, nonfarm payrolls have been on a wild ride in 2020:

View enlarged chart.

However, despite surpassing expectations in the headline numbers, the June report also revealed that permanent job losses continue to tick higher. “Job growth remains the key to the economic recovery,” added LPL Chief Investment Officer Burt White. “The pandemic has been a major shock to the labor market that will take time to heal, but the solid job gains over the past two months suggest the recovery is well on its way and the recession may already be over.”

The unemployment rate dropped more than two points to 11.1% versus consensus of 12.5%, while misclassifications around the “absent from work but employed” issue would add only one point (compared with three points last month). Although the June report was a much smaller upside surprise than last month’s shocker, the job market is clearly coming back stronger than most economists expected.

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.

• 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

DAILY INSIGHTS

LPL Research in the news. LPL Financial Senior Market Strategist Ryan Detrick was on Bloomberg Radio recently to discuss current market action. (Ryan’s part starts at the 22:00 mark). Additionally, Ryan was quoted on Fox Business. We apologize that the links to these interviews were not included in the July 2 Keeping You Up to Date announcement.

U.S. stocks add to last week’s strong gains. Stocks are picking up where they left off after last week’s 4% rally, as the S&P 500 Index opened sharply higher this morning. US stocks are taking cues from China, where bullish comments from the state-owned media sparked a 5.7% spike in the Shanghai Composite and fueled gains around the world. European stocks are up even more than their American counterparts in midday trading in London.

June jobs report. The US Bureau of Labor Statistics June nonfarm payrolls report revealed the US economy added 4.8 million jobs, ahead of Bloomberg consensus forecasts of 3.2 million, while May’s total was revised up to 2.7 million. Despite the headline beat, permanent job losses continue to tick higher, suggesting the labor market still has room for improvement. We take a closer look at the June jobs report in today’s LPL Research blog.

High-frequency data leveling off. Plateaus in restaurant dining and electricity consumption (daily data), and in jobless claims and same-store sales (weekly), point to a slowing recovery, although mobility and confidence data have continued their steady climb over the past week.

Week ahead. This week’s economic calendar will include auto sales, the non-manufacturing Purchasing Managers’ Index (PMI), job openings and labor turnover, consumer credit, jobless claims, and wholesale inflation.

COVID-19 news. Data on new cases over the holiday weekend may be distorted due to the holiday, although Florida and Texas reported a record number of new cases. Still, as cases skew younger and treatments improve, the continued downward trend in COVID-19 related deaths is encouraging and hospitalizations continue to rise much more gradually than new cases. (Source: The COVID Tracking Project)

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 are 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

DAILY INSIGHTS

Stocks opened solidly higher. Stocks are adding to very strong gains for the week this morning after a strong June jobs report. Markets continue to shrug off the pause in re-openings in response to rising COVID-19 cases and are focusing more on improving economic data and vaccine prospects. European markets are eclipsing US gains in midday trading in London, while China and Hong Kong paced a 1.5% overall gain in the MSCI Asia Pacific Index overnight.

Another strong jobs report. The US economy added 4.8 million jobs in June, well ahead of Bloomberg’s consensus forecast at 3.2 million, while May’s total was revised up by about 200,000 to 2.7 million. The unemployment rate dropped more than 2 points to 11.1% (consensus was 12.5%), while misclassifications around the “absent from work but employed” issue would add only 1 point (compared with 3 points last month). Though a much smaller upside surprise than last month’s shocker, the job market is clearly coming back stronger than most economists expected.

Manufacturing comeback. The Institute for Supply Management (ISM) Purchasing Manager’s Index (PMI) for manufacturing jumped nearly 10 points in June to 52.6, ahead of Bloomberg’s consensus forecasts and in expansion territory for the first time since the pandemic arrived in the United States. The forward-looking new orders component surged, while supply chain pressures eased. The progress is encouraging, but the road to recover lost output is still a long one.

Weekly Market Performance. We’ll wrap up the week with our review of major index performance later today on the LPL Research blog.

July 4 Holiday Schedule. LPL Financial and the stock and bond markets will be closed Friday, July 3, in observance of the July 4 holiday. Please note:

• Daily Market Update will distribute July 2 but not on July 3.
• Weekly Market Performance blog will publish after noon ET on July 2; there will not be a morning LPL Research blog July 2 or any blogs on July 3.

COVID-19 news. On Wednesday, US daily cases surpassed 50,000 for the first time on a 45% week-over-week rise. We hope yesterday’s higher positive test rate of 8.5% is not the start of a trend. (Source: The COVID-19 Tracking Project) More reopenings have been pulled back, and more local governments have mandated masks. On a more positive note, vaccine candidates from Pfizer, with German biotech partner BioNTech, and the University of Oxford showed promising results (Source: COVID-19 Tracking Project).

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 are 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

We check in again today on some of the real-time economic data that LPL Research is monitoring to provide valuable insights into the current state of the US economy, even as traditional economic data is too slow to pick up the changes that are occurring in response to the COVID-19 pandemic.

Much of the high-frequency data is now showing a pause in the steady improvement we had seen since the end of March amid increasing public concern over the recent spike in COVID-19 cases in the US. In the last two weeks, the number of daily new US COVID-19 cases has doubled to over 40,000, largely due to surges in many southern and western states. While this is certainly a concerning development, the sharp increase in confirmed cases has come amid record testing levels (the seven-day average number of tests performed is up 26% in the last two weeks to 590,000). And while Tuesday’s more than 1600 increase in hospitalizations was concerning, thankfully the recent uptrend in the number of people hospitalized has been more gradual than the growth in new cases.

View enlarged chart.

The recovery in many of the real-time indicators appears to have plateaued in the past week, potentially reflecting that the increase in COVID-19 cases has the US consumer reconsidering dining out, shopping in stores, or traveling, where social distancing can be more challenging. Coming off extreme lows of -100% compared to the same time last year, the improvement in the number of diners in US restaurants has leveled off in the past week and is now sitting at about 50% down year on year.

View enlarged chart.

Another piece of high-frequency data showing a potential stall in the recovery is electricity demand, which had recovered toward the end of May as many states re-opened. In the past week, however, demand flattened out potentially indicating a slowdown in the rate at which businesses are reopening or softening demand for their goods/services.

View enlarged chart.

One real-time indicator that has now exceeded pre-pandemic levels is map routing requests by the Apple maps app, meaning more driving is occurring. This data steadily recovered from March/April lows as people returned to work or other economic activity, and now the continued increase is possibly reflecting a substitution effect as people shun public transportation and air travel.

View enlarged chart.

“The fits and starts in the real-time data show that this recovery is probably going to take longer than most of us want to see,” explained LPL Financial Senior Market Strategist Ryan Detrick. “We are on the road to recovery, but it is a road that is going to be pretty bumpy.”

We wish you a happy and safe Fourth of July.

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

Market Blog

What a quarter the second quarter was, with the S&P 500 Index adding 20.0%, for the best quarter since 1998 and the best second quarter since 1938. Of course, stocks fell 20% in the first quarter, so what we really have is a bad case of whiplash in 2020 thus far.

“A 20% quarterly gain is quite rare, but the catch is previous large quarterly gains have actually led to continued strength,” according to LPL Financial Senior Market Strategist Ryan Detrick. “In fact, a quarter later stocks have been higher the past 8 times after gaining at least 15% during the previous quarter.”

As the LPL Chart of the Day shows, future strong returns are quite normal after a big quarter. Although it might not seem likely given the headlines and magnitude of the current bounce, it is important to be aware that extreme strength usually begets more strength.

View enlarged chart.

2020 is halfway over, which means the third quarter is upon us. Historically, the third quarter has been the weakest quarter of the year.

View enlarged chart.

Breaking it down more though shows that July has been actually the strongest month during the summer. August and September have tended to be troublesome and dragged the third quarter down.

View enlarged chart.

For more on why what we’ve seen recently is extremely rare, yet could lead to continued gains, read this recent blog post.

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.

• 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

Read the latest economic outlook from LPL Senior Market Strategist, Ryan Detrick.

DAILY INSIGHTS

Stocks flat. US stocks opened slightly lower in the midst of higher COVID-19 numbers dominating the conversation. China’s market was closed Friday, but other Asian markets were green. European markets were also comfortably higher in midday trading, as the European Union offered to limit the scope of the digital tax it had threatened with the United States.

Stress test results out. After market close Thursday, the Federal Reserve (Fed) released the 2020 bank stress tests of 33 banks. The Fed announced banks were healthy but could suffer 2008-style losses if the economy languishes. In an attempt to help banks conserve funds, the Fed also said dividends would be capped in the third quarter and there would be no buybacks. Banks sold off on the news. Our financials sector view remains neutral.

Not all bad news for banks. Bank stocks rallied Thursday as some of the Volcker Rule was rolled back, including relaxing banks’ restrictions on proprietary trading and investing in hedge funds or private equity.

When will the economy recover? Much of the recent economic data has been better than expected, but we still expect the recovery to potentially take years to get back to some previous levels of output. For example, the previous 10 recessions took 30 months on average for all the jobs lost to come back. We take a closer look at this later today on the LPL Research blog.

COVID-19 news. On Thursday, new cases exceeded 39,000, an increase of more than 40% week over week and above the previous high set April 24. The rise has been concentrated in Texas and Florida, which paused re-openings; California, which is considering pausing; and Arizona. Hospitalizations rose for the fourth straight day, but as new cases skew toward younger people, the pressure on the healthcare system may likely be more manageable than during the initial waves (Source: COVID-19 Tracking Project).

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 are 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

DAILY INSIGHTS

Stocks struggling to regain footing. After Wednesday’s losses and headlines dominated by COVID-19, it won’t be easy for stocks to regain their footing today. The Nasdaq is holding up better and near flat this morning after its eight-session win streak ended yesterday. Asian markets were mixed on light holiday volume, with Japan among the laggards as the Nikkei dipped 1.2%. European markets are holding up relatively well and are mixed in midday trading.

Jobless claims remain stubbornly high. Filings for initial jobless claims totaled 1.48 million for the week ending June 20, above Bloomberg’s consensus forecast of 1.32 million and down only marginally from the revised 1.54 million reported for the prior week. The continuing claims number, reported with a one-week lag, dipped from 20.5 million to 19.5 million. While fresh filings for unemployment claims have fallen 12 straight weeks from a peak near 7 million in late March, the gradual decline in recent weeks and still staggering number of unemployed point to a long road ahead for the US job market to fully recover from the pandemic.

Pessimistic forecasts from the IMF. We believe the International Monetary Fund’s (IMF) new forecasts may be overly pessimistic, particularly their expectation for a nearly 5% contraction in global gross domestic product (GDP) this year. However, we find comparing their forecasts across regions instructive: They point to the sharpest declines in Europe and Latin America, and some of the smallest declines in Asia, including potential positive growth in China. Pandemic containment is only part of the story, but these growth forecasts support our continued preference for Asia over Latin America and emerging markets over developed international.

Do collateralized loan obligations pose a systemic risk? We’re seeing more news articles about collateralized loan obligations (CLO) and whether the growing size of this market poses a systemic risk to the economy. CLO’s complex nature, and perhaps a little bit of scar tissue, draw comparisons to other complex securities from 2008. We take a closer look at the CLO market and whether they pose a risk to the broader market in today’s LPL Research blog.

COVID-19 news. New US cases jumped to about 38,500 on Wednesday, an  increase of more than 60% over the prior week and one of the biggest daily increases of the crisis, according to the COVID-19 Tracking Project. New York, New Jersey, and Connecticut imposed quarantines for incoming travelers from hotspot states, while several states have paused re-openings, tightened social distancing restrictions, and added mask requirements. Hospital capacity is garnering increased attention (Source: COVID-19 Tracking Project).

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 are 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

DAILY INSIGHTS

Some weakness. Stocks in the United States opened lower, following global markets in the red. This comes on the heels of a strong run, with the Nasdaq on an eight-day winning streak. Concerns over spreading COVID-19 cases and attention to US-European Union (EU) trade are putting a damper on things.

New tariffs? The Trump administration is considering adding $3.1 billion of new tariffs on exports from France, Germany, Spain, and the United Kingdom. This appears to be in retaliation, as the EU is moving forward with a regional digital services tax, despite strong US reservations. Issues with trade have calmed down during COVID-19, but if they heat up again, it could add another layer of worry.

Gold and tech, strange bedfellows. Technology stocks continue to make new highs, with the Nasdaq up eight days in a row, the longest winning streak since 11 in a row in late 2019. Technology has been an area investors have rushed to during the crisis, as tech earnings and growth have remained relatively strong. Meanwhile, on Tuesday gold closed at its highest level since 2012 over worries about higher inflation and an economic slowdown. You wouldn’t expect these two areas to lead, but would you expect anything less from 2020?

Why did God create economists? Find out in the new Street View video, available in today’s LPL Research blog.

COVID-19 news. Confirmed new US cases rose 46.5% week over week on Tuesday to nearly 35,000 as three states—Arizona, Texas, and California—reported record new daily cases. Hospitalizations nationwide rose 5%, the biggest increase since mid-April, which will likely lead to tighter restrictions in current US hot spots. Bloomberg reported that Germany confirmed 712 new cases, up more than 200 from the prior day (Source: COVID-19 Tracking Project).

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 are 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

The US economy has made impressive progress in recent weeks. As the economy re-opens, the way we assess the recovery has changed. In March and April, we were looking for evidence that growth in COVID-19 cases was decelerating—which thankfully it did—along with evidence that a recession was priced into stocks and that stimulus measures were sufficient to get us through the crisis. We used our Road to Recovery Playbook, shown below, to help us determine how the market was progressing in its bottoming process.

Using this framework, stocks are clearly no longer pricing in a recession (#3); in fact, the recession in the United States is probably already over, and stocks are trading at their highest next 12 month’s price-to-earnings ratios (PE) since the tech bubble 20 years ago. In addition, we no longer have widespread investor pessimism that could potentially translate into outsized gains (signal #4).

But we do think we know what the COVID-19 peak looks like (signal #1), though we acknowledge the crisis isn’t over. We have also seen how deep the recession is (signal #2), while the policy response has been massive and sufficient to enable the recovery (signal #5).

View enlarged chart.

“We are encouraged by recent progress in reopening the economy, but it’s been low-hanging fruit,” according to LPL Equity Strategist Jeffrey Buchbinder. “As the pace of the economic comeback eventually slows in the second half, investors may stop celebrating strong growth rates and turn their focus to the shortfalls versus pre-pandemic activity, which could create a tougher path for stocks.”

So what now? As we wait for stocks to digest these strong gains over the past three months, we need new tools to gauge the next phase of the recovery. We gave you a taste of those new tools here last week, which include some of the timeliest, high-frequency data to assess the economic reopening.

For stocks to move much higher from here, we believe we will need continued steady improvement in economic activity in the daily and weekly data. In such a dynamic and uncertain economy, most monthly and quarterly economic reports are stale by the time they are released. Look for more updates on these timely data points in the weeks ahead.

For more on the reopening, please listen to our latest LPL Market Signals podcast 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.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.  It is a financial ratio used for valuation:  A higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

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