Weekly Market Commentary

Q4 EARNINGS PREVIEW: MIX OF SOLID GROWTH AND POLICY UNCERTAINTY

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

Earnings season is underway and, thanks to the banks, it’s off to a good start. Currently, consensus estimates are calling for a strong 12% year-over-year increase in S&P 500 earnings per share (EPS) for the fourth quarter of 2024. Steady economic growth should be enough for corporate America to beat these estimates, but upside will likely be limited due to several headwinds, including currency. Regulatory, trade, and immigration policies will be a major focus for analysts and investors in the weeks ahead, where this earnings season may bring more questions than answers. Policy developments will have a lot to do with whether Wall Street’s expectations for double-digit S&P 500 earnings growth in 2025 will be realized. With valuations high, corporate America needs to come through.

Weekly Market Commentary

NEW YEAR, SAME BULL MARKET?

Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

As the new year officially gets underway, there’s the usual sense of renewed optimism and excitement over new opportunities. However, recent stock market activity is casting a shadow over this sentiment. Momentum in equity markets has recently stalled, and breadth measures have deteriorated, suggesting the recent pullback might not be over. The silver lining to a deeper drawdown is that it could provide a buying opportunity back into this bull market, as most importantly, the S&P 500 remains above its longer-term uptrend, and fundamentals are on solid footing. The economy is holding up well; corporate earnings continue to grow at a strong pace; the Federal Reserve (Fed) is likely to cut rates further this year; and the incoming administration could deliver a pro-growth agenda with less regulation and lower taxes. And while higher rates and the potential for re-accelerating inflation remain key risks in the year ahead, we still believe this bull market deserves the benefit of the doubt.

Weekly Market Commentary

EVALUATING STOCK AND BOND MARKET PREDICTIONS FROM 2024

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

With 2024 fully behind us, it’s a good time to celebrate our winning calls from last year while also reviewing some mistakes to learn from them and improve our process. The good news is we got more right than wrong last year, but there were some misses. Some course corrections helped. Perhaps the most impactful decision we made was to recommend investors stay fully invested in equities at benchmark levels throughout the entire year despite expecting a stock market pullback around Election Day.

Weekly Market Commentary

KEYS TO STOCK MARKET GAINS IN 2025

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

As 2024 draws to a close, investors have fully embraced the stock market. The S&P 500 is up more than 25% year to date. The broader Russell 3000 Index is up 24%. The Nasdaq Composite is up over 31%. Even the laggards are up double-digits with 12% and 14% advances for the small cap Russell 2000 and the Dow Jones Industrial Average. Volatility was low, with a maximum peak-to-trough decline for the S&P 500 of 8.5% (the long-term average max drawdown is over 13%). As we turn our attention to 2025, the supports of the past year largely remain in place, but some additional pillars have been added as we discuss below.

Weekly Market Commentary

THE FED RESETS EXPECTATIONS FOR NEXT YEAR

Jeffrey Roach, PhD, Chief Economist, LPL Financial
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial

The Federal Reserve (Fed) is moving more cautiously in adjusting policy, and markets might have a hard time resetting expectations. Throughout the latest press conference with Fed Chair Jerome Powell, equity markets declined as investors were befuddled with the large upward revision to 2025 inflation forecasts; despite disappointing inflation projections, the “vibecession” is over as businesses and consumers have become more optimistic. We highlight pent-up demand for capital investment that could provide support in the new year.

Weekly Market Commentary

A GOLDEN AGE FOR INCOME INVESTORS

Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial

To say the U.S. economy has been difficult to read is an understatement. From generationally high inflation and interest rates to concerns about the labor market, it’s no wonder consumers are unsure about the overall health of the economy. In fact, in June, 59% of Americans believed the U.S. was currently in a recession (it wasn’t), according to a survey of 2,000 adults by Affirm. Conversely, prominent economists have downgraded the probability of a recession over the next 12 months to around 15% — this is the average probability of recession in any given year. But the Federal Reserve’s (Fed) very own recession forecasting model still says there is a 60% chance of recession over the next twelve months…huh? But after what looks like a temporary growth scare over the summer, economic growth data has been coming in generally better than expected lately, which has helped push Treasury yields higher, while at the same time pricing out the need for an aggressive rate-cutting campaign by the Fed. So, the question for fixed income markets in 2025 is how low will the Fed, absent an economic contraction, take the fed funds rate?

Weekly Market Commentary

HIGH-LEVEL THOUGHTS ON STOCK AND BOND MARKETS IN 2025

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Jeffrey Roach, PhD, Chief Economist, LPL Financial

LPL Research’s Outlook 2025: Pragmatic Optimism will be released tomorrow and available on LPL.com. Here we just provide an appetizer before the main course and share some of the stock and bond market themes covered in the full publication.

Weekly Market Commentary

A BASKET OF UNCERTAINTY BOLSTERS THE DOLLAR

Quincy Krosby, PhD, Chief Global Strategist, LPL Financial
Joshua Cline, Associate Analyst, LPL Financial

The dollar’s continued climb higher has been predicated on a host of factors — including the rise in geopolitical risk and the dollar’s safe haven status as inflows have picked up markedly, uncertainty with regard to the Federal Reserve’s (Fed) interest rate move in December, a solid domestic economic landscape with inflation still “sticky,” a weakening euro as expectations suggest the potential for a stronger rate cut, and questions regarding the inflationary implications of the Trump administration’s tariff agenda. With more questions than answers, the dollar’s ascent is expected to continue — or level off — until there’s more definitive information regarding the extent of tariffs, and on the other side of the equation, the effect of retaliatory tariffs. Global capital markets seek clarity, particularly the currency market.

Weekly Market Commentary

TRADE, TARIFFS, AND INFLATION

Jeffrey Roach, PhD, Chief Economist, LPL Financial

Trade dynamics have shifted considerably since President Trump’s first administration. Reshoring among U.S. businesses and headwinds to the Chinese economy may limit the inflationary impact from rogue trade policy.

Weekly Market Commentary

ELECTION DAY TAKEAWAYS

Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial
Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Jeffrey Roach, PhD, Chief Economist, LPL Financial

The clouds of uncertainty parted last week as former President Donald Trump decisively won the U.S. election, making him the second U.S. president to win non-consecutive terms (Grover Cleveland was the first to do it back in 1892). Investors welcomed the news with renewed risk appetite, bidding the S&P 500 to its 50th record high of the year on Friday. Trump’s proposed economic policies, including deregulation, a likely extension of the 2017 tax cuts, a possible corporate tax rate cut, and proposed tax exemptions on tips, social security, and overtime pay helped underpin buyer enthusiasm. The immediate de-risking of when the election will be decided was another big factor behind the post-Election Day rally.

Stocks were not the only asset class on the move last week, as Treasury yields and the dollar also advanced. Growth expectations re-rated higher as the market priced in more economic-friendly policy proposals. However, the improving growth outlook was accompanied by concerns over the deficit and rising inflation, especially with Trump’s proposed tariff policies. Herein, we discuss these themes and other major election takeaways for investors.

Weekly Market Commentary

ELECTION STOCK MARKET PLAYBOOK

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

As Election Day approaches, we discuss potential stock market implications of various possible outcomes. But before we get into that, we offer our regular public service announcement around elections and investing. Political views are best expressed at the polls and not in portfolios.

Stocks have fared well under Democrats and Republicans, in unified and divided government, and in polarizing political environments. Capitalism and corporate profits drive markets more than politics. Narrow majorities in Congress take out extremes, helping to mitigate the risk that bad economic policy substantially weakens the U.S. economy. Geopolitical threats are serious, no doubt, and can disrupt the U.S. economy temporarily, but our economy and financial markets are incredibly resilient.

Weekly Market Commentary

WHAT SCARES US ABOUT THE ECONOMY AND MARKETS

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Quincy Krosby, PhD, Chief Global Strategist, LPL Financial
Jeffrey Roach, PhD, Chief Economist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

Stocks have done so well this year that it’s fair to say market participants haven’t feared much. But just because risks haven’t affected markets lately doesn’t mean they won’t in the future. In that “spirit,” as Halloween approaches, we discuss what scares us about the economy and financial markets.

Weekly Market Commentary

Q3 EARNINGS SHOULD BE FINE, BUT EXPECTATIONS BEYOND THIS QUARTER ARE HIGH

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

The bar for third quarter earnings is low, with analysts currently expecting only about a 3% increase in S&P 500 earnings per share (EPS). That low bar and a supportive economic environment points to potential upside. However, stocks may already be pricing in solid results, with the S&P 500 up more than 7% since the third quarter began on July 1. Here we preview earnings season and discuss some of the key drivers of earnings growth in the year ahead.

Weekly Market Commentary

HAPPY TWO-YEAR B-DAY BULL MARKET - HERE’S TO A THIRD!

Quincy Krosby, PhD, Chief Global Strategist, LPL Financial
Joshua Cline, Associate Analyst, LPL Financial

On October 12, 2022, there were very few comments suggesting that a new bull market was in the throes of being born as the S&P 500 opened at 3,590.83 and closed at 3,577.03.

After all, inflation was still running hot even though the Federal Reserve (Fed) began its rate-hiking campaign on March 16, 2022, by raising rates by 25 basis points (0.25%) and moving to a 50-basispoint hike on May 5, 2022, as it tried to quell inflationary pressures. By mid-June, a series of 75- basis-point hikes were introduced as the Consumer Price Index (CPI) peaked in June at 9.1%.

The October 13 rally that ended the bear market at a low of 3,577.03 began with the S&P 500 selling off in the morning only to rally dramatically higher into the market close. The CPI report earlier in the day showed headline inflation at 8.2% on a year-over-year basis, but Core CPI ─ not including food and fuel prices ─ beat the consensus estimate at 6.6%. The S&P 500 closed at 3,669.91 and the bull market had commenced.

Weekly Market Commentary

JUST WHEN WE RECALIBRATED, ANOTHER SHOCK ARRIVED

Jeffrey J. Roach, PhD, Chief Economist, LPL Financial

Federal Reserve (Fed) Chair Jerome Powell said last month’s decision to cut the fed funds target rate by a half percentage point was due to a “recalibrating” policy, as the Fed follows its dual mandate regarding inflation and growth.

The new buzzword — recalibration — implies mechanical fine-tuning, but unfortunately, the macro economy is not that robotic. We are full of emotional people with ever-changing needs and wants. However, the buzzword also evokes something therapeutic; that is, the Fed is not cutting rates because of an imminent recession. In fact, the economy will likely grow above trend for yet another quarter or two. However, risks are rising for 2025.

Weekly Market Commentary

GOLD RALLY IS NO FLASH IN THE PAN

Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

When it comes to investing, gold may be the antithesis of artificial intelligence (AI). The precious metal has acted as a store of value for thousands of years with zero technological innovation — gold is discovered, not developed. Gold is also a real tangible asset and can act as a potential hedge against inflation or a safe haven during times of crisis. Given these properties and the backdrop of a risk-on-record-setting equity market, many investors are wondering what’s behind the paradoxical price action of gold’s rally to new highs and how the yellow metal has matched the momentum in AI stocks over the last several months (gold and the equal-weight Magnificent Seven Index are both up around 20% since March). Herein we discuss the key drivers of gold and why this rally is no flash in the pan.

Weekly Market Commentary

POLICY CROSSCURRENTS: POTENTIAL MARKET IMPACTS

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

Of course, last week’s headliner was Jerome Powell and the Federal Reserve (Fed) cutting rates by a half percent on Wednesday, September 18, the first time since the COVID-19 pandemic broke out in 2020. The Fed “pause” ended at 423 days and now stands as the second-longest on record, while the 26% gain for the S&P 500 during the pause (7/27/23–9/18/24) ranks first. Here we share some thoughts on the Fed’s move last week and some potential market implications of not only Fed policy but also fiscal policy post-election.

Weekly Market Commentary

ELECTION IMPLICATIONS ON THE MUNICIPAL MARKET

Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial

With the first presidential debate behind us, it’s safe to say election season is in full swing. While last week’s debate was light on economic policies, the future of tax policy (along with potential efforts to arrest elevated federal deficits) could have broad implications for the municipal (muni) market — some good, some not so good. With the Tax Cuts and Jobs Act (TCJA) set to sunset in 2025, the election will go a long way in determining the future of tax policy in the U.S. And for muni securities and their unique tax-exemption characteristics, the election will go a long way in determining future demand for the asset class. But with the Federal Reserve (Fed) embarking on a rate cutting cycle likely starting this week, the next few months could be the last “best time” to buy munis, regardless of changes to tax policy.

Weekly Market Commentary

SECOND QUARTER EARNINGS RECAP: GOOD, NOT GREAT

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

Second quarter earnings season is in the books, and it was a good one. S&P 500 companies collectively grew earnings at a double-digit pace for the first time in three years. Companies beat estimates at a solid 79% clip. Guidance from company CEOs and CFOs was relatively upbeat. And although some were a bit disappointed by big technology results based on stock reactions, the problem was high expectations more than anything else.

Weekly Market Commentary

RUSSIA TO HOST BRICS SUMMIT 2024 AMID HEIGHTENED GEOPOLITICAL CLIMATE

Quincy Krosby, PhD, Chief Global Strategist, LPL Financial
Joshua Cline, Associate Analyst, LPL Financial

In December 2023, Vladimir Putin declared that the 2024 BRICS Summit, hosted by Russia, would be focused on establishing a “fair world order” based on shared principles. At the core of Putin’s goals for stronger BRICS economic integration is a longstanding and overriding objective to provide a viable alternative to the West’s global hegemony in nearly all facets of political, military, economic, financial, and security affairs.