Weekly Market Commentary

4/24/23 DRAINING THE LIFEBLOOD OF THE ECONOMY

Jeffrey Roach, PhD, Chief Economist

Jeffrey Buchbinder, CFA, Chief Equity Strategist

Investors use various analogies to describe the importance of small businesses in the domestic

economy. Some refer to the small business sector as the backbone or the lifeblood of the economy.

At this current stage of the cycle, we could say there are rising risks of an acute backache or a

draining of that lifeblood. In this edition of the Weekly Market Commentary, we discuss the

weakness in small businesses and what that foreshadows in the markets and the economy.

Weekly Market Commentary

4/17/23 A CLOSER LOOK AT COMMERCIAL REAL ESTATE

Adam Turnquist, CMT, Chief Technical Strategist 

The commercial real estate (CRE) market has recently captured the spotlight after being flagged as the next potential shoe to drop following last month’s banking turmoil. While rising rates have weighed on financing costs and the recent bank failures will make lending more restrictive, the post-pandemic world has produced structural changes that will likely weigh on the sector, especially within the retail and office segments. Banks, especially smaller cap regionals, are most exposed to CRE if credit cracks continue to widen. 

Weekly Market Commentary

4/10/23 EARNINGS PREVIEW—MALAISE CONTINUES

Jeffrey Buchbinder, CFA, Chief Equity Strategist 

First quarter earnings season kicks off this week with some big banks reporting toward the end of the week. In some ways this quarter’s earnings season will probably be déjà vu all over again—earnings declines and cautious guidance, reductions in estimates, but better than feared. However, tightened financial conditions in the wake of last month’s banking turmoil and building evidence for a slowing economy has changed the economic backdrop this quarter. It will be interesting to see how management teams react to these latest developments. 

Weekly Market Commentary

4/3/23 WHO IS RIGHT, FED OR MARKETS?

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

Financial markets and the Federal Reserve are reading from two different playbooks. Who is right? The markets are pricing in several rate cuts by the end of this year, while the Federal Reserve communicated more rate hikes with an expectation of holding rates up throughout the balance of 2023. We think that markets have it right, but several factors need to play out for this outcome to prevail. If growth stalls and inflation materially slows, the Fed could cut yet keep real rates positive. Read more below for our reasoning and for what it means for your investments. 

Weekly Market Commentary

3/27/23 THE 36-HOUR SVB COLLAPSE AND HIERARCHY OF BLAME

Quincy Krosby, PhD, Global Macro Strategist, LPL Financial
Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial 

A lot has changed in the past few weeks, both in terms of expectations for interest rates and lost confidence in the health of the banking system as a result of the sharp rise in interest rates that has led to some things “breaking,” as we wrote about here last week. Here we share some thoughts on who’s to blame for the ongoing banking crisis and reiterate how we are telling investors to adjust, or not adjust, their asset allocations in light of ongoing market volatility. 

Weekly Market Commentary

3/20/23 WADING THROUGH FINANCIAL STABILITY RISKS: AN ACTION PLAN

George Smith, CFA, Portfolio Strategist, LPL Financial
Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Lawrence Gillum, CFA, Fixed Income Strategist, LPL Financial 

The Federal Reserve (Fed) has a history of raising short-term interest rates until something “breaks.” Considering the Fed has raised rates from a near-zero level to 4.75% (upper bound) over the course of only one year, it was almost a near certainty this time would be no different. Recent bank failures suggest things are indeed starting to break. However, we don’t think we’re on the brink of a full-blown crisis, as market indicators we follow suggest contagion risks are still currently low. And while we don’t think a full-blown crisis is imminent, financial stability risks have clearly increased, which makes a prudent asset allocation plan a must. 

Weekly Market Commentary

3/13/23 LATEST EQUITY ASSET ALLOCATION VIEWS

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

Last week did not play out how we anticipated. Coming into the week, it was all about Federal Reserve (Fed) Chair Jerome Powell’s congressional testimony and the February jobs report. Instead, we got a shockingly fast collapse of a financial institution with over $200 billion in assets, which turned the market’s focus toward the stability of the banking system and what systemic risks banks might be facing. This commentary is focused on our asset allocation views, but no doubt the Silicon Valley Bank saga will require more attention from investors in the days ahead. 

Weekly Market Commentary

3/6/23 NO LANDING = NO SENSE 

Jeffrey Roach, PhD, Chief Economist, LPL Financial 

Suggesting an economy makes “no landing” makes no sense. Analogies eventually break down, especially this one. Economic activity does not stop like an airplane eventually does, but rather the economy will settle into a steady state where growth is consistent with factors such as population and productivity. We take a look at some factors that illustrate how the economy is struggling to find a stable growth path. 

Weekly Market Commentary

2/27/23 DEBT CEILING PRIMER 

Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial 
Lawrence Gillum, CFA, Fixed Income Strategist, LPL Financial 

While concerns about the debt ceiling have been increasing, markets, businesses, and the economy are likely to see only minimal impact until we are days, or maybe a few weeks, from the “x date,” the date on which the federal government will no longer be able to meet all its obligations, likely in the summer or early fall. We continue to believe the chances that Congress will fail to raise the debt ceiling before the x date remain extremely low, but current political dynamics have likely increased the risk and there are some negative consequences to even an eleventh hour agreement, as we saw in 2011. 

Weekly Market Commentary

2/21/23 WHAT’S CHANGED AND WHAT IT COULD MEAN

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Quincy Krosby, PhD, Chief Global Strategist, LPL Financial 

Markets have adjusted to several changes this year. The pace at which inflation has cooled is slowing. The market has started to believe the Federal Reserve’s (Fed) “higher for longer” message. The bar for earnings has been lowered. Market relationships to interest rates have been turned upside down. And many of last year’s losers are this year’s winners, and vice versa. Here we take a look at some of the biggest changes in the market environment so far in 2023 and what those changes could mean for investors over the balance of the year. 

Weekly Market Commentary

2/13/23 TRYING TO STICK THE LANDING

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial Quincy Krosby, PhD, Chief Global Strategist, LPL Financial Jeffrey Roach, PhD, Chief Economist, LPL Financial 

Soft landing or no soft landing, that is the question, with all due respect to William Shakespeare. But while this may be the most commonly asked question these days, it may not be the most important or the toughest. That honor goes to what’s priced in. Good market forecasts are not just about the economy and earnings—they are about what the market is pricing in. Below we share our thoughts on the potential for a soft landing, the possible role China might play in that, and whether markets are pricing in too much good news. 

Weekly Market Commentary

2/6/23 BRIGHTENING OUTLOOK FOR INTERNATIONAL EQUITIES

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Quincy Krosby, PhD, Chief Global Strategist, LPL Financial 

Investors got more excited about international investing late last year. Some of that was chasing better returns, as developed international equities solidly beat the U.S. over the last three months of 2022. Some was the increased popularity of value investing as mega-cap U.S. technology stocks became less in favor. The surprising resilience of core European economies and a weaker U.S. dollar added to the market’s excitement. After such strong performance in international benchmarks recently, is there enough good news still yet to come for these markets to continue to outpace the U.S.? 

Weekly Market Commentary

1/30/23 WILL JANUARY HIT THE TRIFECTA?

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

The script has been flipped in 2023. Last year’s underperformers have turned into outperformers this year, driving the S&P 500 Index up over 5% this month. The pace and composition of the rally have left many investors skeptical over its sustainability, especially amid a lackluster earnings season thus far. Of course, the market is also forward-looking, with expectations for falling inflation and a less hawkish Federal Reserve (Fed) as we progress into 2023. And although the trajectory of the rally will likely slow, seasonal indicators point to a path higher for U.S. equity markets by year-end. 

Weekly Market Commentary

1/23/23 A FEISTY BULL-BEAR DEBATE

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Quincy Krosby, PhD, Chief Global Strategist, LPL Financial J
effrey Roach, PhD, Chief Economist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist 

The latest episode of the debate between stock market bulls and bears has gotten more interesting. For every valid point from one side, there’s an equally compelling argument on the other side. Perhaps the best reason for the debate is the uniqueness of this environment. The pandemic and its aftermath don’t come with a historical playbook. We haven’t been here before. So we’ll just recognize that the outlook is uncertain, weigh the pros and cons, glean what we can from the past, and give it our best shot. Call us cautious bulls. 

Weekly Market Commentary

1/17/23 Q4 EARNINGS PREVIEW: PESSIMISM MAY BE OVERDONE

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Thomas Shipp, CFA, Quantitative Equity Analyst 

Fourth quarter earnings season is underway and probably won’t bring much good news. Lackluster global growth, ongoing profit margin pressures from inflation, and negative currency impacts are likely to translate into a year-over-year decline in S&P 500 Index earnings for the quarter. As always, guidance matters more as market participants look forward. The key question coming into this earnings season is whether the pessimism surrounding 2023 earnings has gone too far. 

Weekly Market Commentary

1/9/23 LESSONS LEARNED IN 2022

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

We believe accountability and modesty are among the keys to success in this business. In striving for those qualities, LPL Research has a tradition of starting off a new year with a lessons learned commentary. We got some things wrong last year, no doubt. But those who don’t learn from their mistakes are doomed to repeat them. Here are some of our lessons learned from 2022. As you might imagine, inflation and the Federal Reserve are common themes throughout. 

Weekly Market Commentary

1/2/23 2023 MARKET OUTLOOK

LPL Financial Strategic and Tactical Asset Allocation Committee 

2022 was a dizzying year as markets and the global economy continued to find itself out of balance due to the still present aftereffects of the COVID-19 pandemic and the policy response to it. If 2022 was about recognizing imbalances that had built in the economy and starting to address them, we believe 2023 will be about setting ourselves up for what comes next as the economy and markets find their way back to steadier ground. The process of finding balance may continue to be challenging and we may even see a recession, but underlying fundamentals could create opportunities in stock and bond markets that were difficult to find in 2022. 

Weekly Market Commentary

12/19/22 HISTORIC YEAR FOR CENTRAL BANK ACTIVITY

Lawrence Gillum, CFA, Fixed Income Strategist, LPL Financial
Jeffrey Roach, Ph.D. Chief Economist, LPL Financial 

The Federal Reserve (Fed) wrapped up its last Federal Open Market Committee (FOMC) meeting of the year last week, where it hiked short-term interest rates for the seventh time in as many meetings, taking the fed funds rate to 4.5% (upper bound). A day later, both the European Central Bank (ECB) and the Bank of England (BoE) also hiked interest rates, taking their respective policy rates to the highest levels since 2008. Over 90% of central banks have hiked interest rates this year, making the (mostly) global coordinated effort unprecedented. The good news? We think we’re close to the end of these rate hiking cycles, which could lessen the headwind we’ve seen on global financial markets this year. 

Weekly Market Commentary

12/12/22 DECEMBER DOWN BUT NOT OUT

Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial
Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial 

Despite the S&P 500 Index starting December with five consecutive days of losses, we think December is down but not out. December often starts slow but historically has been a strong month. There are also some potentially supportive seasonal patterns ahead, such as the Santa Claus Rally, the outlook for January following down years, and the third year of the presidential cycle. ‘Tis the season, and this week LPL Research looks at some important seasonal patterns as the year winds down. 

Weekly Market Commentary

12/5/22 RESILIENT CONSUMERS HAVE NOT SAVED RETAIL STOCKS

Jeffrey Roach, PhD, Chief Economist, LPL Financial
Thomas Shipp, CFA, Quantitative Equity Analyst, LPL Financial 

Economic and corporate data support the initial strong reads on holiday retail sales despite the macro headwinds, reinforcing the idea that today’s consumer is in a better position than usual at this point in the business cycle. However, consumers were likely tapping into credit and using savings to support spending. In this week’s Weekly Market Commentary we share insights on publicly traded retailers, analyze their underperformance year to date, and look forward to 2023.