Each week the LPL Financial Research team assembles thoughtful insight on market news.
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March 4th, 2024
Fourth quarter earnings season is winding down with only about a dozen companies in the S&P 500 left to report. After a slow start mired by messy bank results early on, corporate America picked up the pace and ended up delivering results well ahead of expectations. The “Super Six” was part of the story — the Magnificent Seven minus Tesla (TSLA) — but resilient profit margins are also noteworthy. Here we review fourth quarter earnings season and share some thoughts on the earnings outlook for 2024
February 26th, 2024
Buybacks, also referred to as share repurchases, are when a company elects to purchase its own shares in the open market. They are typically announced as a ‘share repurchase authorization’ and are bound by a maximum dollar amount or share amount the company can repurchase. And while most share repurchase programs are executed, they don’t necessarily have to be, as management maintains discretion over when or if the company buys back its shares.
Buyback activity has made a comeback after most companies suspended share repurchase programs in the wake of the pandemic. For example, total S&P 500 buybacks jumped from $525 billion in 2020 to $930 billion in 2022. However, buybacks tapered off last year to $782 billion as economic uncertainty and higher interest rates pushed repurchases to the sidelines. (Higher rates made leveraged buybacks — when companies issue debt to buy back shares — less attractive.)
February 20th, 2024
As the Federal Reserve (Fed) continues with its Quantitative Tightening (QT) program, questions abound regarding the Treasury Department’s expanding funding needs. The QT program is designed to reduce the Fed’s balance sheet — now $7.7 trillion down from $9 trillion — after Treasury notes (mostly) were bought after economic concerns intensified during the COVID-19-related pandemic. Households and, perhaps surprisingly, foreign investors have been buyers recently, and with the amount of Treasury supply coming to market, both will need to keep buying.
According to recent data from the congressional budget office (CBO), total Treasury debt held by the public is expected to grow to over $46 trillion by 2033. The primary reason for the increase in expected debt issuance is an increase in spending. Per the CBO, the U.S. government is expected to run sizable deficits over the next decade in the tune of 5%–7% of Gross Domestic Product (GDP) each year. So, to fund those deficits, the Treasury Department needs to issue debt. And Treasury plans to issue a lot of debt. And, thus, the Treasury needs buyers.
February 12th, 2024
In the latest employment report, the Bureau of Labor Statistics (BLS) issued revisions to the prior 12 months, and it turns out that firms added more jobs in 2023 than originally reported. As last year ended, investors thought businesses added 2.7 million jobs, but after revisions, businesses added roughly 3.1 million.
The stronger employment figures tell us that businesses and households have stronger momentum going into 2024, and therefore, we believe it is prudent to increase our forecasts for economic growth. Headwinds remain but on an annual basis, we believe the U.S. and global economy is poised for a bit stronger growth this year than originally forecasted last year.
February 5th, 2024
A positive January has historically been a bullish sign for stocks. Yale Hirsch, creator of the “Stock Trader’s Almanac”, first discovered this seasonal pattern back in 1972, which he called the January Barometer and coined its popular tagline of ‘As goes January, so goes this year.’ Here, we assess the likelihood that this popular stock market adage delivers more gains for investors this year. The weight of the evidence leans toward yes, as we explain.
As highlighted in the chart “Positive Januaries Tend to Lead to Positive Years”, the popular Wall Street maxim has stood the test of time. Since 1950, the S&P 500 Index has posted an average annual return of 16.8% during years that included a positive January, with gains impressively 89% of the time. In contrast, when the index traded lower in January, annual returns dropped to -1.7%, with only 50% of occurrences yielding positive results.
January 29th, 2024
With the S&P 500 having recently ascended to a fresh record high after such a strong 2023, it’s natural for investors to worry that valuations have become over-extended. On traditional valuation measures, valuations do appear high and it does seem reasonable to expect more moderate stock market returns going forward.
January 22nd, 2024
Shipping disruptions in the Red Sea could temporarily impact goods prices but not at the same magnitude as during the pandemic. Tight financial conditions, slowing economic growth, and a disinflationary trend all support the Federal Reserve’s (Fed) pivot away from tightening monetary policy to easing in the new year. Despite these longer term trends, rates possibly got ahead of themselves in recent weeks, exhibiting higher volatility.
January 16th, 2024
Fourth quarter earnings season kicked off last week, and markets were generally left wanting more. That doesn’t necessarily mean this earnings season will be disappointing, especially considering the bar has been lowered so much. Plus, some of the disappointment was around special bank charges and November-quarter-end companies’ results were solid. This reporting period may lack the splashy “earnings recession over” headlines we got last quarter, but it takes on added importance because it sets the tone for 2024. After 2023 was a year in which improving valuations delivered strong gains, this year, earnings will likely have to do the heavy lifting.
January 8th, 2024
As China emerged a year ago from the shadow of the stringent zero COVID-19-related measures that all but shut down its economy for over two years, much was expected in terms of its economic growth prospects. There were numerous reports suggesting the world’s second largest economy would ignite a bout of inflation as its industrial base would require vast quantities of commodities to power a newly energized China. Clearly that didn’t happen. Here we explore why and provide our updated thoughts on investing in China and emerging markets.
January 2nd, 2024
If the market had a theme song for 2023, it would have to be Journey’s “Don’t Stop Believing.” We believed in the prospect of a bull market in 2023 and penciled in a fair value forecast range of 4,400–4,500 and index earnings of $220. Our rationale was predicated on falling interest rates and lower inflation supporting higher stock valuations while noting additional upside potential if the outlook for a soft landing improved. Our original price target was reached this summer, and S&P 500 earnings for 2023 are expected to be at $218, according to Bloomberg estimates.
December 18th, 2023
Following the Federal Reserve’s (Fed) aggressive rate-hiking campaign in 2022 and 2023, stocks are entering a phase in which the market narrative is focused on interest-rate stability — as inflation, we believe, comes down further. Low and stable interest rates should help support stock valuations, while corporate profits are moving into a sweet spot. So even though stocks look fully valued, if rates ease as we expect, we could see upside to our year-end 2024 fair-value target range of 4,850 to 4,950. We highlight some key themes for stocks next year.
December 11th, 2023
Despite a heavy lobbying effort to cajole OPEC+ members to agree to a unified cut in oil production, Saudi Arabia, the de facto leader of the energy cartel, was unable to orchestrate anything more than pledges on a “voluntary” basis. Accordingly, benchmark oil prices continued to slide lower following the announcement, and without a catalyst to propel prices higher, oversupply in the market coupled with concerns over the global economic landscape, have steadfastly kept prices lower.
December 4th, 2023
Headline inflation in October was unchanged month over month, pulling the annual rate down to 3.0% from 3.4%. Markets often focus on the core services rate of inflation excluding housing, and that important category decelerated to under 4% for the first time since March 2021. The improving environment likely encouraged Christopher Waller, a Federal Reserve (Fed) Governor, to suggest the Fed could hold rates steady at the upcoming meeting. Waller had been the most hawkish of the Fed officials, so this was a market-moving statement. Treasury yields and the U.S. dollar fell on the news.
November 20th, 2023
The strong market performance in early 2023 began to erode as concerns took hold over rising interest rates, escalating drama regarding the possibility of a government shutdown, questions regarding whether the Fed was going to continue raising interest rates, and exceptionally negative fall seasonality.
Analysts began to question whether the presumption—and overriding consensus—of an end of the year rally was possible, while investors and the trading community similarly turned bearish as markets continued to sell-off.
November 13th, 2023
The S&P 500 officially entered correction territory in late October after falling over 10% from its summer high. Rising interest rates and a steady drumbeat of higher-for-longer monetary policy messaging from the Federal Reserve (Fed) captured most of the blame for the selling pressure. The unexpected Israel-Hamas war, weak seasonal trends, and sputtering economic activity in China also weighed on risk appetite.
November 6th, 2023
It’s been another volatile year for municipal (muni) investors this year. While generally outperforming U.S. Treasuries, the Bloomberg Muni Index is on track for its second calendar year of negative returns—something that has never happened before. But, while volatility will likely persist over the coming months, we think muni investors may be able to catch a break, especially if the Federal Reserve (Fed) is done with its aggressive rate hiking campaign.
October 30th, 2023
Rising rates remain perhaps the biggest challenge facing both equity and bond markets currently. Surging bond yields have contributed to one of the worst two-year periods for bond market performance in history and have pressured stock valuations at the same time. The Bloomberg Aggregate Bond Index has lost 15% over the past two years while the forward (next 12 months) price-to-earnings ratio for the S&P 500 has fallen from near 22 in early 2022 down to 17.5 currently.
October 23rd, 2023
Despite headwinds, the U.S. could experience structural changes in the labor market, residential real estate, and inflation as the post-pandemic economy progresses into the New Year. As markets adjust to a new regime, investors should recognize the economy is becoming less interest rate sensitive and they should focus on leading indicators such as the ratio of part-time workers and not on lagging metrics such as the headline growth stats mostly cited in the media.
October 16th, 2023
Earnings season has kicked off with several of the big banks and a handful of other blue-chip companies having already reported results for their calendar third quarters. The key headline this reporting season will be the (likely) end of the earnings recession. The October-November reporting season can be particularly interesting because full-year numbers are nearly locked in while more companies share thoughts on the year ahead.
October 9th, 2023
U.S. Treasury yields have seemingly been moving in one direction lately (higher), with the 30-year Treasury yield temporarily breaching 5% for the first time since 2007. The move higher in yields (lower in price) has been unrelenting, with intermediate and longer-term Treasury yields bearing the brunt of the move. There are several reasons we’re seeing higher yields, but rates are moving higher alongside a U.S. economy that has continued to outperform expectations, pushing recession expectations out further, and by the unwinding of rate cut expectations to be more in line with the Federal Reserve’s (Fed) “higher for longer” regime.
October 2nd, 2023
After a difficult September for stocks, investors are surely ready to flip the calendar to October. That’s the month that kicks off the historically strong fourth quarter. Expecting this pattern to repeat this year is tricky given the overhang of a government shutdown, interest rates near 16-year highs, a market still trying to digest the Federal Reserve’s “higher for longer” message, and a consumer who is facing some stiff headwinds as excess savings are drawn down, student loan payments restart, and the effects of higher borrowing costs are increasingly felt. Amid that complicated backdrop, here we assess prospects for a fourth-quarter rally.
September 25th, 2023
An impressive growth story has propelled India into a major powerhouse across the global economic landscape. Over the last two decades, the country has made impressive strides in reshaping its economy by leveraging its growing population and improving its outdated infrastructure. At the core of the growth story is the largest consumer base in the world based on its population size of nearly 1.5 billion people, according to United Nations (UN) estimates. This places India as the most populous country in the world, overtaking China for the first time since the data series started in 1950.
September 18th, 2023
Europe’s economy outpaced most expectations in late 2022 and early this year amid fears of an escalating energy crisis as the war in Ukraine continued. Rising earnings expectations coincided with that outperformance, at least until this summer. Since July, however, earnings estimates have fallen, coinciding with recent ratcheting lower of economic growth expectations in the region.
September 11th, 2023
As emerging market investing became increasingly popularized, underpinned by the dramatic evolution and modernization of China, the BRICS remain a consistent theme, so much so that numerous countries have sought entry into the BRICS complex.
According to a press release leading up to the recent BRICS Summit 2023, there was a waiting list of 40 countries expressing interest in being admitted to the group, an indication of its growing attraction to non-Western nations, coupled with the allure of shifting the global economic—and political—dynamic.
September 5th, 2023
There are three primary reasons to own fixed income: diversification, liquidity, and income. And with the increase in yields recently, fixed income is providing income again. Right now, investors can build a high-quality fixed income portfolio of U.S. Treasury securities, AAA-rated Agency mortgage-backed securities (MBS), and short maturity investment grade corporates that can yield 6-6.5%. Investors don’t have to “reach for yield” anymore by taking on a lot of risk to meet their income needs.
August 28th, 2023
In recent months, most central banks were saying and doing the same thing. Policy committees were focused on inflation and hiking rates to slow demand and thereby putting downward pressure on inflation. The U.S central bank increased rates by 525 basis points, the European Central Bank (ECB) increased its target rate by 425 basis points, and the Bank of England (BOE) followed suit by hiking rates 515 basis points. Canada’s and Australia’s central bankers followed the pattern. In contrast, the Bank of Japan (BOJ) is bucking trend and has stayed accommodative.
August 21st, 2023
Volatility has returned right on cue as U.S. equity markets continue to pull back from overbought levels. The recent jump in interest rates has proven to be too much too fast for stocks to absorb, especially for the heavyweight and longer-duration technology sector. Deteriorating economic conditions in China and weak seasonal trends have been additional factors behind the selling pressure. However, don’t panic, pullbacks are completely normal within a bull market.
August 14th, 2023
On August 1, one of the three main credit rating agencies, Fitch, downgraded U.S. government debt to its second-highest rating, AA+. The agency cited “the expected fiscal deterioration over the next three years, a high and growing general debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades” as reasons for the downgrade.
August 1st, 2023
Looking to 2024, corporate America will likely still face economic growth headwinds, so we think it makes sense to be conservative with earnings forecasts, even as inflation likely comes down further. That said, high-single-digit earnings growth may still be achievable.