Broker Check

Summer Slump or Summer Sizzle

“With today being the first official day of summer, can this surprise summer rally continue?” asked LPL Research Senior Market Strategist Ryan Detrick. “We think it can. When you have small caps, high-beta stocks, recent initial public offerings (IPO), and technology all leading – that isn’t the hallmark of a looming bear market. Not to mention the tailwinds of fiscal policy are still primed to support economic growth for the rest of this year and likely well into 2019; and possibly beyond.”

Yes, the list of worries is long and well known: market sentiment may becoming quite optimistic, industrials are lagging, the yield curve is flattening, trade issues continue, and emerging markets are flashing potential issues, but we believe the positives outweigh the negatives and continue to expect double-digit equity returns when all is said and done in 2018*.

That said, the S&P 500 Index has finished within 0.5% of the prior session’s close for the last 10 trading days, the longest streak this year; which suggests the coil is tightening and more volatility is likely coming. But as the LPL Chart of the Day shows, when the S&P 500 has been up 3% or more heading into the start of summer** (like 2018), the full year has been positive an incredible 35 out of 35 times. Not to mention the rest of the year has actually been stronger than the average year. That should comfort investors, regardless of the headlines.

IMPORTANT DISCLOSURES

*Please see the Outlook 2018: Return of the Business Cycle publication for additional description and disclosure.

**As of June 21

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured.  These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

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Are Markets Concerned About a Potential Trade War?

The United States’ planned tariffs could have a large positive or negative impact on individual industries. However, the potential for them to have a meaningful effect on gross domestic product is very low, suggesting that the recent market volatility has largely been tied to the markets’ concern that the tax on steel could result in a trade war. Though, according to Chief Investment Strategist John Lynch, “While talk of trade risks will likely continue to be a source of increased volatility, economic fundamentals do remain sound and trade risks to date should not derail the bull market.” 

The tariffs may also be a warning shot for China, as the Trump administration prepares to make a decision on the country’s alleged abuse of intellectual property rights. However, it is important to note that, despite its status as the world’s largest steel producer, China is only the tenth largest exporter of steel to the United States (see the chart below). It’s also likely that much of the intent around the tariff proposal is to apply pressure to the North American Free Trade Agreement (NAFTA) negotiations, since Canada and Mexico account for a third of U.S. steel imports.

For a more in-depth analysis of the tariffs’ potential economic impact, why the trade war is still a major concern, and how we believe the Trump administration can dilute the impact of the tariffs while still gaining a political victory, take a look at this week’s Weekly Economic Commentary.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments, and exports less imports that occur within a defined territory.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

For Client Use — Tracking #1-706441 (Exp. 03/19)

How Normal Is This Correction?

The S&P 500 Index officially pulled back into correction territory last week for the first time since early 2016. The widely accepted definition of a correction is a 10% decline from the most recent high. What made this correction so unique is that it was the first time the S&P 500 has ever gone from a new all-time high to a correction in nine days or less.

Nonetheless, after one of the most tranquil equity markets in history last year, seeing a pickup in volatility in 2018 shouldn’t be a surprise. In fact, a continuation of the bull markets amid higher volatility was one of the main themes in Outlook 2018: A Return of the Business Cycle.

We looked at all 36 S&P 500 corrections since 1980 last week, but we also think the max intra-year pullback, along with the total return for the S&P 500 for each calendar year starting in 1980, provides a few more helpful takeaways:

  • The average max intra-year pullback is 13.7%; compare that to 2017’s 2.8%.
  • Half of all years (19 out of 38) saw at least a 10% correction during the year.
  • 13 of the 19 years with a correction finished higher on the year.
  • The average total return for the S&P 500 during a year that had a correction was 7.2%.

“The reality is a 10% correction is quite normal. In fact, years that have a correction but don’t fall into a recession tend to bounce back and usually finish green for the year. With our analysis suggesting a small chance of a recession over the next 12 months, recent weakness could prove to be a buying opportunity for long-term investors,” according to Ryan Detrick, Senior Market Strategist.

For more on the recent pullback, what happened, where we could be going from here, and what investors could do; be sure to read what John Lynch, Chief Investment Strategist, wrote in our latest Weekly Market Commentary coming out later today.



IMPORTANT DISCLOSURES

All performance referenced is historical and is no guarantee of future results.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses or sales charges. Index performance is not indicative of the performance of any investment.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

For Client Use — Tracking #1-698884 (Exp. 02/19)