Current Conditions

Current Conditions Index 5/22/13

Over the past week, the LPL Financial Current Conditions Index (CCI) improved slightly to 245. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few weeks, momentum in the CCI has generally improved after deteriorating in the prior weeks.

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Tapering Tantrums

The fear of an earlier reduction in the pace of bond purchases has been a factor in recent weakness in Treasury prices. Inflation data argue for continued bond purchases, and focus falls on Fed Chairman Ben Bernanke this week, as he may address this uncertainty. We continue to view yields as range-bound. Any tapering-related bond sell-off is likely to be limited unless corroborated by better economic data.

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What’s Broken in Europe?

The Eurozone is likely to be in a recession throughout 2013, despite the best efforts of the European Central Bank (ECB) and other policymakers. Fixing Europe’s broken financial transmission mechanism should be at the top of European policymakers’ long “to do” list. In the United States, the Federal Reserve’s (Fed) quantitative easing (QE) program is helping to boost bank lending and the overall economy.

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Buyers & Sellers

We devote this commentary each week to assessing the many reasons markets may rise or fall. But at the heart of it, all markets come down to just one thing: buyers and sellers. Taking a look at who is buying and who is selling can tell us something about the durability of the market’s performance and what may lie ahead. Currently, there are six notable trends...

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Current Conditions Index 5/15/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 239. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few weeks, momentum in the CCI has generally improved after deteriorating in the prior weeks.

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Portfolio Compass 5/15/13

Compass Changes: Downgraded the energy commodity to negative/neutral from neutral. Investment Takeaways: Our near-term stock market view is slightly cautious, with stocks having outpaced our 2013 forecast* and given the magnitude and duration of the rally. Our views on cyclical versus defensive sectors have become more balanced due to our focus on yield and in anticipation of a stock market pullback...

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Yield Shock

Yields rose across the bond market in recent days, as investors may have finally said “enough is enough” to low yields. Yields on several higher-yielding segments of the bond market at multi-year lows or, in the case of high-yield bonds, new record lows, reversed higher over the past two days (Friday, May 10 and Monday, May 13, 2013) as investors reassess valuations...

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Listening to the Leaders: Leading Indicators Continue to Point to Slow Economic Growth, but no Recession

Based on the Leading Economic Indicators (LEI), the odds of recession over the next 12 months are low but not zero. We expect gross domestic product (GDP) growth of 2.0% for the remainder of 2013, based on our Base Path scenario discussed in our Outlook 2013 publication and additional data.* We expect that the Federal Reserve (Fed) will continue its program of quantitative easing (QE).

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The Rally Is Getting Old, but a New Trend May Be Emerging

The overall stock market has only seen a couple of 2 – 3% dips this year, but there have been 5 – 10% pullbacks among cyclical sectors. It may be time to begin to buy some of the laggard cyclicals, especially on any pullback in the overall market...

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Home Refinancing Basics

In recent years, Americans seeking to capitalize on low interest rates have lined up to refinance their mortgages--often resulting in significantly lower monthly payments. While it’s true that refinancing has the potential to help reduce the costs associated with borrowing money to own a home, it is not necessarily a strategy that makes sense for every individual...

Current Conditions Index 5/8/13

Over the past week, the LPL Financial Current Conditions Index (CCI) rose to 244. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few weeks, momentum in the CCI has improved after deteriorating in the prior weeks.

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Settling Differences

Stock and bond markets may continue to settle their differences this week, resulting in slightly higher yields. In recent weeks, stock and bond markets had taken divergent views of the macro investing landscape. While stocks, as measured by the S&P 500 Index, reached new record highs, the bond market took a more somber view...

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Clearing Up Confusion on Common Queries

In this week’s commentary we attempt to clear up some of the confusion around some of the most common questions we encounter regularly, including: 1)The Federal Reserve (Fed), its balance sheet, its role in the economy and its impact on inflation; 2) The federal budget deficit; 3) The federal debt outstanding, and the debt-to-GDP ratio; and 4) The trade deficit and a related topic, the US dollar...

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Borrowing for the Future

A recently detected error in a study by Harvard economists Reinhart & Rogoff has garnered much attention in the financial press lately. The study had initially concluded that once a country exceeded a 90% debt-to-gross domestic product (GDP) ratio, the pace of economic growth slowed sharply. The corrected data reveal that growth slows as debt-to-GDP rises, but at a pace not meaningfully different than at other round numbers...

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Current Conditions Index 5/2/13

Over the past week, the LPL Financial Current Conditions Index (CCI) rose from 231 to 239. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly but moderated in the past several weeks.

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Portfolio Compass 5/1/13

Compass Changes: Downgraded investment-grade corporate bonds to neutral from neutral/positive Investment Takeaways: Our near-term stock market view is slightly cautious, given our Base Path expectation for modest single-digit returns in 2013.* Our views on cyclical versus defensive sectors have become more balanced due to our focus on key investment themes and in anticipation of a stock market pullback. Higher-yielding...

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Back to the Future

Mark Twain once stated that history does not repeat itself, but it often rhymes. Join us as we take a look back to the past to see what the future may hold for bond investors, given the many uncertainties. Our broad takeaway is that a low-return environment could likely be the norm, and the 1950s may provide a rough guide of what to expect. The monetary policy backdrop and bond market of the early 1950s bears some resemblance to today’s environment...

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The ABCs of GDP

The U.S. Department of Commerce’s just released first estimate for gross domestic product (GDP) for Q1-13 which shows continued declines in federal spending, including defense spending and state and local spending. There were few, if any signs, in the GDP report for the first quarter of 2013 that the U.S. economy will re-accelerate anytime soon. We continue to expect GDP growth to average around 2.0% over the course of 2013. We examine the various components and drivers of GDP in this...

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Soft Spot Arrives on Schedule

There are certain things we have gotten used to counting on each spring: the season changes and the weather warms, baseball games bring fans to the stadiums, the economy weakens, and investors “sell in May and go away.” The old Wall Street adage “sell in May and go away” refers to the seasonal tendency of stocks’ performance to weaken in the spring until the fall. In recent years, this spring slide in the stock market was driven by the arrival of a spring soft spot in the economy...

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Mixed Bag

The first quarter of 2013 presented a mixed bag for income-seeking investors but did little to ease the difficult task of income-generation in today’s low-yield environment. High-quality bond prices declined over the first quarter, but weakness was modest and yields increased only slightly, limiting opportunity for income-seeking investors. Lower-rated bonds...

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Current Conditions Index 4/24/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 231. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly but moderated in the past several weeks.

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Assessing Interest Rate Risk

It seems there is no shortage of investors willing to forecast the impending doom for the bond market stemming from a reversal of the long decline in interest rates. Last week, the commissioner of the SEC Daniel Gallagher stated that “financial armageddon” awaits municipal bond investors due to rising interest rates. Commissioner Gallagher tried to retract comments late in the week, saying...

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First Quarter 2013 SAM/Research Recommended Mutual Fund Models

Stocks got off to a strong start in 2013. The fiscal cliff compromise that emerged shortly after New Year’s Day set a positive tone, while bold intervention from central banks worldwide provided support for U.S. stocks and drove investors to favor lower-rated, higher-yielding sectors within the bond market...

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Is Investor Complacency Finally Ending?

Last week, U.S. stocks suffered their worst drop in over nine months as a terrorist attack and poor economic and earnings data shook investor confidence. Breaking down last week’s market drivers may reveal insights about the likely future direction of the stock market...

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Beige Book: Window on Main Street

Our Beige Book Barometer hit an eight-year high in April, despite adverse weather in late February, March, and early April 2013. This suggests that a return to “normal” weather could provide a significant lift to upcoming readings on our Barometer.

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Portfolio Compass 4/17/13

Compass Changes: Upgraded health care to neutral from negative/neutral. Upgraded emerging market debt to neutral/positive from neutral. Upgraded oil commodity from neutral/negative to neutral. Downgraded precious metals commodities from neutral/positive to neutral. Downgraded technology from neutral/positive to neutral. Investment Takeaways: Our near-term stock market view is...

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Municipal Muddle-Through

The municipal bond market continues to work its way through a difficult seasonal period of performance. A difficult month of March lived up to its traditional billing, before a rebound emerged in late March/early April. Internal demand from within the municipal bond market remains mixed at best, with spillover effects from recent Treasury market strength the primary driver of municipal bond stability...

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#TheWeekInTweets

Each time we publish the Weekly Economic Commentary, we include our calendar on page 3 that details all the key economic and policy events for the week. While we try to keep the Weekly Economic Commentary “relevant” by tying our commentary to one of the events of the week, many times we don’t refer to the calendar at all...

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First Quarter Earnings Insights

Four times a year, investors focus on the most fundamental driver of investment performance: earnings. Unfortunately, like the economy, earnings growth remains sluggish. The first quarter of 2013 is likely to mark the fourth quarter in a row of low to mid-single-digit earnings per share growth. The dollar amount of earnings per share for the S&P 500 companies is expected to be lower than in each of the past three quarters and only 1% higher than a year ago...

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Current Conditions Index 4/10/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 241. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly but moderated in the past few weeks.In the latest week, the index was negatively affected by a deterioration in initial jobless claims, commodity prices and the VIX, while supported by improvement in BAA spreads.

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Emerging Rebound

The first quarter of 2013 witnessed the worst quarterly performance for emerging market debt (EMD) investors since 2008 and the peak of the financial crisis, as measured by the JP Morgan Global Emerging Market Bond Index. A moderation in EMD performance was to be expected after strong performance in 2012, but recent weakness appears to have run too far...

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Searching for Inspiration

The U.S. stock market’s stalling momentum and increasing volatility, combined with other signs evident in the market’s recent behavior, suggest investors may be looking for new inspiration. A flu pandemic or an act of war by North Korea could be a shock that results in a setback to the economy and stock market, while the aggressive stimulus in Japan could be a boost that finally gets stocks to break out of their month-long range...

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What’s Fueling Gasoline?

The year-to-date price rise in gasoline prices has been more muted than usual, while a sharp rise in consumer energy prices poses a threat to the economy. U.S. gasoline usage has curtailed with the combined help of a of slower economic growth, a slight increase in fuel economy among the nation’s vehicle fleet, a sharp slowdown in miles travelled, and an aging population. Find out what other answers the emerging consumer reports will reflect on gasoline...

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Current Conditions Index 4/3/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 244. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly but moderated in the past two weeks.

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Portfolio Compass 4/3/13

Compass Changes: No changes. Investment Takeaways: Our near-term stock market view remains slightly cautious, given our Base Path expectation for modest single-digit returns in 2013.* We continue to favor economically sensitive (cyclical) sectors over defensive sectors in general, but our views have become more balanced recently as the S&P 500 has rallied to record highs. Our neutral emerging markets view reflects higher near-term risks as China...

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Recurring Themes

Lower-rated bonds led performance within the bond market during the first quarter of 2013, continuing a theme from 2012. For the second quarter of 2013, we expect the performance differential between lowerrated and high-quality bonds to moderate. Our low-single-digit total return forecast for 2013 remains intact.

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Message From the Markets

Stocks posted a strong first quarter. While shy of last year’s 12% first quarter gain, the S&P 500 Index’s 10% gain seen this year reflects very strong performance. Consistent with the powerful gains for stocks, bond yields and oil prices also rose in the quarter. Given the average-atbest economic readings during the first quarter, the performance of the stock, bond, and commodity markets begs the question: what are the markets saying about where the economy is headed?

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Business Capital Spending

On March 28, 2013, the Bureau of Economic Analysis of the U.S. Department of Commerce reported that corporate profits of all U.S.-based corporate entities hit an all-time high in the fourth quarter of 2012. Strong overseas economies, restrained hiring, modest wage gains, low interest rates, solid worker productivity, and an economic cycle that is just three months shy of its fourth birthday have all contributed to the record level of profits. Economy-wide...

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Current Conditions Index 3/27/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly from near multiyear highs to 247. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly...

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High-Yield Bonds and the Credit Cycle

High-yield bonds are among the leading performers in the bond market in 2013, according to the Barclays US High Yield Index, but the sector is not without critics. Naysayers have highlighted the record-low yields offered by the lowest-rated debt companies in the bond market, the increasing amount of leveraged buyout-related issuance, and growth of more speculative bond structures/issuance in 2013.

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Small-Business Financing: Debt vs. Equity

Business owners who seek financing face a fundamental choice: Should they borrow funds or take in new investment capital? Since debt and equity are accounted for differently, each has a different impact on earnings, cash flow and taxes...

10 Indicators to Watch for a Spring Slide in

In each of the past three years, the stock market began a slide in the spring that lasted well into the summer months. One year ago, we provided our list of the 10 indicators to watch that seemed to precede the stock market declines in 2010 and 2011 and accurately warned of another spring slide in 2012. We again look to these indicators for signs of a potential spring slide in the stock market this year...

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Watch What the Fed Watches

The Unemployment Rate remains well above the Fed’s “Threshold” of 6.5%, but it is only one of many labor market indicators the Fed is watching. The “center of gravity” at the Federal Reserve (Fed) is still not seeing “substantial improvement” in the labor market. And, if the Fed waits too long to remove stimulus, higher inflation and higher interest rates could result.

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Portfolio Compass 3/20/13

Compass Changes: Upgraded long-term and high-yield municipal bonds to positive from modest positive. Upgraded Treasuries to modest negative from negative. Investment Takeaways: Our near-term stock market view remains slightly cautious, given our...

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Current Conditions Index 3/20/13

Over the past week, the LPL Financial Current Conditions Index (CCI) rebounded further to 253. The path of the CCI remains consistent with continued, though modest, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly.

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Ride the Yield Curve

The yield curve, a graphical representation of yields across the maturity spectrum of the bond market, has long received attention as a relatively good leading economic indicator. The shape of the yield curve can impact total returns for bond investors and help determine which maturity segments (short, intermediate, or long-term) of the bond market offer the most attractive potential reward for a given amount of interest rate risk. The year-to-date rise in high-quality bond yields...

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The Inflation Situation Revisited

We last wrote about the inflation outlook in the September 24, 2012. Since then, while inflation and inflation expectations in the United States have remained in check, the Federal Reserve has begun another round of bond purchases, known as quantitative easing (QE). This decision — along with the recent run-up in consumer gasoline prices and recent comments from some members of the Federal Open Market Committee that the costs of QE may soon begin to outweigh the benefits...

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The Market’s March Madness

It has been a sweet sixteen weeks for the S&P 500. The broad stock market index has had only three down weeks out of the past sixteen. While this stretch is tied by the same period a year ago, it is important to note that there has not been a sixteen-week period with fewer weeks of losses in over 20 years - since the period ending September 1, 1989. March has been maddening for investors in the past few years (2010-2012) as the S&P 500 raced higher in March only to reverse...

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Current Conditions Index 3/13/13

Over the past week, the LPL Financial Current Conditions Index (CCI) rebounded to 248. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI has improved slightly.

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Back to the Highs

Bond yields are back to the highs of the year after gains from the prior week were more than erased. A stronger-than-expected employment report, continued stock market strength, and reduced fiscal uncertainty pushed the 10-year Treasury yield back to 2.06%. The municipal bond market, struggling with its own unique circumstances...

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Dow: The Great and Powerful

The film, Oz: The Great and Powerful, the prequel to The Wizard of Oz, premiered last week. The story of how the wonderful wizard overcame the risks and prevailed worked its magic on moviegoers and proved popular with a strong box office showing. In the same week, the Dow Jones Industrial Average (Dow) proved popular with investors as it powered its way to a new all-time high, as it overcame many risks to reach the fourth anniversary of the start of the current bull market from the low point...

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Beige Book Bounce-Back

Despite the post-Sandy bounce, our Beige Book Barometer describes an economy that is growing - but only modestly. When we wrote about the Barometer in early December 2012, indicators generally suggested the economy was stronger during the summer and early fall of 2012, prior to the impact of Superstorm Sandy and uncertainty ahead of the fiscal cliff than it was in early 2011, before the bruising debt ceiling debate...

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Strategies for Tax-Efficient Investing

Just about every investor knows, it’s not necessarily what your investments earn, but what they earn after taxes that counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and any applicable state and local taxes, your investment returns in any given year may be reduced by 40% or more.

Current Conditions Index 3/6/13

Over the past week, the LPL Financial Current Conditions Index (CCI) remained basically unchanged at 236. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI has stalled.

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Portfolio Compass 3/6/13

Compass Changes: Upgraded consumer staples view to neutral from modest negative. Upgraded utilities view to modest negative from negative. Downgraded materials view to neutral from modest positive. Downgraded emerging markets (equities) view to neutral from modest positive. Investment Takeaways: Our near-term stock market view...

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Old Acquaintances

The re-emergence of European risks and domestic fiscal policy uncertainty helped Treasuries post their strongest weekly performance since last November. Higher yielding segments of the bond market such as bank loans, high-yield bonds, and preferred stocks, backed by good fundamentals, are our preferred way to navigate a low-yield, range-bound market....

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Growing Gap Between Health of Consumers

Last week’s data highlighted the growing gap between the health of businesses and consumers that is starting to contribute to a widening gap in the performance of consumer and business-driven stocks, as well. The economic reports released last week covering the time period of January and February 2013 for orders of equipment by businesses and manufacturing activity point to strengthening business demand...

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Marching Toward the Pre-Recession Peak

The U.S. economy needs to add another 2.7 million net new jobs to get back to the all-time high set in early 2008 during the early months of the recession. How quickly the economy can create those 2.7 million jobs will in large part determine if, when, and how the Federal Reserve (Fed) begins to scale back its quantitative easing (QE) program...

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Current Conditions Index 2/27/13

Over the past week, the LPL Financial Current Conditions Index (CCI) remained basically unchanged at 239. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI has stalled...

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Waiting for the Spring

Municipal bonds have struggled in February following a good start to 2013. Price declines have translated to modest losses for investors in February, but on a positive note, year-to-date municipals still hold a performance advantage to their taxable counterparts (both through February 22, 2013), according to Barclays Index data. The tough slog for municipal bonds...

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#HumphreyHawkins

The Humphrey-Hawkins testimony used to be a rare window of transparency for an otherwise opaque Federal Reserve (Fed), but now it is just one of the many ways the Fed is transparent. In this week’s Humphrey-Hawkins testimony, the market is looking to Federal Reserve Chairman Ben Bernanke to apply more of a quantitative threshold on the pace of quantitative easing....

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Gasoline Prices Racing Toward Danger Zone

Do you feel like you are paying too much for gasoline? The national average price has seen double-digit increases two out of the last three weeks and is up 45 cents since the beginning of the year. The race higher in gasoline prices is worth watching closely. In each of the past two years, we have tracked 10 “spring slide” indicators that helped us to predict the stock market pullbacks that took place during the second quarter of each year...

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Portfolio Compass 2/20/13

Compass Changes: No changes. Investment Takeaways: Our near-term stock market view remains slightly cautious, given our Base Path expectation for modest single-digit returns in 2013.* We continue to favor...

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Current Conditions Index 2/20/13

Over the past week, the LPL Financial Current Conditions Index (CCI) improved modestly to 238. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months...

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Investing in an Up-and-Down Market

The volatility and classic 5 – 15% pullbacks we have seen in each of the past few years is perfectly normal and very likely to be a recurring pattern in 2013. There are several ways to benefit from market volatility and potentially enhance returns, including....

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JOLTS Show Labor Market Still Healing

The nation’s labor market has come a long way since the depths of the Great Recession and its aftermath, but it still has a long way to go to get back to “normal.” We continue to expect modest improvement in the labor market in 2013. How quickly the labor market heals in 2013 will help to determine if, how, and when the Federal Reserve begins to scale back quantitative easing (QE) and eventually begins to raise interest rates...

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No Love for Bonds

High-quality bonds remain unloved in financial markets in 2013. After modest improvement during the first full week of February, weakness resumed with the 10-year Treasury yield rising back to the 2.0% threshold. Last week’s Treasury auctions saw...

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Current Conditions Index 2/13/13

Over the past week, the LPL Financial Current Conditions Index (CCI) was unchanged at 229. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Return of the LBO

The recent trend in leveraged buyout (LBO) activity bears watching for bond investors but even at the current pace would lag well behind the boom years of 2006 and 2007. We are more concerned with valuation levels among corporate bonds on evaluating investment appeal.

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Saving for Short-Term Financial Goals

Most of us know we need to save for our future goals. Buying a home, providing an education for our children and investing for a secure retirement are the most common long-term savings goals. But what about next year’s vacation, remodeling or refurbishing your house, or buying a second car?

Investor’s Guide to the State of the Union Address

President Obama’s State of the Union, scheduled for Tuesday, February 12, is unlikely to be a big market mover. However, two major themes that we will be listening for with potential market impacts: the fiscal cliff and energy independence.

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Residential Recovery

Over the second half of February 2013, financial markets will begin to digest early 2013 data on the housing market: housing starts, home prices, new and existing home sales, and pending home sales. Housing made a splash in late January 2013, as the gross domestic product (GDP) data for 2012 revealed that housing added to GDP in 2012 for the first time since 2005. Market participants are now asking whether housing can continue to contribute to the economy in 2013 — and beyond.

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Portfolio Compass 2/6/13

Our near-term stock market view remains slightly cautious, given our Base Path expectation for modest single-digit returns in 2013.* We continue to favor economically sensitive (cyclical) sectors, including industrials, materials, and technology, over defensive sectors. Our recently upgraded emerging markets (EM) view is based on...

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Current Conditions Index 2/6/13

Over the past week, the LPL Financial Current Conditions Index (CCI) was basically unchanged at 229. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI has been slowing...

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Winter Hits the Bond Market

Winter seems to have hit the bond market full force in January 2013 with the broad Barclays Aggregate Bond Index posting its worst monthly performance in just over two years. Relief over last-minute legislation to avert the “fiscal cliff,” an agreement to temporarily increase the debt limit to avoid a potential default, continued, albeit sluggish, economic expansion, and optimism over Europe all contributed to put a chill on bond market performance in January after a strong 2012...

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Seeing Shadows

This Groundhog Day, when looking at the Dow, we are seeing shadows of what took place in each of the past three years as a new milestone was reached. It took the better part of a year for the market to break free of a period of ups and downs after reaching the milestone before beginning to move toward the next one. That pattern may be repeated this year; however...

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Less Defense?

If Congress can agree to substantial cuts in defense spending as part of an overall budget deal, defense would likely be a modest 0.1 to 0.2% drag on overall gross domestic product (GDP) growth in 2013 and beyond.Eliminating all “waste, fraud, and abuse” from the defense budget, while a worthwhile endeavor, would only make a small dent in overall spending...

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Current Conditions Index 1/30/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly further to 226. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI has been slowing...

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The Fed’s Bond Diet

Bond investors may revisit an early catalyst to bond market weakness in 2013, when Federal Reserve (Fed) policymakers reconvene this week. Minutes of the December 2012 Fed meeting, sparked selling among high-quality bonds, as investors feared the Fed would end or curtail bond purchases earlier than expected. As we commented in early January, we believe bond market reaction to the Fed meeting minutes was overdone...

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Following the Center of Gravity at the Fed

In recent weeks, markets and the media have been buzzing about this week’s Federal Open Market Committee (FOMC) meeting and, in particular, whether or not the Fed will adopt formal thresholds to monitor the effectiveness of the latest round of quantitative easing. The FOMC has already set thresholds for monitoring its “highly accommodative stance of monetary policy” (fed funds rate target between....

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Still Waiting for the Bonds-to-Stocks Rotation

Stock mutual funds have seen inflows each week so far this year, providing some evidence that investors are finally favoring stocks after years of selling. However, the details of the data reveal that the money is not going to U.S. stock funds and not coming from bonds. A long-term rotation from bonds to stocks is likely to begin sometime this year, but those claiming that it is already underway are premature and may be in for disappointment if they expect the stock market rally to continue...

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Fourth Quarter 2012 OMP

Stocks limped to the finish as 2012 ended amid the uncertainty surrounding the fiscal cliff — the combination of tax increases and spending cuts that were scheduled to take effect at year-end. Nonetheless, stocks delivered solid double-digit returns in 2012. The Russell 3000 returned 0.25% in the quarter, bringing the total return for the year for the broad equity market index to 16.35%...

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Current Conditions Index 1/23/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 235. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. Over the past few months, momentum in the CCI had been slowing as the fiscal cliff neared...

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Quick Start for Municipal Bonds

Acting more like a sprinter than a long-distance runner, the broad municipal bond market is up 0.80% year-to-date through last Friday, as measured by the Barclays Municipal Bond Index, just over 1% more than their taxable counterparts as measured by the Barclays Aggregate Bond Index...

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Same Europe, Different Crisis

This week’s European finance ministers’ meeting is a reminder that each spring for the past three years, U.S. stocks have started a slide of about 10% during thesecond quarter, led by events in Europe. In 2012, the European fear gauge was the rise in southern European bond yields as the financial crisis worsened. In 2013, it is northern European bond yields falling as the economic crisis worsens.

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Beige Book Rebounds

Despite elevated levels of uncertainty surrounding the debate over the fiscal cliff, our proprietary “Beige Book Barometer” moved up to +56 in January 2013, rebounding from a Superstorm Sandy-related dip to +30 in November 2012. Still, our Barometer remains well below its recent high of +101, hit in April 2012. The improvement in our barometer between November 2012 and January 2013 was largely the result of...

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Current Conditions Index 1/16/13

Over the past week, the LPL Financial Current Conditions Index (CCI) slid slightly to 239. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States...

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High-Yield in Name Only

High-yield bonds may be “high-yield” in name only now. Robust demand for corporate bonds pushed the average yield on high-yield bonds further into record-low territory, closing at 5.75% last week. A mid-single-digit yield just does not seem that “high,”....

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Fourth Quarter 2012 SAM

Stocks limped to the finish as 2012 ended amid the uncertainty surrounding the fiscal cliff. Nonetheless, stocks delivered solid double-digit returns in 2012. Performance for the SAM/Research Recommended Mutual Fund Models in the fourth quarter was outstanding, resulting in a very strong year for both relative and absolute returns. All 10 of these portfolios outperformed their respective blended benchmarks in the fourth quarter...

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What Does GDP Say About EPS?

This week the World Bank will release its bi-annual Global Economic Prospects report, which forecasts the economic growth trends in the global economy for 2013 and beyond, and gauges the impact of these trends on developing nations. While the media may pay a great deal of attention to the fourth quarter corporate earnings reports, the markets are likely to look past the earnings reports and focus more on corporate guidance on earnings and revenue for the new year.

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Consulting the Crystal Ball

It is inevitable that around this time of year, investors ponder what the year may hold in store for the markets. While we present many drivers in our Outlook 2013 that will combine to define the path of least resistance for the markets to follow in 2013, the interrelationships between economics, fiscal and monetary policy, geopolitics and corporate actions can seem complex. Investors can feel overwhelmed and seek a simple answer.

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Current Conditions Index 1/9/13

Over the past week, the LPL Financial Current Conditions Index (CCI) rebounded to 246. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Navigating the Markets 1/9/13

Compass Changes: Upgraded long-term and high-yield municipal bonds from neutral to neutral/positive. Downgraded energy commodities from neutral/positive to neutral. Investment Takeaways: Our near-term stock market view is slightly cautious, given our Base Case expectation for modest single-digit returns in 2013.* We continue to favor economically sensitive (cyclical) sectors over defensive sectors...

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Sour Start to New Year

The broad high-quality bond market began 2013 on a sour note, posting its worst weekly performance since March 2012. Optimism over recently passed legislation to narrowly, or temporarily avert, the fiscal cliff boosted economic growth expectations and concerns that the Federal Reserve (Fed) may end bond purchases as soon as mid-2013 both weighed on high-quality bond prices.

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Naming Beneficiaries of Insurance Policies and Retirement Plans

One estate planning concern that is shared by people from all walks of life is who gets what when you pass on. While some individuals logically may assume that a last will and testament is the only official forum to express such decisions, that is not always the case. Often, an equally important issue is determining who to name as beneficiary on life insurance policies, employer-sponsored retirement plan accounts and IRAs, since beneficiaries of these assets are paid directly as named...

Checking for Collateral Damage

This week, we will begin to see if any collateral damage from the fiscal cliff battle was done to corporate profits in the fourth quarter as companies begin to release their fourth quarter earnings reports. When the earnings season winds down in February 2013, the fiscal cliff battle part II may emerge as we approach the limit on U.S. borrowing authority, the end of the delay to the spending sequester, and funding of the U.S. government.

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Full Speed Recovery?

The current economic recovery is running at about half the speed of recent recoveries, and the speed of a “normal” recovery. Failure to address the debt ceiling may lead to a recession in early 2013, though this is not our Base Path in our Outlook 2013 publication. The current quarter may receive a boost from Superstorm Sandy, but the payroll tax increase may put a dent into consumers’ disposable income.

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Current Conditions Index 1/2/12

Over the past week, the LPL Financial Current Conditions Index (CCI) slid to 221. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Quick Start

2013 will get off to a quick start, as many market participants return from the holidays to face several key economic reports at home and overseas including: China’s Purchasing Managers' Index, the U.S. Institute for Supply Management, U.S. light vehicle sales, Federal Open Market Committee Meeting, and December's employment report.

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Standing on the Edge

As the battle rages on in Washington over the tax increases and spending cuts, known as the fiscal cliff, their impact has already been felt in some ways and not in others. Confidence has taken a hit, while activity has not — yet. While a deal has yet to be struck, steps could be taken to blunt the initial tax and spending impacts of temporarily going over the fiscal cliff to minimize the economic and market damage until a deal can be finalized.

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Getting Your Children Involved in Saving for College

The planning required to send a child to college may seem overwhelming, but parents do not have to do all the work. Getting children involved in college planning may be an excellent way to teach responsibility to young people—a lesson that could reap benefits well beyond their college years.

Current Conditions Index 12/19/12

Over the past week, the LPL Financial Current Conditions Index (CCI) rebounded modestly to 229. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Diversification: A Fundamental Strategy for Reducing Portfolio Risk

Diversification is one of the most basic investment concepts. It is used by novice investors and sophisticated portfolio managers alike to help reduce portfolio risk and dampen the negative effects of market volatility. The premise behind diversification is easy to grasp: When you own a range of investments, you may reduce risk by creating the potential for better performers to compensate for poor performers.

Early Lump of Coal for Municipal Bonds

After presenting investors with good returns for much of 2012, the municipal bond market handed investors an early lump of coal last week. The Barclays Municipal Bond Index declined 0.8%, the worst weekly decline in just over a year. There was no “naughty” behavior to single out. Defaults among municipal issuers remain....

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Apocalypse Now?

Given all the news coverage and the drama over what is at stake, it can be easy to think of going over the fiscal cliff — as the spending cuts take effect and tax cuts finally expire — as the end of the world. Wary of the consequences of this collision course with destiny, investors have shunned stocks by selling their holdings of U.S. stock mutual funds on a

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This Is Mandatory Reading

As Congress and the President work together to avoid the looming fiscal cliff during the lame duck session of Congress, a more intransient problem remains in the background: the United States’ structural budget deficit. In our Weekly Economic Commentaries of October 29, 2012 (Budget Debate), November 19, 2012 (Budget Myths), and November 26, 2012 (Budget Defense), we wrote about how often the budget was mentioned during the campaign season and how the

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Navigating the Markets

Compass Changes: Upgraded emerging markets view from Neutral to Neutral/Positive. Downgraded precious metals view from Positive to Neutral/Positive. Investment Takeaways: Our near-term stock market view remains slightly cautious, with

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Current Conditions Index 12/12/12

Over the past week, the LPL Financial Current Conditions Index (CCI) slid further to 219. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Good Debt, Bad Debt: Keys for Knowing the Difference

Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn. Some, who never use credit, can be denied a loan or credit when they have a justifiable use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.

Washington’s Dilemma

The advance in the S&P 500, boosted by the latest three weeks of consecutive gains, is at risk if negotiations over the tax increases and spending cuts, known as the fiscal cliff, make no progress in the coming weeks. The fiscal cliff negotiations between the two parties in Washington are reminiscent of a prisoners’ dilemma. The “prisoners’ dilemma” is the name of an

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Festive Fed FAQ

The Fed may deliver the most important policy announcement of the week, given the ongoing behind-the-scenes fiscal policy debate in Washington. The Fed continues to play a key role in markets and the economy, and that will continue into 2013 and beyond. Although Fed Chairman Ben Bernanke has said that the Fed cannot offset the impact of the fiscal cliff, Fed policymakers are keenly aware that they remain the “only game in town” when it comes to simulative policy.

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Making a Charitable Choice

The greatest benefit of charitable giving is the knowledge that you’ve made a positive contribution to others. At the same time, charitable giving can also provide tax breaks so long as you are aware of some rules and keep track of what you’ve donated.

Current Conditions Index 12/5/12

Over the past week, the LPL Financial Current Conditions Index (CCI) fell to 223. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Fixed Income 2013 Outlook

As 2012 winds down, bond investors are reflecting on a good year but questioning what 2013 has in store. Bond investors have enjoyed a good year in 2012, with the bond market on pace to finish the year at the high-end of our low- to mid-single-digit total return forecast. Due to slow economic growth, European debt concerns, and perhaps most importantly, a very market-friendly Federal Reserve (Fed), bond prices continued to rise, and yields continued on their downward descent in 2012.

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Shareholders’ “Powerball” Payout

Last week’s record $587 million Powerball jackpot grabbed headlines. But some shareholders may get their own “Powerball” payout in the next few weeks as companies seek to distribute special dividends that may total a record $100 billion to shareholders ahead of the likely expiration of the Bush-era 15% top tax rate on dividends at the end of the year.

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Sandy Clouds the Beige Book

Heavily influenced by the impact of Superstorm Sandy and the uncertainty generated by the election and fiscal cliff debate, our proprietary Beige Book Barometer (at +30), is down from a recent high in the April 2012 Beige Book (+101). The Barometer is now back down to the levels seen in the summer and fall of 2011, amid the disruptive debt ceiling debate in the United States and the fiscal and financial worries in Europe.

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Portfolio Compass 11/28/12

Compass Changes: No changes. Investment Takeaways: Our near-term stock market view remains slightly cautious, with the S&P 500 having reached our 2012 return target (as of November 27, 2012) and given our base case expectation for modest single-digit returns in 2013.* We continue to favor cyclical sectors for the balance of 2012 and into 2013, consistent with our base case 2013 outlook.*

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Current Conditions Index 11/28/12

Over the past week, the LPL Financial Current Conditions Index (CCI) rose to 230. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Banking on Bank Loans

As 2012 comes to a close, bank loans (a.k.a., floating rate funds) are increasingly becoming an attractive alternative to high-yield bonds. While we still continue to find high-yield bonds one of the most attractive sectors in the bond market, the relative appeal of bank loans has improved as we look toward 2013.

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Does Black Friday Mean Green

Retail sales during Thanksgiving weekend — the traditional start of the holiday shopping season — climbed 13% as more shoppers hit the stores and spent more money, according to the National Retail Federation, wildly exceeding consensus estimates. The news helped to lift stocks on Friday, making for the strongest week for stocks since early June 2012.

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Budget Defense

This week’s commentary continues our series on the long-term U.S. budget problems and possible solutions. The defense budget is a sizable portion of the U.S. budget and likely to be part of any long-term fix. As in other large areas of the U.S. budget, there are no easy fixes, and hard choices will have to be made.

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Tax Strategies for Retirees

In this world nothing is certain except death and taxes. - Benjamin Franklin. That saying still rings true centuries after the former statesman coined it. Yet, by formulating a tax-efficient investment and distribution strategy, retirees may keep more of their hard-earned assets for themselves and their heirs.

Current Conditions Index 11/21/12

Over the past week, the LPL Financial Current Conditions Index (CCI) was basically unchanged at 223. The path of the CCI remains consistent with continued, though sluggish,economic growth in the United States.

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Bond Market Perspectives 11/20/12

This week, investors have reason to give thanks to preferred securities, one of our favorite income-producing investments. The sector has produced double-digit returns in 2012, as measured by the Bank of America Merrill Lynch Preferred Hybrid Securities Index, in what has been a good year overall for more economically sensitive fixed income investments such as preferred securities.

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Fiscal Cliff Causing Investors Grief

While there are other issues investors are grappling with — such as increasing tensions in the Middle East, meager prospects for earnings growth, and the return to recession in Europe after only three short years of growth — the one most heavily weighing on the minds of investors is the U.S.’s fiscal cliff.

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Budget Myths

As Congress and the President work together to avoid the looming fiscal cliff during the lame duck session of Congress, a more intransient problem remains in the background: the United States’ structural budget deficit. In our recent Weekly Economic Commentary: Budget Debate (10/29/12), we wrote about how often the budget was mentioned during the campaign season

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Portfolio Compass 11/14/12

Compass Changes: Upgraded energy commodity to Neutral/Positive from Neutral. Upgraded preferred securities to Neutral/Positive from Neutral. Upgraded mortgage-backed securities (MBS) to Neutral from Negative/Neutral.

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Current Conditions Index 11/14/12

Over the past week, the LPL Financial Current Conditions Index (CCI) remained little changed at 222. The path of the CCI remains consisten twith continued, though sluggish, economic growth in the United States.

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Bond Market Perspectives 11/13/12

The prospect of higher taxes gave municipal bonds a strong lift following election results last week and keeps municipal bonds on pace to outperform their taxable bond counterparts for the second consecutive year. The re-election of President Obama and status quo in Congress increases the likelihood of higher tax rates on upper income earners.

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Global Gridlock

Last week’s post-election press conferences from the President, Senate Majority Leader Reid, and House Speaker Boehner offered some hope of a bipartisan deal to mitigate the budget bombshell of tax increases and spending cuts known as the fiscal cliff, due to hit on January 1, 2013.

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Return of Recession Obsession

The results of last week’s presidential and congressional elections in the United States — and the looming fiscal cliff — provide us with another opportunity to revisit the odds of a recession in the United States in the coming quarters. We will provide a full update on our economic forecast for 2013 in our 2013 Outlook publication, due later this month.

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“Wall Street” Election Poll 11/8/12

In the past week ending Wednesday, the day after the elections, the LPL November 8, 2012 Financial “Wall Street” Election Poll Index sharply reversed the move toward Republican-favored industries relative to those favored by Democrats that began following the first presidential debate.

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Current Conditions Index 11/7/12

Over the past week, the LPL Financial Current Conditions Index (CCI) fell slightly to 220. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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How Wall Street Is Voting

The stock market has priced in a close election. As the race has tightened over the past month, the market has slipped lower while Republican-favored industries have outperformed Democrat-favored industries. While much attention has been focused on the White House, the dwindling prospects for Republicans in the Senate may have limited the outperformance by Republicanfavored industries in recent weeks and helped contribute to the modest pullback in the overall market.

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Still Slow Growth

The much anticipated October 2012 employment report was released by the U.S. Bureau of Labor Statistics on Friday, November 2, 2012, to great fanfare from both the financial and mainstream media which, appropriately, are hyper-focused on the implications of the report for this Tuesday’s elections.

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Bond Market Perspectives 11-5-12

The bond market continues to move in response to the eventual winner of the presidential election. We expect bond market reaction to the election to be limited, as the resolution of the fiscal cliff will likely be a greater driver of bond yields. The election may bring changes for municipal bonds as well, but attractive valuations should help cushion any potential change in tax treatment.

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Your Second Wind - Starting a New Business in Retirement

For generations past, retirement represented an extended period of leisure time punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business.

Portfolio Compass 10/31/12

Compass Changes: Downgraded technology to neutral/positive from positive. Investment Takeaways: Our near-term stock market view remains slightly cautious, with the S&P 500 having returned 14% this year (as of October 30, 2012), above the high end of our forecast.* Our lowered technology view remains...

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Current Conditions Index 10/31/12

Over the past week, the LPL Financial Current Conditions Index (CCI) fell slightly to 227. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Post-Election Apprehension

Our view remains that a closely divided and hard-fought election will be followed by more fighting in a divisive and bitter lame duck session in Congress, resulting in higher volatility and a potential pullback for the stock market. As the race continues to tighten, the market shed -3.3% during last seven trading days (October 18 – 26).

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Budget Debate?

The LPL Financial Research Department has written extensively this year on the looming fiscal cliff, the potential for the upcoming elections to influence the resolution of the fiscal cliff, and the fiscal cliff’s impact on the economy today and early in 2013. This week, we will discuss to what extent the nation’s longer term budget woes have been part of the campaign, and how the election outcome may help to influence how these longer term issues get addressed.

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Using 529 Plans to Invest for College & Manage Wealth

Paying for a child’s or grandchild’s college education is an expensive proposition, even for many high-net-worth Americans. Today’s elite institutions promise graduates a rewarding future, but at a cost that more often than not extends well into six figures. Enter the 529 plan, a tax-advantaged investment vehicle generally available to families regardless of their income level. For affluent parents and grandparents, a 529 plan offers a variety of potential benefits

Women & Retirement: What You Need to Know

More than half of women (53%) surveyed recently are the primary breadwinners in their households, yet only 20% consider themselves “very well prepared” with their financial decision making.1 Nearly one-third of those surveyed said they earn more than their spouse as a direct result of the rocky economy. Among male breadwinners, 45% consider themselves

"Wall Street" Election Poll 10/25/12

In the past week ending Wednesday, the LPL Financial “Wall Street” October 25, 2012 Election Poll Index reflected a modest further move toward Republicanfavored industries relative to those favored by Democrats, a move that began following the first presidential debate.

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Current Conditions 10/24/12

Over the past week, the LPL Financial Current Conditions Index (CCI) fell slightly to 239. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Gauging Global Growth in 2013

The broadest measure of the health of the U.S. economy is Gross Domestic Product (GDP). This Friday, October 26, 2012, the Bureau of Economic Analysis of the U.S. Department of Commerce will release its initial estimate of GDP for the third quarter of 2012. The consensus is looking for a 1.8%annualized increase in GDP between the second and third quarters, a slight acceleration in growth from the 1.3% pace in the second quarter. We continue to maintain

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Battle of the Central Banks

Despite Friday’s sharp drop as companies reported poor earnings results, the S&P 500 Index posted a gain last week. This week, vying for investors’ attention from the flood of generally weak earnings reports will be the Federal Reserve (Fed) meeting on Tuesday and Wednesday. The Fed is highly likely to confirm on

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"Wall Street" Election Poll 10/18/12

In the past week ending Wednesday, the LPL Financial “Wall Street” October 18, 2012 Election Poll Index reflected little change relative to the impact of the first debate that resulted in a large move toward Republican-favored industries relative to those favored by Democrats.

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Current Conditions 10/17/12

Over the past week, the LPL Financial Current Conditions Index (CCI) fell slightly to 243. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Portfolio Compass 10/17/12

Compass Changes: Downgraded mortgage-backed securities (MBS) to Negative/Neutral from Neutral. Upgraded Bank Loans to Neutral/Positive from Neutral. Investment Takeaways: Our near-term stock market view remains cautious, with the S&P 500 having returned 18% this year (as of October 16, 2012).*

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Pay Yourself First - and Regularly - With Dollar Cost Averaging

To remain financially responsible, everyone must pay bills on a regular basis. These bills include mortgages, utilities, car loans and credit cards. Unfortunately, many people do not also heed the oft-quoted advice to pay themselves first. The reality is that a steady saving and investing plan is sometimes necessary to help pursue such financial goals as paying for a wedding or new car, buying a house and funding retirement. One strategy that can help you develop a

"Wall Street" Election Poll 10/11/12

In the past week ending Wednesday, the LPL Financial “Wall Street” Election October 11, 2012 Poll Index reflected the impact of the debate and a large move toward Republican-favored industries relative to those favored by Democrats. This is the first meaningful move toward Republicans since the

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Current Conditions Index 10/10/12

Over the past week, the LPL Financial Current Conditions Index (CCI) rose slightly to 246. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States.

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Incentive Trusts-Keeping a Steady Hand on the Tiller

A good legacy may work wonders for those left behind, but you may feel that your heirs need more than just financial benefit from your estate. If you would like to provide direction to your heirs and help ensure that they pursue important life goals, you may consider including incentive trusts in your estate plans.

The Five Long Years

This week will mark five long years since the S&P 500 reached its all-time peak on October 9, 2007. As the S&P 500 nears the previous highs for the third time in 15 years, is the market poised to repeat the pattern and soon embark on a third long and deep multi-year slide? We see four key supports that make it unlikely that stocks will follow the pattern of another multiyear trip back to the bottom of the 15-year range: earnings, dividends, valuations, and the economy.

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What’s the Fed’s Number?

The September 2012 employment report did little to change our view on the labor market, the overall economy, or on the outlook for the Federal Reserve’s (Fed’s) quantitative easing (QE) program. The Federal Open Market Committee (FOMC) minutes revealed that when discussing the labor market, FOMC members noted that “growth in employment had been disappointing.”

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"Wall Street" Election Poll 10/4/12

Ahead of the debates, in the past week ending Wednesday, the LPL October 4, 2012 Financial “Wall Street” Election Poll Index reflected a move to the highest levels of the year for Democrat-favored industries relative to those favored by Republicans. The market continued to increasingly reflect a status quo election outcome. Over the past week, the overall market rose. Most industries in both the Democrat and Republican indexes posted gains, but the most sizable upward moves

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Portfolio Compass 10/3/12

Our near-term stock market view remains cautious, with the S&P 500 having returned 17% this year as of October 2, 2012), above the high end of our forecast range as discussed in our 2012 Mid-Year Outlook.* Within equities, we favor Growth, Technology

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Current Conditions 10/3/12

Over the past week, the LPL Financial Current Conditions Index (CCI) remained basically unchanged at 242. The path of the CCI remains consistent with continued, though sluggish, economic growth in the United States. This year, the CCI has echoed the

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A Fiscal New Year’s Resolution

This week marks Golden Week, a national holiday in China. However, the United States has its own holiday to observe. Today begins a new fiscal year for the U.S. government. Unfortunately, a new year likely brings another trillion in federal debt to add to the mounting total. The proportion of U.S. federal government debt

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Are You Better Off?

It was one of the most famous moments in the history of presidential debates. About a week before the 1980 election, Ronald Reagan asked the nation, “…are you better off than you were four years ago?” With the first

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Rebalancing to Keep Your Portfolio on Track

Over time some asset classes or investments inevitably outperform or underperform others causing your portfolio allocation to shift. This is especially true during times of heightened volatility, like the markets are experiencing today. This shift, also known as “portfolio drift,” can significantly increase a portfolio’s risk and cause it to become misaligned with its target allocation.

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