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Federal Reserve (Fed) policymakers face a difficult task this week. Although it is not expected that they will raise rates again as soon as this week’s meeting, they have to communicate the Fed’s policy intentions...


The Five Forecasters still favor the continuation of the current bull market and no recession.


Emerging markets debt (EMD) valuations have cheapened in recent weeks, as weaker Chinese economic data and lower oil prices pushed prices lower and yield spreads higher.


The latest Beige Book suggests that the U.S. economy is still growing near its long-term trend. However, Main Street’s latest assessment suggests that the manufacturing sector continues to be affected by oil and energy prices.


The number of bulls is dwindling. In periods of extreme market volatility such as we have experienced in recent weeks


In Part 2 of our Federal Reserve (Fed) rate hike playbook, we assess how municipal bonds have fared during periods of Fed rate increases.


The start of fourth quarter earnings season may help the stock market find its footing.


Once again, the precipitous decline in the value of the Chinese stock market has spilled over to the broader global financial markets.


The Federal Reserve’s (Fed) first rate hike in nine years is officially history, and a look back at prior interest rate hike periods may help bond investors decide how to position portfolios for 2016 and beyond.


A number of key U.S. and global economic reports are due out this week (January 4 – 8, 2016), as investors return from the holiday break and refocus on many of the same issues that bedeviled the market in 2015, including the price of oil and the signal it is sending about the health of the global economy.​


It was a lackluster 2015 for the stock market with the S&P 500 managing a total return of just 1.4% (dividends included).


Finally! For the first time in nine years, the Fed finally raised interest rates.


The Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve (Fed), finally raised the target for the federal funds rate by 0.25% on Wednesday, December 16, 2015.


As we noted in our Outlook 2016: Embrace the Routine publication, the start of a new Federal Reserve (Fed) rate hike cycle may grab investors’ attention, but investors must distinguish where it is more likely to disrupt their accustomed routine (bonds) and where it is more likely to be just a distraction (stocks).​


We expect a limited return environment may persist in 2016 and the year as a whole may look similar to 2015.


Our view is that the U.S. economy — as measured by real gross domestic product (GDP) — is likely to post growth of 2.5 – 3.0% in 2016.


Gains in 2016 may require tolerance for volatility. Stocks historically have offered a tradeoff of higher return for higher risk...


stocks to navigate the eventual start of the Fed rate hike cycle with the benefit of a continued U.S. economic expansion and earnings gains in the months ahead. Although Fed stimulus and low interest rates have played a role in fueling the current bull market, earnings growth has been a far bigger factor.​


In the wake of last week’s FOMC decision not to raise rates, markets focused more on the FOMC statement and press conference than the dovish tone the decision may have suggested. In addition to inflation data, the Fed may be looking back at historical effects of Fed tightening during international turmoil. We continue to expect the Fed to hike in coming months, likely in December 2015.


The outcome of this week’s Fed meeting is unlikely to materially alter the total return environment for fixed income investors. High-quality bonds can still provide gains and diversification benefits during periods of rising rates. A challenging low-return environment still confronts investors.


Fighting the Fed may be a winnable battle for EM. EM valuations are compelling and, in our view, have priced in a fair amount of risk. We see sufficient upside potential to maintain modest EM equity allocations despite significant growth challenges.


Although there is a chance the Fed will raise rates this week, our view remains that the Fed will hike later this year, most likely at the December 2015 meeting. While much of the focus has been on “when,” market participants may start asking “how much” and “how fast” rates may increase once the Fed begins to raise the rates. The current disconnect on the “how much” and “how fast” between the FOMC and the financial markets could be a major issue for financial market participants in the months ah​


Inflation expectations, the yield curve, and stock market volatility have raised the bar for a September rate hike. The Fed has a tall task ahead to justify a September rate hike, but it nonetheless remains a possibility. We believe the Fed will wait until December 2015 or possibly even early 2016, as there appears little downside risk to holding off.


In challenging market environments, technical analysis tools can help us make better investment decisions. Our technical playbook suggests recent market weakness may present a buying opportunity. We are mindful of risks that might impact our playbook, including a potential China hard landing or a central bank policy mistake.


The latest Beige Book suggests that the U.S. economy is still growing at or above its long-term trend, and that emerging upward wage pressures may get the Fed’s attention soon. Optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book once again. Concerns over China’s impact on the U.S. economy have increased on Main Street.


This week we answer the top 12 investor questions in response to the S&P 500’s 12% correction. We expect the U.S. economic expansion and bull market may continue through year-end, despite the latest stock market correction and China uncertainty. We reiterate our forecast for stocks to produce midto high-single-digit returns in 2015.


Markets remain concerned with China’s stock market and its potential impact on global economic growth. Although the U.S. only sends 7% of its exports to China, several of the world’s top economies have large export relationships with China. Despite China’s ongoing slowdown since 2010, media attention has risen sharply in recent weeks.


High-yield bond valuations have cheapened in sympathy with equity market volatility but have shown relative resilience. Some signs of credit quality deterioration have emerged but remain at the fringes of the market and are not representative of corporate bonds overall. Corporate bond prices may have moved more than justified by fundamental data.


The latest reading on the Conference Board’s monthly LEI helps to provide some timely guidance regarding recent market volatility. The LEI says the risk of recession in the next 12 months is very low (4%), but not zero. Based on the level of the LEI relative to its prior peak, the current economic expansion may last at least another four years.


As a bull market matures over the second half of an economic expansion, periods of increased market volatility are likely to become more common. Periods of volatility bouts will likely create a more challenging environment for investors, and in the short term, sentiment can control markets as investor sensitivity to certain risks spikes. We believe the macroeconomic fundamentals and the dynamism of American corporations are likely to drive further stock market gains.


The year-to-date performance advantage of high-yield bonds relative to Treasuries (based on the Barclays High Yield and Treasury indexes) has been reduced to a very narrow margin following rising oil-related default fears. We find current market-default expectations, which imply a 15% default rate over one year, overly pessimistic. Few bond maturities come due through the end of 2016, a key factor that will likely support a low-default environment for high-yield bonds overall.


Q2 GDP results to date suggest global growth in 2015 is accelerating versus 2014, despite some high-profile GDP misses and China concerns. The Eurozone appears to have some economic momentum after nearly a half-decade of sluggish growth, with Q2 GDP acceleration expected.


Expectations for the back to school shopping season are low, and this season may only be flat versus last year. Several consumer spending tailwinds suggest the consumer discretionary sector may be poised to outperform through year-end.


Fixed income markets showed signs of a growth scare in July 2015, with lower real yields, lower inflation expectations, and a flatter yield curve. The markets’ reaction may be a signal to the Fed that September 2015 is too early for an interest rate increase. Recent growth concerns may be creating opportunities.​


The declining labor force participation rate continues to receive attention from the media and the public, although largely ignored by the markets. We continue to expect the U.S. economy could potentially create between 225,000 and 250,000 net new jobs per month in 2015. Labor force growth plus productivity growth are important indicators for long-term economic growth.


Although some European countries have made progress with structural reforms, much more work is needed. The lack of progress on many structural reforms in countries outside of Germany continues to weigh on the Eurozone’s global competiveness. The verdict is still out on Greece and its promised structural reforms.


Emerging markets debt (EMD) spreads have moved above 4%, a level that has attracted buying interest in recent years. EMD is more sensitive to interest rates than the broad U.S. fixed income market. We continue to favor high-yield bonds due to their lower interest rate sensitivity.


Puerto Rico’s debt crisis remains isolated and not symptomatic of the broad municipal bond market. Signs of contagion have not materialized and appear unlikely, although the probability of a default has increased. Puerto Rico bond prices largely reflect a default and are trading close to anticipated recovery values.


The latest Beige Book suggests that the U.S. economy is still growing at or above its long-term trend, and that some upward wage pressures continue to emerge. Optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so. Our new Beige Book Barometer for the three Fed districts with the most energy-related economic activity reveals more weakness.


The additional supply expected from Iran and the slow response by producers to reduce supply may lengthen oil’s stay in the $5 0– 60 range. We have tempered our previous enthusiasm for the energy sector and at current oil price levels view it as a market performer.


Q2 earnings season may look a lot like Q1 as companies once again face the twin drags of the energy downturn and strong U.S. dollar. Corporate America may impress in other ways, such as its resilience to the latest Greece and China flare-ups. As earning season progresses, we will watch for evidence that earnings will accelerate in the second half.


Due to still expensive valuations and low yields, we believe the current low-return environment could potentially persist for high-quality bonds for several years. Rising interest rate risk and still declining income generation pose an additional challenge.


As companies report second quarter 2015 results, the health of the global economy will likely get plenty of attention. The U.S., China, the Eurozone, and Japan account for nearly two-thirds of global economic activity; thus, these areas are where global growth matters the most. The market continues to expect that global GDP growth will accelerate in 2015, 2016, and 2017, aided by lower oil prices and stimulus from two of the three leading central banks in the world.


Bond market’s reaction to Greek events has been muted so far and justifiably so. Key safety nets put in place by the European Central Bank and policymakers in recent years support limited bond market impacts. The growth trend continues to dominate long-term bond prices and yields despite unfolding Greek events.


The referendum result this weekend throws Greece’s future in the currency union firmly in doubt. Here we address the question of whether the heightened risk of a Greek exit from the Eurozone might lead to contagion for global markets. We do not believe Greece is another “Lehman moment” and it may present an attractive buying opportunity for European equities.


Our view remains that the Fed is on track to hike rates for the first time in this cycle in late 2015. The longer the uncertainty around Greece lingers, the greater the odds that the Fed doesn’t hike rates until early 2016. A decisive upturn in wage inflation remains key to moving inflation and inflation expectations higher.


Municipal supply has been a headwind for much of 2015 but appears to be tapering off ahead of a typical summer slowdown. Over the longer term, still tight state budgets may keep broader municipal supply restrained and limit growth of the overall municipal bond market, which could become a tailwind. Despite the constant flow of negative headlines, primarily from Puerto Rico, the overall credit quality of the municipal market appears to be on solid footing.


Better economic growth and higher inflation expectations are driving confidence in the trajectory of the global economy. Lower yields and lingering price pressures still point to a very low-return environment for high-quality bonds in 2015. The combination of corporate and Treasury supply may keep headwinds on bond investors.


We do not believe transports’ weakness is a signal of an impending economic and market downturn. Historical data suggest transports’ underperformance may actually be signaling a buying opportunity for the S&P 500 rather than a sell. We believe transports present an attractive investment opportunity for the second half of 2015.


We continue to expect roughly flat bond returns for 2015, as the choppy market environment witnessed over the first half of 2015 continues. The challenging, low-return environment confronting bond investors is likely to persist.


We continue to expect the U.S. economy will expand at a rate of 3% or slightly higher over the remainder of 2015. Good old American know-how continues to be in demand. Overseas, monetary policies continue to drive global growth, impacting most of the largest international economies.


We believe corporate America will provide a much needed boost for the second half — providing the seventh year of positive returns in 2015, in the 5 – 9% range we forecast. Our forecast is based on expected mid-single-digit EPS growth for S&P 500 companies, supported by improved global economic growth, stable profit margins, and share buybacks in 2015, with limited help from valuation expansion.


The latest Beige Book suggests that the U.S. economy is still growing at a pace that is at or above its long-term trend, and that some upward pressure on wages is beginning to emerge. Optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so.


The upcoming ACA Supreme Court decision may create a buying opportunity for the healthcare sector. We believe the odds favor the status quo, meaning that any selling pressure related to the risk of losing insured patients may present a buying opportunity.


We see a potentially brighter future ahead for municipal bonds, despite a difficult second quarter thus far, due to still attractive valuations, higher yields, and a favorable summer seasonal period. A low-single-digit total return is plausible given our expectation for a modest rise in interest rates coupled with valuation improvement relative to Treasuries.


Lingering uncertainty over Greece, U.S. economic growth, and the Fed may continue to create a tug-of-war on bond prices that will likely continue to lead to a low-return environment. We believe additional bond market strength is likely limited.


We give the Fed partial credit on equity and bond market impact. The U.S. equity market performed exceptionally well during all three QE rounds, with the broad stock market increasing by 164%, as measured by the Russell 3000. The Fed partially helped lower bond yields (and boost bond returns) during its QE program.


European earnings have surprised on the upside while guidance has led to rising estimates, contributing to strong recent performance by European stocks. Japan’s first quarter revenue growth outpaced both the U.S. and Europe, while Japanese companies beat revenue forecasts at a solid rate.


Greece is unlikely to maintain its debt repayment schedule without a resolution. A default and a Greek exit may add volatility to the equity markets, but do not appear to present a systemic risk at this point.


With six months of economic and market data since the end of QE, we assess the latest round of the program that ended in October 2014. We focus on the Fed’s dual mandate to promote low and stable inflation and maximum employment. We give the Fed a pass on the unemployment rate, but have to assign a failing grade on its progress with inflation.


A lack of liquidity continues to plague the bond market, as indicated by elevated dealer holdings of long-term bonds and light trading volume. Volatility may remain elevated in the short term. Knowing your breakeven can help bond investors assess how resistant their current portfolio is to rising interest rates, and identify areas that offer value.


With six months of economic and market data since the end of QE, we assess the latest round of the program that ended in October 2014. We focus on QE’s impact on the banking and financial sector, by examining the amount of financial stress in the system, which overall has decreased since the beginning of QE in November 2008. We give the Fed a “pass” on QE as it relates to banking and financial system stress.


This week we pay tribute to David Letterman’s last Late Show with our own top 10 list: the top 10 keys for stocks. A potential snapback in the U.S. economy is the number one issue for the stock market, but here we list nine other issues that will be important in determining where stocks go in the near term.


Unlike the taper tantrum, which was driven by fears over the end of Fed stimulus, the current pullback is being driven by a position imbalance in our view. Lower-rated bond sectors have fared best during the pullback. A lower allocation to bonds overall may still be warranted, given the lack of opportunity and reduced protection offered by still historically low yields and high valuations.


The S&P 500 is on track to post year-over-year earnings growth of about 2% in the first quarter — a solid result considering the significant drags from the oil downturn and strong U.S. dollar. Healthcare led the upside, followed by energy, technology, and financials, while industrials struggled.


While wage growth has been tepid recently, 67 industries have seen wages increase at double the average (21% per annum), with good old American know-how roles well represented. The April employment report suggests wage growth likely remains a concern for Fed policymakers as they debate when to begin raising rates. Our view remains that the Fed may begin to hike rates in late 2015.


We believe emerging markets (EM) score well when evaluated along some of the same criteria that NFL football teams use to assess potential draft picks: speed, strength, value, upside potential, and character. According to our evaluation, EM scores very well on the first four metrics, and the fifth — character — is sufficiently discounted in terms of policy and corporate governance risks. EM may make a good draft pick to add to your portfolios.


Europe bond weakness spilled over to the U.S. as investors look past week domestic data and forward to a better second half of 2015. Fading U.S. dollar strength, better growth in Europe, and the rebound in oil prices point to a reversal of the lower inflation expectations that powered bond strength for most of 2014 and early 2015.


Since the peak in oil prices in June 2014, consumers saved some, spent some on nonessential items, and paid down some debt, even as measures of consumer sentiment soared. The big drop in gasoline prices has not provided a big lift to the consumer sector, which continues to struggle in this recovery, nor did it change the overall tepid trajectory of consumer spending.


Intermediate to long-term Treasury yields increased by 0.01% to 0.11% for the week ending April 24, 2015, despite weaker economic data. Fed rate hike expectations reached their most marketfriendly point. Rate hike expectations remain notably below the Fed’s recently reduced rate forecasts by a roughly 50% margin over the next three years.


First quarter economic weakness will likely get plenty of attention this week, when the initial estimate of Q1 2015 GDP is expected to confirm tepid growth during the quarter. We continue to expect that the FOMC will begin to raise rates in late 2015, when it is “reasonably confident” that inflation will move back to its 2% objective over the medium term. Economic performance since the end of the recession has varied widely by state, with oil playing a key role.


Investors continued to embrace risk this past week as the Nasdaq reached a new high while peripheral European bonds and emerging market equities rallied. Regional economic growth continues to diverge but slowly moves ahead, largely pushed by internal demand and supported by liberal monetary policy.


Foreign buying of U.S. bonds has slowed over recent years but remains a firm source of demand in the domestic bond market. Foreign purchases are likely to continue to take a backseat to economic growth and Federal Reserve interest rate expectations as a driver of bond prices and yields.


The Russell 2000 Index hit a fresh all-time high last week (on tax day, April 15, 2015) and has outpaced large caps by 205 basis points (2.05%) year to date. Although valuations are on the high side, the factors that have driven recent small cap strength, in our view, remain largely intact. Small cap technicals appear bullish, with positive relative strength and an upward sloping 40-week moving average.​


The latest Beige Book suggests that the U.S. economy is still growing at a pace that is at or above its long-term trend, and that some upward pressure on wages is beginning to emerge. Optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book as it has for the


Bonds started the second quarter on a weak note as investors anticipate economic improvement during the second quarter. However, bond market pricing indicates the Fed may never get back to “normal” and that rates will remain lower for longer. We expect yields to start to move higher in the second quarter, but until more clarity develops, bonds yields may drift at the lower end of their recent range.​


The market continues to expect that global GDP growth will accelerate in 2015, 2016, and 2017, aided by lower oil prices and stimulus from the BOJ and the ECB, two of the three leading central banks in the world. The prospect for another year of decelerating growth in emerging markets remains a concern for some investors, who may still be waiting (in vain) for China to post 10 – 12% growth rates, as it consistently did during the early to mid-2000s.


Regardless of whether China hits its 7% GDP target for Q1, its stock market has already been positive so far this year. Despite strong recent performance, Chinese stocks may see further gains. We maintain our positive view of broad EM, with a preference for Asia.


We believe the solid Q1 2015 broad bond market performance is unlikely to be sustainable for the duration of the year. The development of a range-bound environment may slow returns in the coming months.​


First quarter 2015 earnings may produce the first year-over-year decline since the financial crisis due to the drags of low oil prices and the strong dollar. Results for S&P 500 companies may exceed dramatically reduced expectations. We continue to expect earnings to drive stock market gains in 2015, as we stated in our Outlook 2015: In Transit, and we see better earnings prospects as the year progresses.​


Examining the number of mentions of certain buzzwords across news stories, we see a pattern of spikes that are followed by consistent declines over time. While these buzzwords come and go, earnings and earnings guidance are near constants in news stories — as they are the ultimate drivers of equity prices.​


The sharp increase in new municipal issuance has been driven by issuers refinancing existing debt, making the recent surge far less of a risk to the market. We do not see recent new issuance changing the favorable supply-demand underpinning the municipal bond market.


The Final Four of the 2015 NCAA College Basketball Tournament is set with Kentucky, Wisconsin, Duke, and Michigan State headed to Indianapolis to determine this year’s college hoops champion. In that spirit, we share our own Final Four for stock market investing:


We continue to expect the broad economy could potentially create between 225,000 and 250,000 net new jobs per month in 2015. Although job growth has improved, wage inflation, an important measure of labor market health, is not yet back to “normal.” A more robust pace of job growth should coincide with an upturn in wage inflation, yet the relationship between the two has been mixed over the past 30 years or so.

Portfolio Compass 3/25/15

A snapshot of LPL Financial Research’s views on equity, equity sectors, fixed income, and alternative asset classes. This biweekly publication illustrates our current views and will change as needed over a 3- to 12-month time horizon.


The high-yield energy sector has kept pace with the broader high-yield bond market in 2015 even as oil prices weakened, a notable difference from 2014. Although we don’t believe the high-yield bond market will return to the June 2014 peak, the current yield spread may still represent good value given still strong corporate fundamentals and low defaults.


Using intermarket analysis is important to reduce the risk of missing vital directional clues within the financial markets. Recently, a strong U.S. dollar has created headwinds for the euro, crude oil, and commodity-sensitive emerging markets.


The outcome of last week’s FOMC meeting confirmed our long-held view that the Fed would keep rates “lower for longer.” A report that may have been overlooked by financial market participants last week is the LEI, which is designed to predict the future path of the economy. The LEI suggests the risk of recession in the next 12 months is negligible (4%), but not zero.


The Fed faces a number of obstacles now and may require greater justification to suggest raising interest rates as soon as June. Bond market reaction to recent Fed meetings has been initially bearish but muted overall. Maintaining the word “patient” could have different implications for segments of the bond market.


What the FOMC says, if anything, about the rising dollar and its implications, could have ramifications for monetary policy over the next several quarters and beyond. In addition to “when,” market participants may start asking “how much” and “how fast” rates may increase once the Fed begins to raise the rates. We are watching several factors to gauge when the Fed may begin to hike rates, including wages, the output gap, inflation, and inflation expectations.


We do not think the strong U.S. dollar will derail the bull market. The dollar itself is not a key driver of market performance; it is a symptom.


Market-implied inflation expectations have increased after reaching a multiyear low in mid-January 2015. Thus far in 2015, the inflation protection provided by Treasury Inflation-Protected Securities (TIPS) has provided a buffer, with TIPS outperforming Treasuries.


The current bull market celebrates its sixth birthday today (March 9, 2015). Bull markets do not die of old age, they die of excesses, and we do not see evidence of excesses emerging today. Some of our favorite leading indicators suggest the economic expansion and bull market may continue through the end of 2015.


January 2015 was the best month for high-quality bonds since December 2008. In February 2015, high-quality bonds posted their worst monthly performance since June 2013 and the taper tantrum sell-off. High-yield bonds experienced ups and downs thus far in 2015. After a muted January, high-yield bonds returned 2.4% in February, the largest single month gain since October 2013.


The Nasdaq Composite just hit 5000 today as this report was going to press and is nearing its all-time record closing high of 5048. Even with the Nasdaq at 5000, we do not believe stocks have reached bubble territory. The Nasdaq has a much stronger foundation today of valuations, profits, and sentiment.​


We do not expect the weakness witnessed in 2013, but a difficult February 2015 thus far warrants another look at assessing interest rate risk, especially given the likely start of Federal Reserve (Fed) interest rate hikes later this year. Sector allocation, maturity exposure, time horizon, and whether interest income is reinvested or simply spent, all influence potential total returns during a potential bear market for bonds.


We continue to expect housing may add to GDP growth in 2015 and for the next several years, as the market normalizes following the severe housing bust of 2005 – 2010. Poor weather in Q1 2015 may again cause housing to be a drag on growth early in 2015.


The market’s continued ascent has caused some to ask if the stock market reflects excessive optimism. The pace of economic surprises as measured by the Citigroup Economic Surprise Index suggests expectations remain reasonable.


Puerto Rico municipal bond price volatility picked up following the strike down of the restructuring law, as the market began to price in the prospect of a broader default. The impact on the broader municipal market is still limited, as has been the case for much of the past 18 months. Default risk for Puerto Rico remains but we still find the broader municipal bond market attractive.


We are watching several key factors to assess the potential opportunity in the energy sector. While we expect to try to take advantage of opportunities in this group in short order, we are not convinced that it now presents a great entry point. We continue to recommend the consumer discretionary sector, where suitable, as a way to play low energy prices.


The market continues to expect that global GDP growth will accelerate in 2015 and 2016, aided by lower oil prices and stimulus from two of the three leading central banks in the world. The consensus has been raising its estimate for 2015 growth for developed economies and sharply lowering its estimate for emerging markets.


The negative bond yield club is exclusively comprised of European issuers reflecting the ongoing deflationary environment, poor growth expectations, euro currency risks, and negative overnight borrowing rates at selected central banks. Overseas-based bond investors may have several reasons to purchase bonds with negative yields, but, to no surprise, none of those are compelling enough for U.S.-based investors.​


look at some of the highlights and lowlights of fourth quarter earnings season. Despite the massive drag from the energy sector and the negative impact of a strong U.S. dollar, fourth quarter 2014 earnings are on track to exceed prior estimates.


Although it is too soon to gauge the effectiveness of QE in the Eurozone, key readings and data are beginning to show improvement, and consensus expectations are for continued growth in 2015. However, market participants looking for an immediate and sustained response by the Eurozone economy to QE may be disappointed.


A soft start for the U.S. stock market in 2015 once again illustrates the diversification benefit of high-quality bonds even at very low yields. Even in a low-yield environment, bonds provide a cushion as price movements, not yields, are the primary buffer to equity movements. An allocation to core bonds, in addition to more attractively valued high-yield bonds, may make sense for investors.


The stock market fell in January, causing some to ask whether the so-called January effect means that stocks will fall this year. Recall less than four weeks ago the “first five days” indicator sent a positive stock market signal for 2015. We always put fundamentals first when forecasting stock market direction—and on that score, we believe stocks still look good.


The market is expecting the economy to add 235,000 net new jobs in January 2015 and for the unemployment rate to remain at 5.6%. Other measures of the health of the labor market — hiring rates, the quit rate, the unemployment rate, and most importantly, wages — still show that the labor market is not yet back to normal.


Recent central bank action has reinforced the “lower for longer” interest rate theme in global bond markets. This week’s Fed meeting may temper marketfriendly central bank trends, but seems unlikely to alter the current environment.


We are initiating a master limited partnership (MLP) view (neutral/positive) and introducing several new alternative investment categories. ƒƒUpgrading technology and industrials to positive and munis (int.) to neutral/positive.


The latest leg up for the U.S. dollar has been driven by anticipation and arrival of QE by the ECB. The dollar has been strong for a number of reasons, all of them good things. Though not the end all and be all, currency is an important consideration when determining asset allocation.


The pace of growth in the global economy is a key driver of global earnings growth, and ultimately, the performance of global equity markets. The IMF raised its estimate for growth in 2015 for developed economies and sharply lowered its estimate for emerging markets.


The ECB is widely expected to announce a Fed-style outright government bond purchase program this week. A large and bold plan may arrest the rise in global government bond prices, but anything else may reinforce the record low-yield environment.

BEIGE BOOK - January 2015

The latest Beige Book reflected a picture of the U.S. economy that was largely unaffected by concerns over dropping oil prices, the 2014 holiday shopping season, global growth scares, and a rising U.S. dollar, although the drop in oil prices was noted as a negative in some districts.


The much anticipated European Central Bank (ECB) policy meeting this week may include a quantitative easing (QE) program announcement. Although we would view a potentially bold QE program from the ECB as an incremental positive, the ongoing growth and deflation challenges in Europe leave us still with a strong preference for the U.S.


The fall in 10- and 30-year Treasury yields over the second half of 2014 has been driven primarily by falling inflation expectations, rather than concern over the health of the U.S. economy. The decline in European government yields, unlike U.S. Treasuries, reflects both bleak growth prospects and lower inflation expectations.


The U.S. economy created another 252,000 net new jobs in December 2014 and 3 million over the course of 2014, with the most net new jobs added since 1999. The labor market still has a long way to go to get back to “normal,” which may keep the Fed on hold for raising rates until late 2015.


Earnings season is here and the impact of low oil prices will be the market’s main focus. While we will be closely monitoring the energy sector, we will also be watching the sectors and industries that potentially benefit the most from cheap oil. The consumer discretionary sector and the transports are big potential beneficiaries, supporting our positive views of both groups.


For just the second time in the last 30 calendar years, short-term 2-year Treasury yields increased while longer-term 10- and 30-year Treasury yields fell.


The fourth quarter of 2014 will be a tale of two earnings seasons: the best of times and the worst of times.


This week we examine how the U.S. economy in 1985 compares with 2015, focusing on factors such as the pace of the current economic expansion, the political balance in Washington, consumer sentiment, and the role of the Fed’s monetary policy.

Monitoring the Effects of Falling Oil Prices

The impact of falling oil and energy prices on inflation, inflation expectations, the U.S. and global economies, and the global financial system received a great deal of attention at the eighth and final FOMC meeting of 2014. Fed Chair Yellen’s comments during the post-FOMC press conference seemed to have calmed fears regarding the negative effects of oil’s drop on the financial system.

10 Stock Market Questions for 2015

With 2015 almost here, this week we pose and respond to 10 key stock market questions for 2015. Look for more on these and other topics throughout the year.

Tempting TIPS

Lower inflation expectations as a result of falling oil prices have weighed on TIPS prices during the second half of 2014. TIPS underperformance has led to the lowest market-implied inflation expectations of the past four years We do, however, find TIPS an attractive high-quality option and certainly more appealing than Treasuries as a result of recent underperformance.

Potential Outcomes of the Final FOMC Meeting of 2014

Statements following the final FOMC meeting of 2014, particularly on the recent drop in oil prices and its impact on the U.S. economy, could have ramifications for near- and longterm monetary policy. The FOMC will also provide markets with a new set of targets at this meeting...

Will Shoppers Bring Holiday Cheer for Markets?

We expect holiday shoppers, bolstered by lower energy prices, to help support potential stock market gains. Although the severity of the oil price decline has been unsettling, we view the decline as positive for U.S. consumers overall. Retail stocks should deliver some cheer for markets this holiday season, but don’t stuff those stockings with too much of them.

High-Yield Bonds & Oil Prices Revisited

peak of $107 per barrel on June 20, 2014, through Monday, December 8, 2014, we take another look at the impact of lower oil prices on the high-yield bond market. Recent high-yield market weakness has already accounted for a rise in defaults from lower oil prices. Even with weakness from rising defaults, we believe high-yield bonds may outperform their high-quality counterparts in 2015 due to their existing yield advantage.

Favorable Policy Environment for Stocks in 2015

We expect the policy environment in 2015 to be supportive for stocks. The transfer of power to Republicans may have a meaningful impact on broad policy measures. Regardless of the political party in power, the year before the presidential election has historically been a good one for stocks.

Beige Book Suggests That Recent Market Concerns Around Global Growth May Be Overdone

The report suggested that U.S. economic activity has “continued to expand,” and in general, optimism regarding the economic outlook far outweighed pessimism, as it has for the past 18 months or so. For the first time in this business cycle, the latest Beige Book contained more than one mention of employers having difficulty finding low-skilled workers, and retaining and compensating key workers.

2015 Fixed Income Outlook: Handle with Care

With sustained improvement in economic growth, slowly rising inflation, and the approach of the Fed’s first interest rate hike, bond prices are likely to decline in 2015. High-yield bonds and bank loans can help investors manage this challenging bond market.

Can Stocks Deliver the Goods in 2015?

We believe stocks will deliver mid- to highsingle- digit returns in 2015. We expect earnings, and not valuations, to do the heavy lifting in producing potential stock market gains for investors in 2015. Monetary policy is in transit in 2015, when stocks will face a shift from the very loose monetary policy of the Federal Reserve’s (Fed) quantitative easing (QE) program to an environment in which the Fed begins to hike interest rates. Valuations for the S&P 500 remain slightly above long-term ave​

U.S. Economic Growth Picks Up

We believe the U.S. economy will continue its transition from the slow gross domestic product (GDP) growth of 2011 – 2013 to more sustained, broad-based growth. We expect the U.S. economy will expand at a rate of 3% or slightly higher in 2015, which matches the average growth rate over the past 50 years.​

Current Conditions Index 11/19/14

Read real-time insight into the trends that shape LPL Financial Research’s recommended actions to manage portfolios, it has proven to be a useful investment decision-making tool.

Overseas Influences

Demand from overseas investors once again helped the bond market shrug off stronger economic data and weak Treasury auction demand. Favorable yield differentials between Treasuries and key overseas bond yields may provide lingering support for the domestic bond market. The Fed, this week’s release of Fed meeting minutes, and the European economy likely hold the keys to unlocking the low-yield environment.​

Emerging Markets Opportunity Still Emerging

We believe emerging markets (EM) fundamental conditions are set for improvement in 2015, based on our outlooks for economic growth, earnings, and policy. Valuations are compelling and EM may be situated to recapture some of their relative losses from a technical perspective, particularly in Asian markets. However, somewhat mixed fundamental and technical pictures suggest a better opportunity may be forthcoming.

Japan Check-In: Will the Weak Q3 GDP Reading Draw a Policy Response

The much weaker than expected Q3 GDP reading in Japan is a modest threat to overall global growth for 2014 and into 2015. We continue to believe the global economy will continue to expand in 2014, 2015, and beyond. The pace and composition of the policy response from Japan in the coming weeks and months are critical.

High-Yield Bonds & Oil Prices

We find it premature to draw conclusions regarding oil prices and the performance of the broad high-yield bond market. Default rates, the pace of economic growth, and the strength of credit quality metrics among high-yield issuers — not oil prices — will be the primary drivers of high-yield bond market returns.

Current Conditions Index 11/12/14

Read real-time insight into the trends that shape LPL Financial Research’s recommended actions to manage portfolios, it has proven to be a useful investment decision-making tool.

Solid Earnings Season Spelled Out

While the certainty provided by an election outcome has been positive for the stock market over time, our positive stock market outlook is based much more on fundamentals. It does not get more fundamental than earnings, which are on track to grow by 10% year over year for the second straight quarter. Earnings season is not over, but with about 90% of S&P 500 companies having reported results, we are ready to declare it a success.

Consumer Conditions

The drop in gasoline prices over the fall and summer months has been a plus for spending, but other factors have a much bigger impact on the consumer. The better tone to the labor market, the sharp rise in household net worth, and prerecession levels of consumer confidence all act as supports for the consumer. However, stubbornly weak wage and income growth remain as key constraints on spending. Sustained economic growth is the best way to ensure solid employment growth.

High-Yield Divergence

The headwinds of rising high-quality bond yields and increasing new issuance have slowed the advance of high-yield bonds in late October 2014, relative to stock market gains. Nonetheless, we expect high-yield bonds may improve as economic expansion, earnings growth, and low defaults continue to drive our positive outlook. We continue to expect a challenging, lowreturn environment across the bond market, with high-yield bonds a likely bright spot.

S&P Is Not GDP

It is important to recognize that the S&P 500 is not GDP. S&P 500 companies have different drivers for earnings than the components that drive GDP. The backdrop of solid business spending within a slower trajectory of overall GDP growth can be a favorable one for the stock market. Although stocks are at the low end of our target 10–15% S&P 500 return range for 2014, we see further gains between now and year end as likely, with profit growth as a primary driver.

QE Ended, Now What?

The Fed ended its bond purchase program last week and the bar has been set fairly high for restarting more QE. The economy is in far better shape today, compared with the start of QE in 2008 and the end of QE1 and QE2. It is probably too soon to know if QE has “worked,” and the better question may be, can the U.S. economy stand on its own without QE? We believe the BOJ and ECB are likely to do more QE.

Breaking Up

The Fed will end outright bond purchases this week, barring any surprises from this week’s Fed meeting. The end of bond purchases should not create much market reaction, as bond investors focus more on global economic growth and expectations for interest rate hikes. The Fed’s breakup will not be a clean one as it maintains a steady influence in the MBS market.

Recovery Reality

The U.S. economy is improving, and in many cases is back to normal, but it remains stubbornly weak in some areas. “Real world” indicators that point to the health of the economy include crane rental rates and customer traffic in restaurants. Economic uncertainty — likely a drag on economic growth in 2011, 2012, and 2013 — has faded as a concern in 2014, consistent with the Fed’s most recent Beige Book.​

Corporate Calm

We remain confident in corporate America’s ability to generate solid earnings growth in the current global economic environment despite the slowdown in Europe (and to a lesser extent, China). A number of U.S. companies have performed relatively well in Europe, with some not yet seeing signs of a slowdown in their business. The business environment overseas appears to be good enough for companies to largely maintain their outlooks for the rest of the year and into 2015.

Stay on Guard

Yields may remain low for evidence of any fallout or contagion to the U.S. economy; a stretch of stronger economic data or bolder action by overseas central banks are likely needed catalysts for higher yields. The on-guard mentality in the bond market has pushed back timing for Federal Reserve interest rate hikes.

Oil Hits the Skids

We believe the oil sell-off is overdone and expect the commodity to find a floor in the low $80s. We expect firming global growth to increase the market’s confidence in global oil demand despite weakness in Europe. Energy service stocks are particularly oversold and may be attractive as the services-intensive U.S. energy renaissance continues.

Modest to Moderate Economic Growth Continues

The latest Beige Book reflects a picture of the U.S. economy that has, thus far, been largely unaffected by current geopolitical headlines.Optimism regarding the economic outlook far outweighed pessimism, as it has for the past 18 months or so.

Disinflation Infatuation

Inflation expectations have fallen sharply in recent weeks, driven by European disinflation, lower energy prices, and overall growth concerns. The persistence of low inflation expectations may intensify the “lower for longer” theme via lower growth expectations and delays to potential Federal Reserve (Fed) interest rate hikes.

Pullback Perspective

We see the recent increase in volatility as normal within the context of an ongoing bull market. We do not believe the age of the bull market, at more than 5.5 years old, means it should end. We maintain our positive outlook for stocks for the remainder of 2014 and into 2015.

Gauging Global Growth in 2014 & 2015

The pace of growth in the global economy is a key driver of global earnings growth, and ultimately, the performance of global equity markets. Global GDP growth in 2014 remains on track to accelerate versus 2013’s pace, and the consensus is forecasting acceleration in global growth in 2015. Potential growth headwinds in 2015 include...

Slowing Momentum

A challenging bond market environment will likely persist over the remainder of the year and perhaps beyond. Valuations across many bond sectors remain above historical averages and reflect an expensive market. We believe corporate bonds may provide investors with the best defense in what will likely be a continuation of the low-return environment.

Earnings Preview: Welcomed Opportunity to Focus on the Micro

Earnings season is here and may counteract the negative headlines with another dose of positive fundamental news. We expect the third quarter of 2014 could produce another good earnings season, which we believe may positively impact stocks. While there are some headwinds, Europe in particular, the U.S. economic backdrop is supportive and profit margins should remain high, given the few signs of cost pressures.

Blasé on the Budget

The nation’s fiscal situation has improved dramatically in the past five years due to overall economic improvement and a combination of higher tax rates and modest spending increases. However, structural and demographic problems that will drive the deficit over the next several decades remain in place. If policymakers continue to ignore critical warning signs, the near-term improvement in the budget picture is unlikely to last.

Housing Hiatus?

We continue to expect housing may add to GDP growth in 2014 and for the next several years as the market normalizes following the severe housing bust of 2005 – 2010. Housing affordability and supply, and the supply and demand for home mortgages, will likely determine the pace at which housing increases GDP growth in the years ahead. The inventory of new and existing homes for sale as a percentage of total households has never been lower.

Grading on a Curve (the Yield Curve, That Is)

The yield curve has a perfect record in signaling recessions over the past 50 years. One of our “Five Forecasters,” the yield curve tells us that a recession and significant market downturn are likely a ways off.

The State of States

A change of seasons should be noted by municipal investors, as a seasonal increase in new issuance may be a catalyst to lower returns after a strong 2014. It is not uncommon for revenues to slow as the economy matures, and we do not view the slowdown in state tax revenues as worrisome for municipal bond investors.

Don’t Fight the ECB? (Part 2 of 2)

Last week we discussed why buying European stocks now, following the recent stimulus announced by the ECB, is very different from buying U.S. stocks during periods of Fed stimulus in recent years. This week we take a deeper dive into the investment opportunity in Europe and evaluate fundamentals, valuations, and technicals. We recommend that investors “fight the ECB.” We do not believe the additional stimulus is enough for us to recommend European equities over U.S. equities at this time.

Mind the Gap

The key now for the Fed, as it deliberates when to begin to raise rates, is to gauge how quickly the output gap is likely to close. The pace at which the U.S. economy takes up slack is likely to command a great deal of attention from the Fed and market participants in the coming months. We believe the first Fed rate hike is likely to occur in about a year’s time, assuming the economy tracks the FOMC’s forecast.

Fed Nerves

Despite recent weakness, bonds continue to discount the pace and magnitude of Fed rate hikes. A few facets of this week’s Fed meeting may reveal whether the recent pullback in bonds continues to stabilize.​

Don’t Fight the ECB? (Part 1 of 2)

Buying stocks after the various QE programs were announced by the Federal Reserve was generally a profitable decision for investors. To answer the question about whether the ECB programs will have the same impact on European stock markets, we point out some key differences between the United States then and Europe now.

Fall FOMC Watch

We continue to expect the Fed to again cut its bond purchase program and remain on pace to exit QE by year end. However, odds have increased that the Fed could change “something” at this week’s FOMC meeting, including omitting its promise to keep rates low for a “considerable time” or providing the public with an update to its exit strategy. We are continuing to watch...

Growth Signals

The combination of additional cuts to overnight borrowing rates and the announcement of the ABS purchase program was slightly more than expected from the ECB. Bond markets sent growth signals in response to ECB action in the form of higher yields, higher inflation expectations, and a steeper yield curve.​

Back to School With the Three Rs:

We believe the “three Rs” are keys to the outlook for the stock market: revenues (and profits), reinvestment, and the renaissance in manufacturing. We expect stocks to garner support from these three Rs in the form of continued growth in revenues and profits, more corporate reinvestment, and continued steady gains for the U.S. manufacturing sector.

Beige Book: September 2014

Over the past three Beige Books, the BBB has averaged +100, the highest reading over any three consecutive Beige Books since at least 2005. The latest Beige Book indicates to us that the negative headwinds that have held the U.S. economy back over the past seven years may finally be abating. Health care and the ACA have remained a consistent source of concern among Beige Book respondents, although the impact has faded a bit recently. Despite the recent barrage of bad news on...

Is It Extreme?

Although the decline in US Treasury yields has been significant in 2014, it is not quite at an extreme when viewed historically. However, the decline in European government bond yields has reached an extreme. Given the influence of European government bond yields on U.S. yields, this week’s ECB meeting may determine the market’s next move.

Central Bankapalooza

The market is not expecting the ECB to begin QE this week, although other forms of policy support are likely. The data continue to suggest that more aggressive monetary policy from the ECB would have only a muted impact on the real economy unless the fractured banking system can be repaired. Policy divergences among the world’s major central banks are likely to intensify in late 2014 and beyond.

Midterms May Mean More Gains for Stocks

The resolution of election uncertainty — and ending the predominantly negative rhetoric surrounding the campaigns — has historically been a positive for the stock market. We continue to see opportunities for further stock market gains over the course of 2014, based upon fundamentals rather than the potential for sweeping legislative change.

Bond Yields Around a First Rate Hike

Historically, bond yields have begun to move more forcefully four to six months ahead of a first rate hike from the Fed. We believe the rise in interest rates may begin sooner this cycle due to lower yields and more expensive valuations. We favor capitalizing on year-to-date bond strength and recommend a defensive posture consisting of short to intermediate bonds.

Ready, Set, HIKE!

The first rate hike by the Fed has never been an indication of a market peak. On average, the first rate hike has taken place 37% into the economic cycle (measured peak to peak). The S&P 500 has returned on average, another 58% after the first rate hike (price return) before the market peak for the economic cycle. The initial market reaction to a rate hike is, on average, negative, but the data show it pays to be invested.

Geopolitics & Bonds

Geopolitical risks powered bonds to another weekly gain, but historically such gains have been short-lived and given way to other fundamental drivers. Low volume summer trading may keep bond yields pinned near year-to-date lows over the near term.

Crystal Ball?

We believe the LEI is one of the better indicators to foreshadow recession. The latest information from the LEI suggests a positive backdrop for stocks and low risk of recession.

Exporting Good Old American Know-How Part 2

Our fastest growing exports are not always as visible as some of the items we consume and import daily. Most major service export categories have experienced near 10% growth per year for the past 10 years. Good Old American Know-How is our most abundant resource.

European Influence

The strength of European government bonds has supported demand for US Treasuries due to more attractive yield differentials. European influences may continue over the near term, but we expect U.S. bond yields to reconnect to domestic economic data in coming months.

Exporting Good Old American Know-How Part 1

The United States has a trade surplus in the service sector, where we are creating relatively high-paying jobs. Many U.S. service-related jobs require advanced degrees and advanced skills, and help to make possible our booming business in service exports, much of it tied to Good Old American Know-How. Our competitive advantage in the service sector should help to continue to drive employment higher in this sector, especially in areas that require advanced skills.

Turning Down the Noise

Volume has picked up during the recent downturn. No, we are not talking about trading volumes; we are talking about the volume from your TVs with talking heads warning about an impending stock market downturn. If you turn off the TV and focus on what the market is telling you, rather than the talking heads, you can tune out the noise.

Stock Market Valuations Suggest That This Bull Market Still Has Teeth

Losing under 3% in a week seems a minor concern given historical market ups and downs; nevertheless, investors may begin to wonder if stock market valuations are signaling a decline. Since the end of the last significant sell-off for stocks, the market has been in a pretty consistent upward trend. Valuation is a poor market-timing indicator; while valuation should always be considered, it is a blunt tool that should be taken into broader context.


With the release of the GDP figures for the second quarter of 2014 (along with revisions to the data back to 1999), the disconnect appears to be fading. The data released so far for the third quarter suggest that the underlying economy had decent momentum as the third quarter began. The data continue to suggest that the U.S. economy is poised to post growth in the second half of 2014 above the long-term run rate of the economy.

Calling the Feds Bluff

Futures continue to indicate the bond market believes the Fed does not have an ace up its sleeve and that ultimately they will not raise rates as high as they project. A host of top-tier economic data may influence bonds more this week given the absence of new forecasts and a press conference following this week’s Fed meeting.

Second Quarter Earnings Season Update

Amid the barrage of nearly constant economic and market data, nothing is more important to assess the health of corporate America than the quarterly check-in that we affectionately call earnings season. As earnings season approaches its halfway mark, it’s a good time to take a look at what we’ve learned so far.

Midsummer Madness

Only nine times in over 14 years have the FOMC meeting, GDP report, ISM report, and the employment report — all often marketmoving events — occurred in the same week. Historically, these weeks have exhibited 20% more volatility than an average week over this time span, as measured by the S&P 500 Index. This week is unlikely to be just another boring midsummer week for financial market participants.​

Modest-to-Moderate Economic Growth Continues 7/21/14

The latest edition of the Fed’s Beige Book indicates that the negative headwinds that have held the U.S. economy back over the past seven years may be declining. The rebound in our Beige Book Barometer over the past several months is consistent with the Fed’s view that the drop in economic activity was mostly weather related. Despite the recent barrage of bad news, optimism on Main Street remains high...​

Is Congress Contemplating QE4?

If a tax holiday is enacted and the repatriated funds by multinational corporations are used to buy back shares or retire debt, it could potentially act as a very potent market stimulus equivalent to the height of the Fed’s QE3.

Municipal Mid-Year Outlook

We do not expect the municipal bond market to repeat first half strength over the second half of 2014. A gradual rise in yields to compensate for better growth, a modest rise in inflation, and the start of Fed rate hikes in roughly one year’s time will likely pressure bond prices slightly lower through year end. We continue to believe the taxable bond market is likely the main catalyst to the next move in municipal bond prices.

Counting Down the Months

A common worry among investors is that the stock market may fall as the Fed gets closer to hiking rates. In fact, the S&P 500 has posted a gain in the 12 months ahead of the first rate hikes over the past 35 years.

Gauging Global Growth in 2014 and 2015

Global GDP growth in 2014 remains on track to accelerate versus 2013’s pace, excluding the impact of the weather. The pace of growth in the global economy is a key driver of global earnings growth, and ultimately, the performance of global equity markets. In our view, markets may already be looking ahead to the second half of 2014, and especially the third quarter, to gauge the true underlying pace of global growth.

Earnings Season: A Show About Nothing

Much like the television comedy Seinfeld, which celebrated its 25th anniversary this past Saturday, July 5, 2014, the second quarter earnings season is likely to be “a show about nothing.”


We continue to expect that U.S. economic growth may rebound to a 3% pace for all of 2014. The June 2014 jobs report was undeniably strong on all fronts, standing in sharp contrast to the weak performance of the economy in the first quarter of 2014. The last time the economy created at least 200,000 jobs per month for five consecutive months was in late 1999 through early 2000, when the U.S. economy was growing between 4.5% and 5.0%.

A Challenging Second Half Looms

After broad based strength over the first half of 2014, we expect yields may rise in the second half of 2014 as global growth strengthens and inflation picks up from recent lows. Higher valuations have increased the challenges facing investors.

Investor’s Almanac Field Notes

Similar to a farming almanac, our Investor’s Almanac is a publication containing a guide to patterns, tendencies, and seasonal observations important to growing. The goal of farming is not merely to grow crops, but to sustain living things — investing shares the same goal.

World Cup and World CPI Are Heating Up, Risking Mistakes by Key Players

Just as the World Cup has been heating up, increasing the risk of player mistakes, the world consumer price index (CPI) has also been heating up, complicating the task for policymakers at the world’s central banks and increasing the risk of mistakes that could have market implications.

Behind the Curve?

Despite the Fed labeling the recent inflation increase as “noise,” longer-term bond yields rose, inflation expectations increased, and the yield curve steepened — all signs of the bond market pricing in inflation risks. As the low inflation pillar of year-to-date bond strength fades, it may be one more reason to be cautious in the bond market.

USA $17.1 Trillion | GER $3.8 Trillion

The U.S. economy is poised to outperform Germany in the years ahead thanks to better demographics, better productivity, and a more focused central bank. Today the U.S. economy is in far better shape than the German economy. Advantage U.S.A.

Bank Loan Bashing

We believe bank loans could be one of the more attractive fixed income asset classes based on our economic and market outlook for the second half of 2014 and believe recent negative headlines are misplaced. A still low interest rate environment, a growing economy, and strong demand for floating rate debt have all fueled growth in the bank loan market.

Emerging Opportunity

Emerging market stocks have now pulled ahead of the performance of the S&P 500 Index for 2014, which may finally mark the beginning of the turn for EM relative performance.

FOMC: Need to Know

We continue to expect the Fed to trim QE by $10 billion per month this year and to remain on pace to exit QE by the end of 2014. Our view remains that the current center of gravity at the FOMC will likely err on the side of keeping rates lower for longer. Markets should expect that the Fed will be content with keeping its fed funds rate target near zero until key labor market indicators make significant progress toward “normal.”

Central Bank World Cup

Strong economic data has weighed on bonds to start June but favorable yield differentials between Treasuries and European government bonds have helped limit the domestic bond weakness. Divergent central bank policies may still mean bonds yield to growth.

Who Are the Buyers and Sellers?

At the heart of it, all markets come down to 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.

Modest-to-Moderate Economic Growth Continues

The latest edition of the Fed’s Beige Book indicates that the negative headwinds that have held the U.S. economy back over the past five years may be declining. The rebound in our Beige Book Barometer is consistent with the Fed’s view that the contraction in economic activity was mostly weather related. We continue to expect...

Irrepressible Bonds

Investor positioning and changed Federal Reserve expectations had a particularly beneficial impact on robust bond market performance in May. Unbalanced investor positioning may have run its course, and investor expectations about the Fed may be as good as it gets.

No Debate: Stock and Bond Markets Agree

No debate here: Over the past five years, modest declines in bond yields in the range of 0 – 50 basis points occurred along with modest gains of 0 – 10% for stocks.

Better Gauges of Global Growth Ahead

As markets brace for this week, we continue to expect that the U.S. and global economies may accelerate in 2014 relative to 2013’s growth rate. We continue to expect that the FOMC will taper QE by $10 billion per meeting, exit the program by the end of 2014, and begin to raise interest rates in late 2015. Our view remains that...

Oil, Oil Everywhere

Why — if the United States is producing more oil and consuming less than it was a decade ago — is the price of oil going up, and what does it mean for investors?

Capital Spending Check-up

We do not think the economic weakness in Q1 is the start of another recession, and, indeed, we continue to expect real GDP will expand 3.0% in all of 2014. We believe the conditions are in place for a pickup in business spending, and we expect the pace of business capital spending to accelerate over the next several years.

Municipals Bloom Amid Drought

Limited new issuance and Treasury market strength have powered municipal bonds to their best start since 2009. In conjunction with lower yields and higher valuations, near-term caution may be warranted as the first signs of selling pressure emerge and a challenging seasonal period looms. Absent a new bout of economic weakness, we see additional municipal price gains as limited.


We do not think the first quarter GDP report will be a harbinger of a recession in the near future. We continue to believe the U.S. economy will accelerate in 2014 (relative to 2013), and that GDP will increase 3.0% for the year. The LEI indicates that the risk of recession in the next 12 months is negligible at 4%, but not zero.

Japan Going Godzilla

If Godzilla-sized quantitative easing aligns with a fading impact from recent tax hikes, increasing political support for corporate tax cuts, and a push by government pension funds into stocks, it may mean a blockbuster summer for Japanese stocks.

The Best Indicator May Be a Long Way From Signaling the Start of a Bear Market

The volatility we call “market storms” is likely to continue to be a characteristic of markets this year, caused by well-known factors, such as: geopolitical conflict in Russian border countries, slower economic growth in China, or a weak start to the year for the U.S. economy, among others, but also lesser-known factors like the Oklahoma earthquakes, solar flares disrupting communications, and the Ebola outbreak...

Dollar on the Verge?

While the dollar may gain ground in the coming months and quarters as the economy accelerates, we continue to believe the dollar will slowly depreciate over time — continuing the trend that has been in place since the early 1970s. The weaker dollar has, at the margin, made our exports more attractive, pushed up the costs of goods we import, and, most importantly...

Global Earnings Picture Reveals Dramatic Regional Differences

Earnings forecasts are being cut sharply overseas, raising the questions of how much of a value international developed market stocks are and whether they can outperform the U.S. market in 2014.

Central Bank Pulse

Key emerging market central banks have raised rates within the past year in an effort to combat inflation, the threat of inflation, or current account imbalances. Most developed market central banks are on hold or easing. The divergence among global central bank policies creates both risks and opportunities for global investors, and especially active managers who invest globally.

A Clean Slate: Review and Rebalance Your Portfolio

There is no better time to take a fresh look at your investment strategies than the beginning of the new year. And while there is no one-size-fits-all approach to investing for the future, reviewing your goals annually can help you stay on track from month to month--and year to year.

It Pays to Plan Ahead: 2013 Year-End Tax Planning

As 2013 draws to a close, the last thing anyone wants to think about is taxes. But if you are looking for potential ways to minimize your tax bill, there’s no better time for planning than before year-end. And, with the higher rates put in place with the passage of the American Taxpayer Relief Act of 2012, being tax efficient is more important than ever.

An Estate Planning Checklist

Because you have worked hard to create a secure and comfortable lifestyle for your family and loved ones, you will want to ensure that you have a sound financial strategy that includes trust and estate planning. With some forethought, you may be able to minimize gift and estate taxes and preserve more of your assets for those you care about.

Changing Jobs or Retiring? Don’t Forget Your Retirement Savings!

If you’re like many Americans, you probably intend to rely on your employer-sponsored retirement plan savings for a significant portion of your retirement income. So when it comes time to make important decisions, such as what to do with the money in your plan when you change jobs or retire, you should be fully aware of your options...

Consider Prepaid Tuition Plans for College Savings

If you’re currently investing for your children’s college education or are planning to do so in the near future, you may want to consider a state-sponsored prepaid tuition plan. Generally speaking, these plans, which are now available in many states, allow you to pay tomorrow’s tuition bills at today’s tuition rates. In addition...

Understanding and Managing Risk in a Bond Portfolio

As interest rates spiked in the second quarter of this year, many bond investors shifted gears from intermediate and long-term bonds to bonds with shorter maturities. The relationship between interest rates and bond prices is just one of many potential risks associated with bond investing. So why consider bonds?

Using Life Insurance to Ensure Business Continuity

The loss of critical personnel can be life threatening to small businesses; however, it's a risk that life insurance can often mitigate. In fact, life insurance policies are frequently used in plans aimed at making it possible for a business to survive a change of ownership or the loss of a partner, the chief executive or an employee whose creative talent, technical knowledge or salesmanship drives the business...

How to Work With a Financial Advisor

The continuously shifting investment climate, the sheer number of investment products to choose from and the emergence of employee-driven retirement savings plans, such as 401(k) plans, have all contributed to the increased need for qualified financial advice. No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor...​

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