Market Update: Mon, July 1, 2019 | LPL Financial Research

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Daily Insights

Stocks surge on trade news. The S&P 500 Index opened sharply higher this morning on the good trade news from the G20 summit (more on that below). Oil touched the $60 level after OPEC and Russia agreed to extend output curbs by 6 to 9 months. Today kicks off a big (holiday-shortened) week of economic data including the Institute for Supply Management (ISM) Purchasing Manager’s Index and July payroll employment report.

Longest expansion ever. At 121 months the U.S. economic expansion is now the longest ever recorded going back to 1854, according to Bloomberg. Despite its length, we think this cycle has more room to run given its gradual growth trajectory, fiscal stimulus, and the lack of built-up excesses, i.e., bubbles, since the financial crisis. An easy Fed doesn’t hurt.

Trade truce. President Trump and President Xi agreed to a tariff cease fire at the G20 summit in Japan over the weekend. The good news is the two sides have resumed negotiations, the next round of U.S. tariffs have been suspended indefinitely, and U.S. companies can sell certain products to Chinese telecom giant Huawei. The bad news is existing tariffs remain in place, and we have no indications that the sticking points that caused talks to derail in May are any closer to being resolved. We still think a deal this year–and hopefully by the fall–is likely but not before more economic pain is inflicted by both sides. A July Fed rate cut remains firmly on the table

What Does a Big 6 Months Mean for Stocks? So far this year we have witnessed the S&P 500 Index gain 17.4% year to date after a dismal fourth quarter and the worst December since the Great Depression. On the LPL Research Blog later today, we will address the big question on everyone’s mind, How much is left in the tank for stocks after such an impressive start to the year?

Today’s weekly commentaries feature content from the Midyear Outlook 2019 publication released last week:

  • Economy: We still believe fundamentals are supportive of moderate gross domestic product (GDP) growth this year. Progress on trade is central to our growth projections, so we’ve slightly reduced our GDP forecast for the United States to 2.25-2.5%.*
  • Equities: The overall U.S. economic environment has supported continued expansion. The Fed’s decision to pause rate hikes boosted sentiment and increased demand for equities. Market valuations remain favorable, with the S&P 500’s forward 12-month price-to-earnings (P/E) ratio within historical norms. We recently reduced our S&P 500 earnings per share forecast to $170 for year-end 2019, mainly because of trade uncertainty, and our year-end S&P 500 fair value estimate remains at 3,000.*

IMPORTANT DISCLOSURES

*Additional descriptions and disclosures are available in the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets publication.

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

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

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

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

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

This research material has been prepared by LPL Financial LLC.

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