Market Update: Tues, May 5, 2020 | LPL Financial Research


Stocks opened solidly higher. The S&P 500 climbed higher this morning, following both European and lightly-traded Asian markets, as global economies push their reopening plans forward. Markets in Japan, China, and South Korea remain closed. Oil is headed for its longest winning streak in nine months. US-China tensions appear to have eased after US Treasury officials removed the threat of economic punishment as long as China abides by the trade deal.

Municipal bonds likely muddle through. It’s a challenging time for state and local governments, with budget shortfalls and spending cuts likely as COVID-19 containment efforts weigh on growth. Support from the Fed and the federal government may help most municipalities. Elevated municipal bond yields compared to Treasuries may present an opportunity for tax-sensitive investors, but with municipal finances highly differentiated, active management may be suitable and especially important. We discuss this later today on the LPL Research blog.

Reducing US and global growth forecasts. In light of the severity of the COVID-19 lockdowns, recent economic data, and evidence the recovery may be gradual, we have reduced our US and global gross domestic product (GDP) growth forecasts. We expect a sizable full-year contraction in the United States and developed international region in 2020, consistent with Bloomberg’s consensus estimates, while global GDP may also contract. For more, read this week’s Weekly Market Commentary: Big News and New Forecasts.

Lowered 2020 S&P 500 earnings forecasts. We also lowered our 2020 S&P 500 earnings forecasts given what we’ve learned from corporate America during earnings season, the delayed recovery, and a bigger hit to the economy than we had anticipated. Our new $120–125 estimate for S&P 500 earnings per share in 2020 reflects a decline of roughly 25%, slightly larger than the typical decline in recessions. Our S&P 500 fair-value target and interest-rate forecasts are under review but remain unchanged for now. Details are in this week’s Weekly Market Commentary: Big News and New Forecasts.

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