Thursday, March 25, 2021
Commodities the biggest winners since the low. While stock markets have posted solid returns since the S&P 500 Index bottomed in March 2020, commodity markets have been on an absolute tear as economy activity has accelerated since the lockdowns in the early stages of the pandemic. We take a closer look at some of the biggest winners in today’s LPL Research blog, available at 12pm ET.
US stocks open lower as markets pare risk appetite
- The Nasdaq slipped into negative territory for 2021 on Wednesday as growth stocks continue to feel pressure.
- European markets lower in midday trading, with cyclical stocks leading to the downside.
- Asian markets mostly lower overnight, though Japan’s Nikkei 225 posted solid gains.
Stock valuations are elevated globally
- The S&P 500 Index forward price-to-earnings ratio (PE) at 21.7 is 35% above its 10-year average.
- The PE for the MSCI EAFE Index (developed international equities) is 17, 23% above its long-term average.
- The story for emerging markets (EM) is the same, with the MSCI Emerging Markets (EM) Index PE at 14.7, 27% above its long-term average.
- Despite the recent rise in interest rates we continue to believe low interest rate levels support elevated valuations globally.
Valuation gap between the US and the rest of world remains wide
- Developed international’s discount to the S&P 500 at 21% is larger than its 10-year average of 13%.
- EM’s 32% discount to the S&P 500 is above its long-term average discount of 26%.
- Based on relative valuations versus history, we see the most value in Japan.
- Fundamentals still favor the US, for now, but we continue to recommend at least benchmark-level EM allocations as appropriate.
Economic data roundup
- Jobless claims beat estimates, with 684,000 Americans filing for unemployment insurance versus Bloomberg consensus forecasts of 730,000. This was the lowest level since pre-Covid.
- Volatility in the labor market persists, with Bloomberg surveys continuing to have a difficult time estimating weekly filings.
- The Federal Reserve’s preferred inflation gauge, core Personal Consumption Expenditures, came in lighter than expected, rising 1.3% quarter over quarter versus Bloomberg consensus forecasts of 1.4%.
Markets fell throughout the day yesterday, closing at session lows despite opening broadly higher. The Nasdaq Composite and Russell 2000 fell at least 2%, leading major benchmarks to the downside, as the Russell 2000 came within a hair of a 10% correction. The Russell 2000 has support in the 2000-2100 range, where it is falling into in early trading today.
LPL Research in the Media
LPL Chief Market Strategist Ryan Detrick joined Nasdaq #TradeTalks with Jill Malandrino to discuss the Final Four factors that matter to stocks in 2021.
The Second Year Of The Bull Market Begins
LPL Research strategists discuss the end of the bear market and the trends of a bull market in year two. Learn more in this week’s Weekly Market Commentary.
The Bull Market Turns One
On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder consider what could be in store for stocks in year two of the bull market, along with a discussion of rates and the latest Federal Reserve meeting.
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