Friday, June 25, 2021
What does the Fed say?
Stocks were making new highs—then Federal Reserve Chair Jerome Powell and the Federal Reserve (Fed) had the latest Federal Open Market Committee (FOMC) meeting—and things changed. Stocks sold off hard after it was determined the Fed was more hawkish than expected. This week in the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss why a more hawkish Fed shouldn’t have been much of a surprise. They also discuss the sharp earnings revisions higher and why LPL Research downgraded technology.
The Fed upsets the apple cart
The stock market sold off hard after the Fed decision came in hawkish. Ryan and Jeff discuss how the Fed’s position shouldn’t have been a surprise. Jeff points out that the Fed is really just back in line with what the market was expecting. Ryan details how inflation data had exploded higher and that many inflation indicators actually have peaked—plus, higher rate hikes usually are a sign of an improving economy and things getting back to normal. Ryan and Jeff are not ignoring the fact that the Fed moves markets—they recognize how the Fed, by taking away the punch bowl sooner, could impact markets. However, they maintain that what the Fed did last week was not that much of a surprise.
Earnings estimates increase
Earnings drive long-term stock gains and one thing we’ve seen this year is huge jumps to earnings estimates. Earnings growth in the United States has jumped from 18% to 35%, helping to justify stocks at such high levels. Emerging markets haven’t increased quite as much, but as Jeff shows, more was expected of them at the start of the year. The big surprise, though, has been developed international—jumping from 19% to 38%. This is one of the primary reasons we’ve grown more optimistic about this group after lagging for many years (or even decades).
It was a tough call, as we’ve been big tech bulls for many years, but Jeff gives more than a few reasons for this downgrade:
- The reopening favors early cycle and cyclicals
- Valuations are still quite pricey for tech
- Tech’s relative trend has been neutral
The flipside is that the fundamentals are still quite strong, and this is why we only moved to neutral on the downgrade.
You can watch the full video below and directly on our YouTube channel. Please be sure to subscribe to the LPL Research YouTube channel so you don’t miss anything! Also, if you like our channel, please give us a positive review—it helps more than you know!
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any 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 information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking # 1-05160283