NAVIGATING THE MARKETS

By LPL Research Portfolio Compass

The Portfolio Compass provides a snapshot of LPL Research’s views on equity, equity sectors, fixed income, and alternative asset classes. This monthly publication illustrates LPL Research’s current views and will change as needed over a 3- to 12-month time horizon.

COMPASS CHANGES

• Upgraded precious metals view to neutral from negative/neutral.

INVESTMENT TAKEAWAYS

• Expectations for solid but slower growth in the U.S. economy and corporate profits support our year-end 2019 fair value target for the S&P 500 of 3000.*
• We maintain our slight preference for value due to attractive relative valuations after a sustained period of growth outperformance.
• We expect a transition to large cap market leadership and away from small cap stocks in 2019 as the economic cycle ages and trade issues ease.
• We favor emerging markets (EM) equities over developed international for their solid economic growth trajectory, favorable demographics, attractive valuations, and prospects for a U.S.-China trade agreement.
• Slower but still solid economic growth and modest inflationary pressure may be headwinds for fixed income. The pause by the Federal Reserve (Fed) reduces near-term upward pressure on interest rates, but an additional hike is still possible in the second half of 2019.
• We emphasize a blend of high-quality intermediate bonds, with a preference for investment-grade corporates (IGC) and mortgage-backed securities (MBS) over Treasuries. Yield per unit of duration remains attractive for MBS while valuations and economic growth are supportive of IGCs.
• The S&P 500 Index is off to its best start to a year since 1991, back near its 200-day moving average, and history shows that returns tend to be strong following such a start.
• In our view, the odds of a retest of the December 2018 lows have decreased given the broad participation in the rally. Lower-trending bond yields remain a potential warning sign.

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