LPL Financial - Dan Thornsberry

04/07/2025

Market Update

Tariff Turmoil

Markets got quite a surprise from the Trump administration last week in the form of tariffs above even the most aggressive forecasts, increasing the risks to economic growth and corporate profits. China quickly retaliated and Europe plans to do so.

From a stock perspective, we’re past peak uncertainty and maybe peak pessimism as well. Tariff rates should go down from here as negotiations begin. Interest rates should head lower as the deficit narrows. Oil prices are down sharply. And tax cut extensions will be larger and easier to pass, funded by tariff revenue.

Following these tariff announcements, LPL Research’s below-consensus $260 forecast for S&P 500 EPS in 2025 is under review. It’s impossible to know where the tit-for-tat ends, but the $250–255 range is in play and our year-end fair value target range of 6,275—6,375 is also under review.

Long-term investors may want to consider doing some rebalancing into stocks this week after recent bond market gains. More active traders may want to wait for better headlines before stepping in.

03/31/2023

U.S. Markets Open Higher for Final Trading Day of Q1
The Americas: Equities are on track for solid weekly gains as all major market sectors, with the exception of financials, finished higher Thursday. The Financial Times reported that more than $340 billion has shifted from banks to higher-paying U.S. money market instruments. This trend caught the attention of Treasury Secretary Janet Yellen, per her comments yesterday highlighting the “structural vulnerabilities” of the nonbanks sector.
Europe: European markets are higher through midday trading. Eurozone preliminary headline Consumer Price Index (CPI) came in cooler than expected in March but remains elevated at 6.9% year-over-year. Core inflation was in line with economists’ expectations but witnessed a small uptick vs. February. German retail sales came in weaker than expected in February, as rising prices suppressed consumer purchases. Overall, retail sales declined 7% year-over-year.
Asia-Pacific: Asian markets finished their trading sessions higher. China’s manufacturing Purchasing Manager’s Index (PMI) moderated in March but remained in expansion territory, beating economists’ expectations. In addition, non-manufacturing PMI surprised to the upside, reaching its highest level since May 2011. Japan’s industrial production rebounded better than expected in February, while retail sales rose for a third straight month.

03/16/2023

Update on the Credit Suisse Situation
Just as the market was starting to make some progress digesting the news of the Silicon Valley Bank (SVB) failure, another source of potential financial stress popped up.
Credit Suisse (CS) shares fell sharply on Wednesday to record lows before rallying back to end the session down 14%. The selloff was sparked by the news that Credit Suisse’s largest shareholder, the Saudi National Bank, would not consider injecting more capital into the bank.
Without that source of capital, markets worried about the solvency of CS, reflected in the blowout of credit default swap (CDS) prices. CDS prices on the biggest U.S. banks were calm throughout the trading session, suggesting little risk of contagion.
CS shares then rallied overnight after the Swiss central bank and regulators offered needed liquidity, confirming what we already knew—the bank is too big to fail. CS will borrow up to CHF 50 billion from the Swiss central bank, collateralized by CS assets. European markets are solidly higher this morning on the news.

02/22/2023

U.S. Markets Open Higher Following Tuesday’s Pullback
The Americas: Equities began the shortened trading week lower, as the S&P 500 Index fell below the 4,000 level and the Dow Jones Industrial Average declined into the red for 2023. All major sectors finished lower as financials, communication services, consumer discretionary, industrials, and information technology were Tuesday’s biggest laggards. Market participants are anticipating this afternoon’s release of the latest Federal Reserve (Fed) meeting minutes as St. Louis Fed President Bullard stated that he sees a peak interest rate of 5.375%, which is less hawkish than many expected. Palo Alto Networks (PANW) is higher today as the company raised its annual profit outlook and stated it was working on managing costs.
Europe: European markets are lower through midday trading. German Ifo business outlook improved for a fifth straight month in February, though it slightly missed expectations. Germany's January inflation rate showed little signs of easing as energy and food price pressures remained high given the Russia-Ukraine conflict. Energy product prices were 23.1% higher year-over-year (YoY) amid government relief measures. Excluding energy prices, the inflation rate came in at 7.2%. Food prices increased over 20% YoY, more than doubling the overall inflation rate.
Asia-Pacific: Asian markets finished mostly lower with the South Korean KOSPI down 1.68%. Japan’s benchmark yield climbed above the central bank’s ceiling amid a global bond selloff and preparation for the new central bank governor. Given the selloff, the central bank announced an unscheduled bond-buying session. On Wednesday, Bank of Japan (BOJ) board member Tamura, warned of the risk of an inflation overshoot, stating the timing to end the present, ultra-loose monetary policy will depend on economic, price, and wage developments.

02/08/2023

Just the Facts!

Channelchek

02/01/2023

What to Watch for on “Fed Day”
The Federal Open Market Committee (FOMC) will likely hike rates by 0.25% this afternoon as the economy is still suffering under high inflation.
Chair Powell has said the Committee would not consider cutting rates in 2023 as the Committee gains confidence that inflation is moving down to 2% in a sustained way. However, the markets expect the Federal Reserve (Fed) to cut rates as early as July. Who is right? Investors should look for any guidance on who is right within this debate over potential rate cuts.
We think the market is probably right since inflation should further decelerate throughout 2023, creating less of a headwind for businesses and consumers alike.
In previous statements, Chair Powell discussed the need for policy to be restrictive and investors should be listening if Chair Powell elaborates on what it means to be “restrictive.” Will the Committee be pleased when the federal funds rate upper bound is above the core personal consumption expenditure (PCE) deflator? We forecast core PCE will likely be under 4% in the second quarter.
Chair Powell has referenced the number of job openings per unemployed person. The labor market is still tight but investors should listen for comments about potential pain of rising unemployment. Some sectors of the labor market are slowing and Chair Powell could mention the decline in labor market churn.
Bottom Line: As inflation convincingly decelerates. We expect the Fed to eventually begin the conversation about both parts of their dual mandate, thereby providing some stability in the markets. The Fed cannot ignore the fact that the economy is slowing and recession risks are rising.

01/27/2023

A Busy Week of Economic Data Points to a Downshift in Fed Rate Hikes
The December Personal Consumption Expenditures (PCE) Index came in as expected this morning and continues to show inflation is cooling. Both headline (5.0%) and core (4.4%) year-over-year readings continue to show peak inflation is behind us and the Fed rate hikes are working to cool demand.
Despite the solid headline Q4 GDP growth rate, which was released yesterday, important components of the economy have slowed down to a stall speed and are likely entering a period of outright contraction in Q1.
Also released today, real personal spending declined in both November and December, revealing a consumer on unsure footing.
Faltering growth and decelerating inflation will likely cause the Fed to refocus on growth, the other part of its dual mandate.
The Fed meets next week where we think it is highly likely at this point the Committee will raise rates by only 0.25%, slowing one of the most aggressive rate hiking campaigns in decades.

01/20/2023

Special Comments on the U.S. Debt Ceiling Debates: Yesterday, the government hit the statutory limit on borrowing. When the government reaches the debt limit, Congress can either raise, or temporarily suspend, the debt ceiling. Meanwhile, Treasury can still meet government obligations by “extraordinary measures” so investors are heavily interested in when Treasury uses up those emergency funds, often called the X Date, and as of now, mostly likely sometime late summer.
Complicating the current situation are rising recession risks and unknown tax receipts. As the economy slows, the public sector may feel greater pressure from less revenue and even more impactful is the upcoming individual tax season. Government revenue streams are lumpy and April 15 is important for government funding.
Since the end of the Second World War, the government adjusted the debt ceiling over 100 times. During periods of divided Congress, debt and spending debates are more heated but inevitably, the debt ceiling will be raised. We have already spent the money. No politician wants to put their name on something that prevents seniors from getting their social security checks or Medicare reimbursements—or cuts in defense spending for that matter.
If we don’t pay interest on Treasuries, rates will go higher, servicing our massive debt pile will become even more expensive—and eventually untenable— leading to more painful spending cuts. There are enough votes to avoid a calamity even if a few folks are willing to push things further than they’ve ever been pushed before.
There will be no U.S. default but the debt ceiling could certainly cause another credit agency to downgrade the U.S. credit rating and drive a bout of market volatility as in 2011. With narrow majorities in Congress, the fringes have more power in Congress. Nevertheless, cooler heads will prevail and over time, and fundamentals will take over again—economic growth should return, earnings, interest rates and inflation will all normalize and markets will move forward.
Even if the debt debates drags on, Treasury could work with the Federal Reserve and pay interest payments, potentially saving itself from a technical default. Students of the markets should use August 2011 as a case study. Standard & Poor’s downgraded U.S. debt for the first time in its history and global stocks plummeted. We should expect higher volatility if the debate drags on.
If stocks sell off sharply on this risk, LPL Research would more than likely view that weakness as an attractive buying opportunity. The media attention on this is more political than economic, but it’s something to watch.

01/19/2023

U.S. Markets Open Lower Following Yesterday’s Selloff
The Americas: Yesterday, the S&P 500 Index was off by 1.56%, as every major sector finished lower, with both consumer staples and utilities lagging the worst. Market participants are concerned about the state of the economy, given softer-than-anticipated earnings guidance, along with a light December retail sales print. Meanwhile, still-high inflation and hawkish Fed-speak remain concerns. The dollar index (DXY) is holding near its lowest levels reached in May 2022 and is down approximately 11% since the September 29 peak last year. Dollar weakness has been driven by an increasingly bearish view, given both softness in the U.S. economy, along with a lack of pivot in Federal Reserve (Fed) monetary policy.
Europe: European markets are lower through midday trading with the Euro STOXX 50 down over 1.75%. Global growth concerns continue to weigh on investor sentiment as disappointing December U.S. retail sales increased concerns about a recession.
Asia-Pacific: Asian markets finished their market sessions mixed. China's reopening is expected to unleash pent-up demand for commodities, consumer goods and travel, as Bloomberg reports economists have upgraded China’s GDP growth forecasts to above 5% for this year. Japan's export growth slowed sharply in December, as exports to China declined for the first time in seven months.

01/19/2023

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01/18/2023