How to Focus on What Really Matters in the Markets

The LPL Research Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets is here to provide economic and market guidance as well as investment recommendations to help us navigate the second half of 2019.

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Dear Valued Investor:

We are pleased to announce the release of the LPL Research Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets, with investment insights and market guidance through the end of 2019.

LPL Research believes that even as investors face prospects for periodic bouts of volatility, emphasizing fundamentals will remain critical for making effective investment decisions. The LPL Research Midyear Outlook 2019 provides updated views of current fundamentals that should persist as shorter-term concerns fade and emphasizes four primary pillars for fundamental investing – policy, the economy, fixed income, and equities. As headlines change, look to these pillars and the LPL Research Midyear Outlook 2019 to help provide perspective on what really matters.

Progress on trade remains a key theme to watch. Economic (and political) self-interest most likely will bring the United States and China back to the table, although risks have increased. Clarity on cross-border transactions should lead to increased business confidence, higher capital investment, and improved productivity, likely extending economic and profit cycles.

Against this backdrop, progress on trade remains central to growth projections, and with negotiations stalling in the second quarter, LPL Research slightly reduced its 2019 gross domestic product forecast to 2.25–2.5%, supported by consumer spending, business investment, and government spending.

Turning to the bond market, yields are expected to move higher from current levels. However, the LPL Research team also reduced its year-end forecast for the 10-year Treasury yield to 2.50–2.75% after considering benign inflation, the Federal Reserve’s (Fed) decision to pause rate hikes, and trade-related signs of slowing. Given signals from the yield curve as well as several weaker economic reports, the Fed may be more accommodative in coming quarters.

Based on expectations for economic growth and monetary policy, along with the fiscal tailwinds of government spending, reduced regulation, and lower taxes, 2019 may be a good year for equity investors. Accordingly, LPL Research believes there’s a potential for 5–6% earnings per share (EPS) growth in the S&P 500 Index during 2019 and that the S&P 500 would be fairly valued around 3,000.

If clarity on trade and monetary policy result in an improved outlook for corporate profits, LPL Research may revisit that forecast.

Although the economic environment has become more challenging, the pillars of fundamental investing still appear to be sound. Together, we will continue to monitor the impact of trade developments, and refer to LPL Research Midyear Outlook for insightful commentary to support investment decisions.

If you have any questions, please feel free to contact me.

Sincerely,

Bob ChitrathornVice President of Wealth Planning

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.