Stocks have weakened as various global concerns keep popping up. Stretched valuations, weakening technicals, and increased tensions between the United States and China have investors on edge. This week, the LPL strategists discuss these important concepts, and more.
How bad is it
Retail sales fell 16.4% over the past month, the largest monthly decline in history. Industries like clothing and restaurants were hit especially hard, with clothing sales down 89% over the past year. The good news is this is about as bad as it’ll get, and we are already seeing positive signs such as TSA travelers, fuel purchases, and public transportation showing big jumps over the past two weeks.
What are the worries
Stocks are quite expensive, as the forward price-to-earnings ratio (P/E) on the S&P 500 Index is over 20, while many big fund managers are also worried about valuations. The strategists explain that slightly higher valuations make sense with inflation and rates so slow. Technically, there aren’t as many stocks participating in this rally, and this could be a worry, while the summer months historically have been troublesome for stocks. At the same time, the Federal Reserve continues to be a major backstop, as Federal Reserve Jerome Powell has stated the Fed isn’t anywhere near out of options.
Small business matters
Small businesses make up 47% of all the jobs in the private sector, and these important contributors are feeling the pain, as many of them have been shut down. Yet, as the strategists note, small business optimism for six months out is the highest it has been in a year and a half, suggesting that the worst could be behind us, and a strong demand could be coming.
Tune in now
Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Play, or Spotify.
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 in the podcast may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged 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.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks deigned to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Forward Price To Earnings (Forward P/E) is a measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. While the earnings used are just an estimate and are not as reliable as current earnings data, there is still benefit in estimated P/E analysis. The forecasted earnings used in the formula can either be for the next 12 months or for the next full-year fiscal period.
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This Research material was prepared by LPL Financial, LLC.
For Public Use — Tracking #: 1-05012175 (05/21)