The calendar still supports the bull market. If you look at the average return on the S&P 500 over the last twenty years, March has been the second strongest month for equities.
In this week’s Market Signals podcast, the topic of discussion for our LPL strategists centers around what will potentially happen after the recent 20% stock market rally. Will the eventual stock market pullback be modest or something bigger?
The strategists note that after the large stock market rally coming off the December 24 lows, it’s reasonable for a pullback to occur. However, they don’t expect it to stay around 5%. Fundamentals remain quite solid, and market technicals are healthy.
Without question, global economic data is weakening. Concerns are also starting to show over US data. The good news, according to the strategists, is that the recent data isn’t necessarily a sign of recession. Rather, it points to more of an economic slowdown with eventual acceleration later this year.
Case in point: while recent jobs data has been weak, the strategists see it as a lagging indicator. More forward-looking data, like consumer confidence and housing, have spiked nicely over the past month.
Main Street confidence has taken a major hit. Much of it is due to continuing trade concerns, the global slowdown, market volatility from late last year, and the government shutdown. As a result, our LPL Research strategists say their proprietary Beige Book Barometer came in at its lowest level in seven years. Nonetheless, they think there’s better economic news or data ahead —particularly true should trade issues be resolved over the coming months.
The Beige Book Barometer is a diffusion index that measures the number of times the word “strong” or its variations appear in the Beige Book less the number of times the word “weak“ or its variations appear. When the Beige Book Barometer is declining, it suggests that the economy is deteriorating; when the Beige Book Barometer is rising, it suggests that the economy is improving.
Pessimism has increased rapidly on Main Street’s economic outlook, as our proprietary Beige Book Barometer has dropped to its lowest level since the European debt crisis.
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