LPL Financial Market Signals Podcast

Stock Market Is Looking Forward l LPL Market Signals Podcast

LPL Research

We’re in a very unpredictable earnings environment with many companies pulling their guidance. While we wait for clarity, we’re watching the recent bear market rally and the stock market, which is looking well beyond the economy. We also discuss whether our recovery will be a V, W, or a squiggly, lopsided U.

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The rally continued last week, with the S&P 500 Index adding another 3% on top of 15% last week. Hopes of the economy opening up soon and promising results of drugs to help fight COVID-19 added to the excitement of an eventual recovery. Still, the deaths and cases continued to increase, while the economy sank even more. As the LPL strategists note, this is one of the widest dispersions between what the economy is doing and what the stock market is doing that we’ve ever seen.

Earnings season is here

First quarter earnings season is here, and the LPL strategists show why this quarter is all about earnings guidance—and not what earnings have to say about quarter-one results. The COVID-19 slowdown didn’t begin until March, so first quarter results won’t accurately show what really happened. We know the economy shut down, but how optimistic will corporate America be? Earnings estimates have totally collapsed, with earnings now expected to be down about 15% from 2019. The strategists expect the 15% decline will match prior short-lived recessions not accompanied by a full-blown financial crisis.

Is this still a bear market rally?

The LPL strategists point out that the historic rally could mean this is more than just a bull market rally. In fact, the S&P 500’s recent 27.2% rally in three weeks could mean even more gains, as the previous ten best three-week periods ever saw stocks higher nine out of ten times six months later, and higher every single time a year later. Although the chances of a well-deserved pullback are quite high, the odds of a retest of the March lows is quite low, and a surprise move higher for the rest of 2020 could be in the cards.

What will the recovery look like on the other side?

The economic data we are seeing is some of the worst of our lifetimes; however, the good news is a quick recovery could be possible if the virus can be contained. As the LPL strategists discuss, it will be quite tough for a “V-shaped” recovery, meaning the economy just picks up where it left off and soars higher. With so much uncertainty, a “U-shaped” recovery could be more in the cards, meaning it might take a little time to get up off the mat, but an eventual surge higher could happen, thanks to all the fiscal and monetary stimulus in the system.

Earnings estimates have collapsed

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 iTunesGoogle Play, or Spotify.

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IMPORTANT DISCLOSURES

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.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

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For Public Use — Tracking #: 1-978151 (04/21)