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Is the low in?

Stocks staged a huge bounce last week amid higher inflation, a hawkish Fed, and war in Eastern Europe. So, is the low in? In our latest LPL Market Signals podcast, Jeff Buchbinder and Ryan Detrick discuss why it very well could be. They also break down the recent Federal Reserve Bank (Fed) decision to start hiking rates and break down why an investor would want to own bonds, even though it has been a rough ride lately.

Last Week Was Amazing

The S&P 500 Index added 6.2% for the best week since the week of the U.S. election in November 2020. Ryan notes that previous 5% weekly gains saw continued strength, being higher a month later 11 of the past 12 times and up about 5%. Jeff says that sentiment was historically washed out, and although the headlines are still very dour, much of the bad news is priced into things. Ryan adds that we are seeing some baby steps in improvement on supply chains, which is something not many people are talking about. Lastly, last week saw the S&P 500 add 1% on four consecutive days, a very rare, yet potentially bullish development.

Fed Review

The Fed hiked rates by 25 basis points (0.25%) last week, as was widely expected. Overall, the Fed came off quite hawkish, with another six hikes expected this year and another four more next year. Yields continued to move higher, but stocks took this in stride and actually saw huge gains. The strategists note this was the first time in nearly two years the Fed didn’t mention COVID-19, but now it is replaced with the war in Ukraine. Ryan adds the Fed was quite optimistic about the economy going forward and expects it to be able to handle higher rates. 

Why Even Own Bonds?

It’s been a rough ride for bonds lately as yields have soared and many are asking if bonds even make sense in a portfolio. Jeff points out bonds still make sense, but we’ve been underweighting bonds relative to stocks for a long time now. Yet with the huge moves in yields, now could be a time to consider adding some high-quality bonds as a diversifier to a portfolio. Don’t forget, bonds are also much less volatile that stocks as Ryan mentions, so they can help big swings in a portfolio as well. Lastly, the strategists note that yields might be going higher but credit risk hasn’t increased. Liquidity, equity diversification, and total returns are all valuable properties core bonds bring to diversified portfolios and why investors should still consider owning core bonds.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

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.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

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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