Municipal Bond Market Outlook 2024

Last Edited by: LPL Research

Last Updated: January 16, 2024

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"We expect S&P 500 earnings to grow about 5% in the fourth quarter, supported by a resilient U.S. economy and a weak U.S. dollar. Low profit margin expectations set the stage for upside."

Jeffrey Buchbinder, CFA, Chief Equity Strategist

"Munis had a solid year last year, but we think the muni market could be poised for another good year in 2024."

Lawrence Gillum, CFA, Chief Fixed Income Strategist

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Jeff Buchbinder (00:00):

<Silence> Hello everyone, and welcome to the latest LPL Market Signals podcast. Jeff Buchbinder here, your host for this week with my friend and colleague, Lawrence Gillum. Lawrence, hope you enjoyed the weekend. Hope all of you did. Normally I don't have a lot of exciting news to report on these podcasts to start the week, but it was a pretty busy weekend in the Buchbinder household. So we had birthday party for the wife, so hosted a bunch of people at our house on Friday, and then Saturday had a gymnastics competition. So humble brag. I've got to share. My daughter Emily won first place in the all-around competition. So, very exciting week for the Buchbinder family. How about you, Lawrence? How was the weekend?

Lawrence Gillum (00:48):

It was a good weekend, thanks for asking. The highlight of our weekend, at least from my perspective anyway, was the Bucs playoff victory last night. Of course, we're recording this on Tuesday after the playoffs. A little unexpected, but I'll certainly take it. A little tired today though, because of that. But nonetheless, pretty excited.

Jeff Buchbinder (01:11):

Well, I'm a happy Chiefs fan too. I should add that to the highlights of the weekend for me anyway. Not looking forward to going into Buffalo, but should be a good game. So here we'll look at these important disclosures first and then we'll get into our agenda for the week. We're recording this on Tuesday morning, January 16, 2024. So a little later than we normally do with the holiday on Monday. We're going to start by recapping what was a very good week for stocks and bonds last week. We'll, next hear from Lawrence on the muni market, which actually is of great interest, I think, to people. We get a lot of questions from investors on munis, so looking forward to hearing from Lawrence on that. Next, we'll talk about earnings season. It's been a little bit of a messy start, but it's so early with so few companies having reported that it's, you know, probably not worth drawing conclusions just yet.

Jeff Buchbinder (02:06):

So we'll preview the earnings season, talk about our Weekly Market Commentary for this week, which was just posted on lpl.com right before we started recording. And then finally preview the week ahead, which is a pretty quiet week. Retail sales and housing data. Not really that top tier kind of data like we got last week with the inflation reports. So let's start with a recap of last week. So we've got a lot of green on the screen so to speak, even though we haven't color coded this table. The S&P 500 was up about 1.9% last week. We have leadership from the big tech names. So you see here in the sector section here, you know, tech up over almost 5% over the past week. Comm services, which is where Alphabet and Meta are, was up about 3.5% last week.

Jeff Buchbinder (03:06):

So that was really, I think, the big story. But you know, certainly not all that went up. We had pretty good gains from consumer discretionary. We had some gains in industrials. We had some nice gains in consumer staples as well. So I guess it was somewhat broad, but I think the big story may be is big tech. And that's why you see such strong gains for growth over value. LPR Research continues to favor growth over value. You've got some really good earnings power going on right now. That'll be evident in earnings season which we'll talk about in a minute. We like domestic over international, but you have to just take note of the strong gains in Japan year to date. The Nikkei here is up 7% year to date, you know, S&P's barely positive. So that's just a really, really strong start to the year for Japan, despite all the concerns about them tightening monetary policy at some point. So wanted to highlight that standout performer. So Lawrence, it was a good week for bonds too. The 2-year yield absolutely plummeted last week.

Lawrence Gillum (04:20):

Yeah, a lot of the action in the fixed income markets, at least on the rate side, has been in the front end of the Treasury yield curve, which we'll talk a little bit about, I'm sure in just a second, but was a good week for fixed income in general last week. The aggregate bond index, which is the core bond index, almost up a percent, that was driven largely through the investment grade corporate index, as well as the mortgage-backed securities index outperforming kind of the call it the lower rated categories within the fixed income markets. Plus sectors performed okay last week as well. High yield bonds up a percent. And then preferred securities, which is our preferred expression within the plus sectors, no pun intended, there, up about 90 basis points, or nearly a percent over the past week up nearly, or I'm sorry, up over 10% over the past three months.

Lawrence Gillum (05:13):

So, preferred securities is an area that we continue to, like, these are these hybrid securities that aren't really bonds. They aren't really equities. They do offer a pretty attractive yields and spreads currently. So we do have a slight allocation to preferreds, but by and large, our preference has been to remain up in quality with an allocation to a lot of these core sectors. So, treasuries, mortgages, investment grade corporates. We have a slight preference to mortgage-backed securities again, which they've done pretty well to start well at least over the last week, over the last three months, in particular but you know, where our view is that you're not getting paid to take on a lot of fixed income risk right now. So we aren't taking on a lot of fixed income risk right now. So we've been up in quality and so far, so good. It's been a good start to the year for a lot of these higher quality fixed income sectors, which we would expect to continue on a go forward basis as well.

Jeff Buchbinder (06:10):

Yeah, I think it's probably fair to say, Lawrence, you correct me if I'm wrong, after bonds had just that massive rally late last year, that maybe it makes sense to expect more muted returns, maybe a little bit of a bumpy ride this year. Is that fair?

Lawrence Gillum (06:24):

Yeah, certainly over the course of the first half of the year, there's going to be what we call, you know, a little consolidation within the rates markets. Spreads are that additional compensation for owning riskier bonds. Spreads are really pretty tight. So valuations are pretty unattractive currently. So that'll take time to kind of work its way through the markets. And yeah, I would, yeah, I mean, I would expect the first half of the year to kind of be, you know, blah, and that's a technical term, but the maybe the rest of the action taking place over the course of the back half of the year when we could see yields start to fall from current levels. But yeah, the last two months of 2023 were pretty impressive, and that probably pulled forward some returns, at least into from the first half of this year.

Jeff Buchbinder (07:12):

Yeah, it seems like, you know, every year you try to make a 12-month forecast, people are wrong, right? <Laugh>, but at this point, I mean, we hope we're close. At this point, I actually would say I wouldn't be surprised if we get the same returns from the stock market as we get from the bond market, right? Maybe mid-single digits, maybe a little bit better. But of course we've got a long way to go. The you know, the commodity side continues to be perplexing. You know, oil in the low 70s hasn't really responded to the attacks in the Red Sea and all the disruptions to shipping traffic there. So, you know, that's a good thing. It helps support consumer spending with low prices at the pump. But certainly, we see some upside risks to oil prices if you know, if that continues and as demand kind of, you know, catches up and maybe surpasses supply in the months ahead.

Jeff Buchbinder (08:09):

Also want to point out on the dollar here, the bottom right hand corner of this table, you see the dollar down 4% in the last three months, that really matters for earnings. So that actually is a reason to expect maybe a bit more upside to earnings in the fourth quarter than we might otherwise see. So here's the S&P 500 chart. Our technical strategist, Adam Turnquist, tells us breadth continues to hold up quite well. So you see that in the bottom panel. We've got 83% of S&P 500 companies above their 50-day moving average, which is still a pretty good number, 75% above the 200-day moving average. So, you know, breadth has weakened just a bit, but it's still pretty strong. And that's encouraging. We also have an S&P 500 only 13 points away from an all-time high.

Jeff Buchbinder (09:05):

So we'll watch that closely. We're not, probably not going to get there today, Tuesday. Stocks are down a little bit this morning, but you know, certainly we would not be surprised if at some point in the next several weeks we actually close at a new record high. Our target for year end is at the high end, 4,950. So that gives us, you know, a little bit of upside from here. Not a ton, but if rates cooperate, we think maybe we can do a little bit better. Of course, that assumes that we get, you know, a decent amount of earnings growth and something resembling a soft landing, which is generally priced into markets at this point. So Lawrence, here's the 10-year yield. I mean, here's that massive rally in bonds that I just alluded to. It looks like one of those sky slides at the amusement parks. You know, some of those are a little scary to get on. You're not sure if it's going to hold up, but <laugh> that's quite a steep drop, then just a little bit of a bounce. So what do you think the path of the 10-year is going to look like this year? And do you still have confidence in our forecast?

Lawrence Gillum (10:14):

Yeah, so I do still have confidence in our forecast, that big slide that took place over the last couple months in 2023, that was predicated on a pretty fairly aggressive rate cutting campaign out of the Federal Reserve. The markets are expecting at least six rate cuts over the course of this year. Our view is maybe the Fed cuts rates four times. So that would imply maybe a little backup in yields on the 10-year Treasury yield. Our view is 3.75 to 4.25 to end the year. So we're right around 4% currently. So I think we're going to be in this trading range as we just talked about this consolidation phase around 4% seems to be the level that the market continues to trade around and hover around. So 4% is probably that key level on a, you know, a near term basis.

Lawrence Gillum (11:07):

But if the Fed, I'm sorry, if the markets have to reprice any sort of Fed rate cuts, meaning if the market becomes more in line with how we're thinking about rate cuts, we could see the 10-year Treasury yield kind of hit up against that 4.25 level. Now that said, if the markets are right and the Fed does cut rates six times this year, it's likely we could see a 3.50 or even lower 10-year Treasury yield. But right now, the yield curve is still pretty inverted. It's disinverted a lot over the course of the past couple months. But 2-year Treasury yields are out yielding 10-year Treasury yields by about 17 basis points, or about 0.17%. So until that normalizes, the 10-year Treasury yield is probably in this trading range for the foreseeable future.

Lawrence Gillum (11:54):

But it doesn't matter for fixed income. I mean, it matters for fixed income investors, but remember fixed income investors get paid to wait. You get coupon payments, and you get these natural price appreciation since a lot of these bonds are trading at deep discounts to par. So even if yields don't do anything over the course of this year, they stay in this trading range. We're looking at to your point earlier, we're looking at kind of mid to high single digit returns out of fixed income. If yields do fall back down closer to that 3.50 range, it's conceivable that high quality fixed income can generate low double digit returns this year. So still pretty optimistic about fixed income for sure this year.

Jeff Buchbinder (12:34):

Yeah. And certainly, those return expectations are consistent with our recommended asset allocation tactically. Pretty close to neutral on stocks and bonds. I'm going to give you a hot take here, Lawrence, and you tell me if this is crazy. So many people expect four rate cuts or less this year, right? You hear them, you know, all day long on the financial news stations. You see it in, you know, articles in, you know, CNBC, Bloomberg, everywhere you look, nobody's really predicting six rate cuts. So my view here is that if we get, if we get three or maybe four, and the economy just muddles through, that's basically consensus, which tells me that the market shouldn't be too volatile. The bond market shouldn't be too volatile if we get three cuts rather than, you know, a market that's disappointed and throws a temper tantrum because we didn't get six, what do you think about that?

Lawrence Gillum (13:36):

I, well, I think, I mean, that big slope that big fall in yields that we saw towards the back end of last year, that was predicated on six cuts. So, I do think that if we only get three, or we do get four cuts as we expect I don't see us retesting 5% on the 10-year Treasury yield. I think the only way we get back into that 5% level or slightly below that is if there's a resurgence of these inflationary pressures that look to be somewhat under control currently. But if we only get four or perhaps three, we could get you know, 4.25 on the 10-year treasury yield. I don't think that we're going to see a violent spike higher because the markets are expecting rate cuts.

Lawrence Gillum (14:21):

Now, if there are no cuts this year, which is not our base case, then we could perhaps see a temper tantrum out of the bond market that we saw, kind of like reminiscent to 2013, where we saw yield spike higher. But I mean, to your point, a lot of the movement in the 10-year Treasury yield has probably already taken place. It's really just this consolidation phase. But we'll have to see what happens with the Fed and the data on a go forward basis.

Jeff Buchbinder (14:50):

Part of our somewhat constructive view on equities is based on our expectation that the bond market will be pretty calm. So, you know, if we do get three, four rate hikes rate cuts rather, that suggests maybe that we'll have a pretty calm bond market, even if yields drift a little bit higher. So Lawrence, let's shift to munis. Again, we get a lot of interest in munis. I mean, I think we'll probably get more interest next year when we get, when we determine whether we're going to see tax cuts extended, right. The Trump tax cuts of 2016, I guess, or 2017. Some of them are expiring in 2025. So that'll probably put a lot of attention on the value of that you know, the tax friendly status on munis, but they're getting a lot of attention now. So why don't you walk us through your outlook here. Because I'm sure a lot of our listeners are interested and own some munis.

Lawrence Gillum (15:47):

Yeah, for sure. So it is an area that I do agree that I think it's going to that the interest is going to pick up this year partially because of the solid returns that were generated last year. So if you think back to 2023, the broad muni market index was up over 6.4% for the year, which probably pulled forward some returns on a go forward basis. But we still think that there's value within the muni market. Taking a step back, the way we kind of look at markets here in LPL Research, we have a really a three factor framework. We look at valuations, technicals, and fundamentals. The valuation story is an interesting one for the muni markets. So even despite the strong performance that we got last year out of the muni market, yields are still above longer-term averages.

Lawrence Gillum (16:39):

So from a valuation perspective, we do think that there's, again, value within the muni market. So starting yields are about 3.3% on the index, 5.5% on a tax equivalent basis. To your point earlier, Jeff, about the tax favored status of munis, when you do adjust for the, the tax benefits, I mean, you're getting a 5.5% out of muni securities, which is, again, a pretty decent and attractive yield given the remaining things we're going to talk about with fundamentals and technicals. So evaluations are still pretty attractive despite the fact that we did see strong performance to end the year last year. The next slide, we do look at the fundamental backdrop for the muni market in general and aggregate, it's kind of hard to look at you know, an asset class as diverse and is, you know, idiosyncratic as the muni market.

Lawrence Gillum (17:36):

But when we do look at things like tax collections from these state and local entities, you're still looking at tax revenues that are above pre-pandemic levels. We're probably past peak fundamentals, but we do think that there's still a lot of cash on balance sheets. There's still a lot of rainy-day funds that are available for a lot of these municipalities in the event of a kind of an economic slowdown. And then you also still have strong labor and real estate markets that should help continue to support these revenues. So from a fundamental perspective, the probability we would argue of any sort of credit event or any sort of you know, default activity is pretty low. It's generally pretty low for munis in general. If you look at kind of default activity of munis versus, say, investment grade corporate issuers, you get a significantly better default rate out of munis than you do for, call it taxable corporate bonds.

Lawrence Gillum (18:40):

You know, Moody's is a rating agency that updated its default rate analysis recently. And over the course of the past, call it decade from 2013 to 2022, the default rate for muni securities was just above zero. It was about 1.9 or 2% for taxable corporate bonds cumulatively. So it's even better on the high yield market. You know, the high yield muni market default rate is around 4% cumulative versus around 33% for high yield corporate. So you have a lot better credit profile out of the muni market than you do in some of these other taxable markets. And combined with the starting valuations in this market we do think that there's a pretty good opportunity for a lot of these investors. And then finally, looking at the technical landscape, the technicals within the fixed income markets are a little different from kind of how we talk about technicals in the equity markets.

Lawrence Gillum (19:38):

When we talk about technicals, from my view, I mean, Adam does his thing for sure and has his approach that is additive to our process for sure. But when I talk about technicals, it's usually supply demand dynamics. And if you look at the supply demand dynamics within the muni investors, this is likely going to hold the key to what performance is going to look like in 2024. We've had a rash of outflows, which we're showing on the screen right here. Over the course of the past, call it year, year and a half, there was about $120 billion that's been taken out of the muni market on the mutual fund side, which is the, you know, predominant investor in muni securities. But $120 billion has been taken out of that market that has put upward pressure on yields downward pressure on prices.

Lawrence Gillum (20:26):

So that has not been supportive to markets but given the returns that we saw out of the market last year I do expect that that supply demand dynamic to shift a little bit. The supply within the market is still going to probably stay a little muted. So if we do get investment back into mutual funds we could get a pretty decent tailwind for prices which would obviously help performance over the course of this year. So bottom line is that valuations are still attractive. Fundamentals are still strong, and perhaps with this improving supply demand dynamic, you know, 2024 could be another good year for munis.

Jeff Buchbinder (21:12):

Sounds like a pretty upbeat assessment when you add the tax benefit here, sounds to me like for taxable accounts, this should be a good chunk of your fixed income allocations.

Lawrence Gillum (21:24):

And remember, I'm a fixed income guy, so I'm a glass half empty kind of guy all the time. So my enthusiasm for the asset class, I think is pretty telling.

Jeff Buchbinder (21:35):

Notable. And although your football team won, so maybe you're coming into this recording with a little more optimism, we'll say. Good point. So thanks for that, Lawrence. Let's get into earnings season. Got a lot of attention late last week when the big banks reported. I think the best way to describe it is messy. They have these big charges to replenish the FDIC bank insurance fund. You know, remember those assessments were effectively announced when Silicon Valley Bank failed last year and Signature Bank. So this is a really big chunk of earnings. So if you back out those charges, it's about a 2% bump to S&P 500 profits overall. So right now, we're kind of tracking to flat, this chart shows 1.3%, which is before all those bank results were factored in.

Jeff Buchbinder (22:34):

So if we're flat, you add two points for the bank charges, roughly, then add three points of upside, which is the typical amount of upside, you get to five. So we'll say five percent's probably a reasonable target for earnings growth in the fourth quarter. You know, the reason maybe to be a little bit more optimistic than that is that the economy held up well, actually two reasons. Since the economy held up well in Q4, we're tracking the 2% GDP growth, and the dollar is weak, as I mentioned earlier. So you know, that says maybe we'll get, I don't know, a little more than 3% upside. Probably not much though, because the economic surprise indexes have deteriorated. So that suggests maybe analyst estimates at the start of the quarter, were a touch too rosy, right?

Jeff Buchbinder (23:28):

And then we also have a, you know, more of a services economy. The S&P 500 profits are more of a goods focused you know, earnings and you know, suggest that when you have less manufacturing activity and we're making less stuff, right, at least relative to services, that maybe earnings aren't quite as strong. So that's you know, you throw all that together, maybe it suggests the average amount of upside of three points is about what we'll get. Probably more importantly is we're starting this upward trajectory. So we certainly don't think we're going to get double digit earnings growth like this in Q4 of 2024. Consensus is now 19%, but we could see a ramp up and maybe end the year with high single digit earnings growth when all is said and done. A big driver of earnings growth this quarter is going to be the magnificent seven.

Jeff Buchbinder (24:26):

These numbers are really remarkable. I mean, I'm sure you know, many of you had already anticipated that these big tech names were going to be a big driver of earnings. We know they're growing faster than most companies, but I think you'll still find these numbers striking. The average, if you collectively look at the Mag seven, right? And we list them down here at the bottom Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla. If you collectively look at earnings growth for Q4 for just those names, it's 46%. Look at the earnings growth for these are consensus estimates for Q4. Earnings growth for the other 493, negative seven <laugh>. Okay? So it's fair to say all of the earnings are going to come from the big techs. So this is why we don't think that the big techs really have to roll over significantly. I mean, Apple shares have had a little bit of a bumpy start to the year, probably more for idiosyncratic reasons, but overall, we think the Mag seven's well positioned to generate solid returns this year, and it makes us comfortable. This earnings growth outlook makes us comfortable still overweighting growth relative to value. Also note, profit margin expectations this quarter are quite negative. So this is maybe a reason to expect a little more than that three points of upside that we typically get.

Jeff Buchbinder (25:55):

The bottom-up analyst consensus is looking for 110 basis point decline in net profit margins quarter over quarter. That would actually take margins down to levels we haven't seen since the pandemic, since late 2020. So that feels a little bit too pessimistic to us and maybe suggest that, you know, efficient management of costs can you know, enable companies to beat estimates at a pretty solid clip. So maybe we'll get to 6% earnings instead of five. We'll see. Last thing, you know, guidance always matters more than you know, the actual earnings results looking backward. So we'll be watching estimates closely to see where they move as companies report. By the way, we only get 24 companies, I think this week. So it's going to be a pretty quiet week. It's really in two weeks, you know, right at the end of the month that we'll get the barrage of results, including the start of the big tech results.

Jeff Buchbinder (26:55):

So in February, we'll be watching really closely to see what happens with estimates. They've been incredibly resilient for really the past year. $243 in S&P 500 earnings for 2024. And you know, the bottom up. So that's the bottom-up consensus. If you take every analyst's estimate for each individual company, roll them all into one number, that's how you get to that $243 number. But if you ask strategists that look at the top down, like what I do you, end up with 233. So I'd say that that 233 is really what the market's trading on more than the 243. It actually makes stocks look a little more expensive now. So the point here is don't get too alarmed if those estimates come down. They almost always come down about 90% of the time. And it's really that 233 or LPL Research's forecast of 235 that we want to maintain confidence in as we go through earnings season. So that's just a quick view. Anything to add to that, Lawrence, before we get to the week ahead?

Lawrence Gillum (28:08):

No, but to your point earlier about the earnings season just starting and kicking off here, it's going to be given the, which we'll talk about in a second, given the lack of the economic news, it's going to be of interest for equity markets as well as the fixed income markets. Remember, a lot of these companies issued bonds as well, and if companies miss, not only do their stock prices are impacted, their bond prices are generally impacted as well. So something we're, I'm paying attention to on the fixed income side as well.

Jeff Buchbinder (28:38):

I'm sure bond investors were paying close attention to the real estate impact, particularly office real estate impact on those big banks last week. There was a little bit of a drag there for sure. So good stuff, Lawrence. Let's preview the week ahead. I mean, I just think this, I mean, you just mentioned it's kind of a slow week. I mean, retail sales are important. It's you know, a meaningful chunk of consumer spending, and we know consumer spending is about 70% of the economy. So retail sales really matters especially since it's the you know, the holiday shopping season. But you know, you're probably not going to see any big move off of the recent trends. And the recent trends have been that consumers continue to spend, so no reason to expect anything different in December. I guess the housing data's interesting.

Jeff Buchbinder (29:27):

I mean, there's tight supply, so values are resilient, right? Home values. And you're not seeing a lot of turnover because of that low inventory. There's not a lot of activity in terms of existing home sales, but we're actually seeing some building, you know, because inventory's tight you know, buyers who want new homes in many cases are just having to build them. So that's been a pretty good environment for home builders, pretty good environment for housing starts and building permits. So that's this week, which maybe will be interesting. Anything else here, Lawrence that you think people should be watching?

Lawrence Gillum (30:05):

One thing about the housing market, there could be some eventual relief in that market. Obviously you know, mortgage rates get priced off of things like the 10-year Treasury yield. So as the 10-year Treasury yield falls, mortgage rates come down too. So we could see some refinancing activity. Right now, the refinancing market is effectively shut. No one's refinancing their mortgage, but as interest rates fall, you could see some of that activity pick up. And the only thing, other thing that I would add here is that there is Fed speak this week. There's Chair Powell is not speaking, but there's a number of other influential Fed speakers out there this week. So if there's ever an opportunity for the Fed to push back on the number of rate cuts that are getting priced into the market, this is the week to do so. So we'll see if they actually take advantage of that and push back on those rate cuts. Otherwise, the market is going to do what it's going to do and keep pricing in these rate cuts.

Jeff Buchbinder (31:01):

Yeah, good point there. I'll also watch the University of Michigan survey of consumer inflation expectations. That has been a little bit market moving at times when it's been, you know, a big mover in either direction. So, you know, hopefully we'll see something three, maybe even a little bit lower than 3% out of that survey. But yeah, otherwise, it's a pretty quiet week and markets will be focused on earnings. There's certainly politics to focus on, you know Trump runaway winner of the Iowa primary. We'll have to see what happens in the New Hampshire primary next week. You know, probably, I mean, it's clear that Trump is in a strong position, but we'll see what happens with second place. Haley seems to be the favorite heading into New Hampshire to at least be second, if not first.

Jeff Buchbinder (31:54):

We'll have to see. In the past, we've seen, as I'm sure many of you know, some strange things happen between Iowa and New Hampshire. <Laugh>, in fact, little correlation between what you see in Iowa versus New Hampshire. So there'll be a lot of politics certainly this week. And then the Taiwan elections over the weekend were interesting. I would say it was kind of status quo where you know, the pro-independence party maintained the presidency, but not parliament. So it's kind of a gridlock, status quo outcome where you're going to continue to see tension. Clearly, China wants to you know, effectively absorb Taiwan, "One China" and all that, just like we saw with Hong Kong. At some point that might result in military aggression. We'll have to wait and see. That is a very big geopolitical risk for 2024 or maybe 2025.

Jeff Buchbinder (32:46):

We'll have to see. But I guess, at least for now, you could argue for markets gridlock is good. So I think that'll be something else you'll hear a lot of folks talk about this week. And is probably a key reason why we think folks, well, it's definitely a key reason why we think people should be careful with emerging market equities in China, or heavily tied to China. So I think those are really the key events to watch for this week, or maybe just digest for, frankly, for today. So any closing remarks, Lawrence, before we wrap.

Lawrence Gillum (33:26):

Just go Bucs.

Jeff Buchbinder (33:27):

Go Bucs. All right, I'll close with go Chiefs, selfishly. We'll cheer on our football teams with our closing remarks. So everybody thanks for joining as always. We greatly appreciate your support of LPL Market Signals. We'll be back with you next week. Thanks so much, Lawrence, for offering your insights on the muni market and many other things. Take care everybody. Have a great short week and we'll see you next time. Take care, everybody.

In the latest Market Signals podcast, the strategists recap a solid week for stocks and bonds, provide an update on the municipal bond market, share early insights on earnings season, and preview the week ahead.

Stocks and bonds both rallied last week as markets gained more confidence in Federal Reserve rate cuts following generally benign inflation data last week. The S&P 500 ended within striking distance of its January 2022 all-time high.

Next, the strategists offered up their 2024 outlook for the municipal market. With nominal yields above levels seen much of the past decade, still strong fundamentals, and perhaps an improving supply/demand dynamic, munis could be poised for another solid year in 2024.

The strategists also previewed fourth quarter earnings season, kicked off by some messy results from major banks last week. The “Magnificent Seven” technology companies are expected to have collectively grown earnings 46% last quarter, compared to the 7% decline expected for the rest of the index, the so-called “493”.

Finally, the strategists preview a quiet week ahead for economic data, highlighted by retail sales and housing data.

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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.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

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.

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

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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