No More Bears Are Hibernating in the Equity Futures Markets

Last Edited by: LPL Research

Last Updated: April 25, 2023

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Jeff Buchbinder (00:00):

Hello everyone, and welcome to the latest edition of LPL Market Signals. Jeff Buchbinder here, your host for this week with my friend and colleague, Adam Turnquist. Adam, how are you today?

Adam Turnquist (00:11):

I'm doing great. How about yourself?

Jeff Buchbinder (00:13):

Doing fine. No complaints. My 13-year-old daughter has a clean room, so the week is off to a great start.

Adam Turnquist (00:21):

No doubt. That sounds pretty, pretty impressive. She's got me beat right now, so

Jeff Buchbinder (00:26):

<Laugh>, it's, it's rare. It's rare. That's the biggest news in the Buchbinder household right now, for sure. So we've got a lot to talk about here today. Here's our agenda. Do a quick market recap like we always do, even though I wrote, you know, calm before the storm here. We don't really think it's necessarily the calm before the storm, but it's been very calm. We got a huge week of earnings this week, so we'll give you an earnings update. Of course, Adam is a technical strategist, so we'll talk about bearish positioning and sentiment, and then look at a chart of the tech sector. Next just recap the Weekly Market Commentary, which you can find on about small business, and as our chief economist, Dr. Jeffrey Roach writes the backbone of the U.S. economy has a backache. And then finally we'll preview the week ahead and there's a lot of big data this week, so let's get right into it. Starting with the market recap. Hey, it's a chart, Adam, so that's your thing, <laugh>. So, what do you see when you look at the S&P 500 here?

Adam Turnquist (01:35):

Yeah, thanks. Thanks for having me on, and thanks for starting with the technicals. I like that. So, really what we're seeing on the technical side is just, just this climbing the wall of worry for the S&P 500. This is a look at the line chart going back over the last year with its 50 and 200-day moving averages, and it's pretty remarkable considering where we're at right now. You know, we're back to close to those year-to-date highs that we registered in February, that's at 4,200. So, that's really going to be the level that we're watching this week. If we do get a breakout there, the next major resistance would be at 4,300. We'll take a look at the positioning in terms of futures positioning within the S&P 500. It's pretty bearish right now, and obviously sentiment is quite bearish as well. You know, some of the survey data that goes out, it's at multi-year lows in terms of where that bearish sentiment is and positioning overall, but I think it's a pretty low fundamental bar, Jeff, you can touch on that in terms of how we're setting up on the fundamentals, but I think that 4,200 level is going to be a high technical bar to clear, you know, we struggled with it back in February.

Adam Turnquist (02:40):

We'll see if we can get through it this week. If we do get a pullback you know, downside that we're watching in terms of support, it's going to be at 4,080. That goes back to the November highs that we had and then also the 50-day moving average below that at 4,035.

Jeff Buchbinder (02:59):

<Affirmative>. Yeah, from a fundamental perspective, Adam, I'll say frankly, we in LPL Research don't see a clear catalyst to push us up through that 4,200 level and to maybe 4,300, you know, earnings probably not going to give us enough good news, although expectations are low. We're not going to get resolution on whether we're going to have a recession or not, you know, within the next week or two. And we're, you know, probably not going to get too much more comfortable with the Fed until after they tell us whatever they're going to tell us on May 3rd, I believe is the date. So, probably just kind of stick around range bound here for a bit longer, at least in terms of fundamental catalysts. So, looking at last week, you know, what worked, what didn't, I mean, it's kind of a flattish week, right?

Jeff Buchbinder (03:50):

I mean, we haven't really gone anywhere the last few weeks frankly, on the S&P here. I guess, you know, small caps were a little bit of a winner last week, Adam, you know, going up a little over a half percent. So, maybe that stands out in that top panel to some extent, at least among the winners. Europe did a little bit better than Asia. Europe did a little better than the U.S. And then turning over to the sector side, I guess it was a pretty defensive week, right? We had utilities do well, we had consumer staples do well. Although financials, you know, kind of perked up a little bit, maybe you know, despite the fact that earnings season has been challenging, we know what happened in, in mid-March with the banks, and yet, you know, there's financials with a 1% gain. Anything here you want to call out Adam?

Adam Turnquist (04:47):

Yeah, I think the defensive tone just really in the last week or even in the last month, if you look at some of the sector performance, we've certainly seen a shift with a rotation going back defensive. I wouldn't call it a trend change by any means, but something we're certainly watching within our, you know, Strategic and Tactical Asset Allocation Committee that's helped market breadth expand or really hold up, I would say. So not exactly the leadership you want to see going into a key resistance level, again, at that 4,200 level, you'd want to see more offensive sectors outperform, but I can totally understand the reservations here in this shift as we go into a pretty event heavy couple of weeks with the market.

Jeff Buchbinder (05:29):

Yeah. And then, you know, among the losers, energy had a tough week. Energy had had a little bit of a run recently, at least in terms of oil prices. So, perhaps a pullback there was due, actually, we'll show you what oil did. The Bloomberg Energy Index down almost 4%. Oil was down even a little bit more than that. So, that maybe jumps out. I mean, oil's really struggled to make much headway despite the fact that the Chinese economy is reopening. And then on the fixed income side, you know, maybe one of the reasons why stocks haven't done a whole lot the last couple weeks is because rates have moved higher. Generally, the economic data has been supportive of another Fed rate hike. We've seen enough stability in the banking system to be supportive of another Fed rate hike. And so, you know, that maybe gave Treasury yields a little bit of an upward bias. Anything here strike you, Adam.

Adam Turnquist (06:26):

Yeah, on fixed income side, we did see a bounce in yields off a pretty significant area of support, especially with the 10-year kind of right around this 325 to 330 level. You know, right now we're back around 350. We don't see a lot of meaningful upside risk in terms of Treasury yields, trading higher. Looks like we're going to be probably consolidating a bit as we get some clarity on what the Fed's going to do. And then just going back to that commodity space, we're starting to see, I would call it early signs of a potential reversal on the aggregate Bloomberg commodity index. Little too early to make that call with crude oil a major factor in that decision. We haven't seen a definitive trend change there yet with crude oil. We got that initial pop when OPEC surprisingly cut production levels, but we never got any follow through. Looked just like a short covering rally right into the 200-day moving average for WTI futures. So, that's the level you're going to want to watch for crude oil, right around 82 to $83 on the technical side.

Jeff Buchbinder (07:28):

Yeah, and we also saw precious metals slow down a little bit, right? And so, in an area that we've been interested in precious metals related investments anyway so you know, we'll see what happens with the dollar. Of course, precious metals very sensitive to currencies. And you know, in addition to just general, you know, financial stability, economic stability, drives precious metals as well. So let's go to earnings here. Got a couple of charts. The first one is our earnings dashboard that we've been doing for a number of years. Really just puts key numbers on one graphic. And I think you know, the main takeaway here is that we're off to a pretty good start. You know, it's early we're, it's April 24th, Monday as we're recording this Monday afternoon.

Jeff Buchbinder (08:20):

And we've gotten about 90 companies, right? So clearly not a ton not enough to draw a trend, but good to see a good start. And probably what's most notable about the good start is that financials made up a lot of these companies that have already reported, and we know what, again, what happened in mid-March with the bank failures. And you know, even though the stocks, the group went down quite a bit, the expectations probably were too low. And so, you know, we've seen generally better than feared results out of financials. And that, you know, as we showed on the previous slide that showed we showed you how financials have actually done pretty well, you know, over the last week. And you know, the good earnings, I think is a big part of that. I don't know what else I would say here.

Jeff Buchbinder (09:11):

Let's go to the next slide and just look at the trend. So, you know, even though earnings growth or earnings results are off to a good start, relative to expectations we're still seeing an earnings decline. So, you know, this is going to be an earnings recession. We're almost certainly going to have three quarters in a row of year over year earnings declines. But, you know, frankly, that was expected by most, right? I think this earnings weakness has generally been priced in already. And if, you know, if the actual results come in generally in line with the ones you know, reflected in these estimates, I don't think the reactions necessarily going to be negative for stocks. Do you buy that Adam?

Adam Turnquist (09:57):

Yeah, I think so. I mean, just think of how stocks perform around earnings. If the S&P was a company and the low bar and we're expecting, you know, already earnings recession or even an actual recession on the radar, I don't think anyone's going to be too surprised by some of these numbers. I think that's, you know, really the low bar is maybe a potential catalyst for earnings season. If we can see, you know, at least some of the, the guidance lean a little more positive, maybe not bullish, but, you know, maybe point to the worst maybe over with some of these earnings, you know, the guidance coming out of Q1.

Jeff Buchbinder (10:38):

Yeah, guidance has been maybe a little better than the historical norm, so far. We've had forward estimates drop about 0.7% in April. So, you know, estimates will probably come down more, but, but frankly, that's, that's widely expected. We, you know, LPL Research's forecast for S&P 500 earnings this year is still 220. But that number's under review. We want to get more information. We have a downside bias, but it might only go down, you know, five or seven bucks. Most strategists see 210 or less. So, I think we're still probably more optimistic than most on our team, in terms of the earnings outlook. I mean, margins are going to be most important in terms of whether the S&P 500 can actually get anywhere near 220. Obviously, you know, the economic outlook matters, right?

Jeff Buchbinder (11:34):

Do we get a recession? We probably will, but how mild is it? How long does it last? If we just sort of muddle through with a very mild recession we think the additional pressure on profit margins could be limited and companies could actually get pretty close to that. So, we'll see how it goes. It's only Q1. But we actually think companies are going to hang in there a little bit better than most people think. So, let's move to another technical section here, Adam, I tried to kind of alternate back and forth with fundamentals and technicals. So, you mentioned you're going to talk about extreme bearishness and you know, in particular the positioning of traders in the S&P 500 futures market, which, you know, some of our listeners may not be familiar with this.

Adam Turnquist (12:26):

Yeah. So let me, let me walk you through the chart here. So, on the top, we have a longer-term chart of just the S&P 500. This is a weekly chart with a 40-week moving average. But as we go to the next panel, this looks at the non-commercial S&P 500 short futures positions. And what non-commercial means is basically your speculators, your portfolio managers, traders, so investors that really have no business activities, you know, that are related to the particular futures market, in this case, the S&P 500. So, they're trading purely directional. And this red chart is basically those short positions in the market. This comes out every week. You can see we've had a pretty big spike in short positioning for the S&P 500, meaning traders are betting on the market trading lower.

Adam Turnquist (13:17):

And that's the highest since June of 2020. And what I found even more remarkable than that was just the bullish futures positioning. So, obviously investors that are looking for a bias towards the upside for the S&P, that's actually the lowest since 2006, which I had to double check that data again after the latest update. And that was, that was surprising, when you consider, you know, how many years that's been. When you combine those two, what we looked at, you combine the aggregate level. So, you take the total short positions compare it to the total bullish or long positions, and that's that bottom panel, that's the net difference between these two. So, we consider this market right now, net short, and that's the lowest reading now since October of 2011. If you remember back then, that was just on the tail end or, you know, after the downgrade of the S&P downgraded U.S. debt from AAA to AA plus. So, a pretty negative area of sentiment historically. So, that's where we're at right now. As we, you know, bulls are into hibernation, bears are coming out of hibernation, but the S&P, as you can see, continues to climb this wall of worry. As we noted earlier, we're approaching year-to-date highs on the S&P.

Jeff Buchbinder (14:40):

Yeah, that's really unbelievable. I mean, it's interesting that it lines up with the whole S&P downgrade and the whole, the debt ceiling debacle back in the summer of 2011. <Laugh>, there's been a lot of reasons to be cautious since 2011 <laugh>. And yet, you know, it took till now to get that bearish and certainly this sets off contrarian alarm bells and you know, as a reason to be bullish here and not get too cautious with your defensive positioning. So, Adam, you did this study that actually showed how well stocks historically have performed a year after you get these really bearish sentiment readings. So why don't you walk through this?

Adam Turnquist (15:27):

Yeah. We call this the no respect study or no respect rally, paying respect to Rodney Dangerfield, pun intended on that one. And what we did is we looked at the net position of the futures market. So, when shorts and longs were either extreme bullish or extreme bearish, and we took those, going back going back to 2003, just to see how contrarian signals work with just this futures positioning data. And that's what this chart is really breaking down. So, this is the S&P 500 forward returns after we flagged those extremes. So, the blue panels or the blue bars, that's basically when the futures positioning was extremely low, so extremely bearish. And one month later you can see the average returns here. You know, on the median side we're at 2.1%, and we also did the same study when futures positions were extremely bullish and looked at the forward returns that's in the orange shaded bars.

Adam Turnquist (16:30):

And on a high level, what we found is just on a shorter-term basis, in that kind of one-to-three-month window, when the market was extremely bullish, you know, when those futures positions were at historic highs, there was actually a pretty good signal for the market to trade higher. You can see the median and average returns here that are highlighted over that one-to-three-month window. And when you look at a longer-term basis, it's actually kind of the opposite relatively. You can see that we highlighted these, you know, longer-term 12 month returns for the S&P when futures were back to that extreme low. That's actually, you know, the best signal in terms of that 12-month timeframe, median there was 13.4%. Again, that's going back to 2003. So, a pretty bullish environment, relatively overall. But both the average and median outperformed the major futures highs that we witnessed. So, kind of a mixed signal overall. You know, I think it does speak to the use of futures as a contrarian signal, but it certainly adds to the evidence that you need to use more than one signal when looking at this data. Because not all the time when you're, for example, extremely bullish, that means you're at a market top. Sometimes the futures market gets it, right?

Jeff Buchbinder (17:55):

Yeah. So maybe the message here is that stocks are just very likely to go up <laugh>, right? Cause that's signal and that's true over time, right? You know, we've talked in about a number of studies, you know, seasonal studies or studies based on sentiment or other indicators, right? And virtually all of them suggest that stocks are maybe, I don't know, 70, 75% likely at least to be up in a year, right? I mean, in many cases it's even higher than that, right? The post-midterm election year study is a hundred percent <laugh>, right? Yeah. So, that's since World War II anyway, never been wrong. We've been up 12 months after the midterm elections every single time. So yeah, maybe this is just you know, highlighting that fact that you're much more likely to be right if you're long rather than short. So, thanks for walking us through that. You brought in one more chart here, Adam, which is on tech. We've been debating the tech sector here in the research investment committee. Right now, it's neutral. You know, based on this chart, looks like we're hitting up against some resistance here.

Adam Turnquist (19:05):

Yeah. So, it's going to be a big week for that mega cap tech space. And we're kind of at a make-or-break moment here when we're looking at the, this is the S&P 500 technology sector, and we're butting right up against this resistance level that goes back to the August highs. Tested it a few times, haven't made it through there yet. And I think this is going to be one of those rusty door analogies where it takes a few times to finally break through and open that door higher. So, we'll be watching for that, the August highs on this particular index that's right around 2,650. But when you break this down a little bit further, you can see what's happening on the technical side with the 50-day moving average now going back above the 200-day moving average.

Adam Turnquist (19:49):

And that happened right after we reversed the down trend on the tech sector. And we're getting, you know, that's just additional confirmation of a potential new uptrend forming within the technology space. And then when you break it down on a ratio chart, so we're comparing the tech sector relative to the S&P 500, that's on this middle panel right now. And we've had a pretty remarkable move in terms of tech leadership exerting itself off the December lows. You can see here we ran right into overhead resistance going back to the December, I think that was 2021 highs. So, that's another level that we're watching on the technical side, seeing if we can get a breakout on both the absolute and the relative chart. But when you see these moving averages start to cross over, now they're rising, it certainly does suggest we might see tech outperformance ahead.

Adam Turnquist (20:40):

And then lastly, on breadth, meaning the percentage of stocks above their 200-day moving average. I thought it was notable when you look at the last time we got back to those, you know, the August highs, that was a counter trend or a bear market rally with the benefit of hindsight, of course, you know, that we failed at the 200-day moving average. And when you look at overall participation in that advance, you know, you were only around 40% of stocks above their 200-day moving average. You compare that to now, you know, we're at two thirds of the tech sector is actually above their 200-day moving average. So, that recovery has broadened out significantly since those August highs. So, I think that is a good sign overall for the tech space.

Jeff Buchbinder (21:23):

Yeah, you know, the mega cap tech names didn't do very well last week, but as you mentioned, this is a big week for those guys with earnings reports coming. That'll certainly go a long way in determining the near-term direction for those big techs. But we also want to watch the economic environment, of course. And if we do go into a more challenging economic environment, which we may, you'll probably see some rotation into the more defensive areas from tech. That's a little bit, I think, of what happened last week. So, tech's, you know, it's always going to be the most important sector to watch <laugh> because it's so much bigger. It's more than double the size of any other sector. But in particular this week is very important. So next, let's get into our Weekly Market Commentary, which was mostly written by our chief economist, Jeffrey Roach.

Jeff Buchbinder (22:16):

Does the backbone have a backache? What we mean by that is the small business sector you know, often called the backbone of the U.S. economy, right? And certainly a big job creator. And so, you know, Jeff took a look at small businesses. He started by making the point though that even though we're probably going to have a recession later this year, it doesn't necessarily mean that we have to go back down to the October lows on the S&P, you know, and call it like 3,600-3,700 range. And he uses this analog of 1990 to 1991, where the market anticipated it, generally, the market moves ahead of recessions, but the market anticipated the recession and the declines came before. And during the actual recession, stocks rose <laugh>. So, you know, even though a lot of people are talking about how stocks can't bottom until the recession starts, I mean, you could argue we had a recession last year, right?

Jeff Buchbinder (23:21):

With two consecutive quarters of negative GDP. You know, our guess is that this recession, if we have it, has been so anticipated that the market action really is going to proceed it more than it typically does. It's also the type of recession with inflation driving it or driving a lot of it, that maybe suggests the earnings hit can be more modest, right? Like you saw at some points in the 1970s where the earnings hit was more modest. It's another reason why we want to watch cost cuts during this earnings season to sort of mitigate the earnings weakness that we're going to see here. So, you know, we think the market can hold in maybe better than average during a recession kind of like it did in 1990 and in 1991. So that's the first point Jeff makes in the piece.

Jeff Buchbinder (24:15):

Again, you can find this on under the Weekly Market Commentary section. Next, he talks about how small businesses are slowing hiring. So small businesses are preparing for recession, right? The NFIB, the National Federation of Independent Business has a survey where small businesses talk about their hiring intentions and they're dropping, right? They're expecting to hire fewer people. And that has a pretty tight relationship with private payrolls, right? The monthly jobs report that we watch closely, we're probably going to see unemployment tick up, that'll help take the edge off inflation, which is good. Job losses otherwise are not good. And you know, I mean, if we get a soft landing, this is kind of the prescription for it, Adam, right? The way that you would engineer a soft landing is with a modest deterioration in the job market, which we're seeing, less hiring some layoffs, which we're seeing, to bring wage pressure down, right? And that could end up leading to you know, potentially, again, the odds are against a soft landing, but the way you would get it, we're kind of following that path. What do you think?

Adam Turnquist (25:30):

Yeah, I think it's been kind of interesting because if you step back a few months and think about, you know, where we were at in the Fed commentary, this labor market tightness was a very key issue. It still is. And, you know, we are waiting and waiting for signs of a weakening labor market, and now here we are getting those signs, and now we're a little bit more spooked about the recession. So, I think it's kind of an interesting dynamic because we are finally getting this data that we're seeing the slowdown. But again, to your point of that engineered soft landing, to what degree I think is really some of the uncertainty and the pessimism that we're seeing in the market.

Jeff Buchbinder (26:09):

Yeah. And as inflation continues to come down the likelihood that the recession, if we get it, is very mild and short increase. So, you know, this is kind of following that playbook, but it is granted more evidence that'll probably get a recession. A lot of people have been, you know, focused on the leading indicators, been focusing on the yield curve, certainly sending recessionary signals. But what we're hearing from small business, it's really the same story, right? Another reason to expect recession is credit conditions are tightening. The bank failures were part of that, the Fed tightening, raising interest rates, certainly part of that. And so as a result, you're seeing small businesses, again in this NFIB survey, say that they aren't expanding, right? They're going to pull back on expansion plans. That's the blue line here, and it's about as low as it's been in over a decade.

Jeff Buchbinder (27:08):

The orange line on this chart, the right axis is the percentage of small businesses percent of businesses that are experiencing tightening credit, right? Are small businesses having a tougher time getting loans? And they certainly are. And that's, you know, back to sort of 2011, 2012 levels. So, you know, this tells you we're going to have a little bit of a contraction. So, the message from small businesses is a recession's coming, it feeds into the narrative that this is going to be the most anticipated recession, perhaps of our lifetimes <laugh>, right? But and it also tells you to maybe be careful with small caps. And so, we reduced small caps last month in our recommended tactical asset allocation, and we may take another move in that direction as well. So, anything to add to all that, Adam? Or should we preview the week?

Adam Turnquist (27:59):

Yeah, I think the only thing I would add, just the silver lining to all this, it's all deflationary. So, at least we're tackling, you know, that objective from the Fed. You know, unfortunately it's through less hiring and less credit and growth. But, you know, this is probably what the Fed wants to see to some degree, right? Maybe not this extreme, but certainly will help on the inflation battle.

Jeff Buchbinder (28:26):

Sure, yeah, the Fed doesn't have the most credibility at this point, but they're basically telling us recessions coming right? With their economic forecasts. So, no one will be surprised, but just, you know, everyone keep in mind that there are varying degrees of recessions and this is not 2009, it's much more like maybe the early 1990s or I don't know, perhaps you know, maybe the more modest half of the double dip in the 80s. So, with that, let's preview the week. I mean, we already mentioned it's a big earnings week. You get I think 40% of S&P 500 earnings report this week, which is just a huge number. You know, the big tech names Microsoft, Amazon, Meta/Facebook, Google/Alphabet, right? Those are going to get a lot of headlines, but it's going to be spread out over a number of sectors.

Jeff Buchbinder (29:24):

It's 170, I think it's close to 180 S&P 500 companies reporting. So, that's going to give people plenty of things to pay attention to Adam, but we also got some pretty big economic data points. In fact, I mean, you could argue that the Fed's preferred inflation measure, the, you know, the PCE deflator, core deflator, ex food and energy, is the most important data point to watch right now because it drives the Fed. But you could also argue that, you know, GDP every quarter is one of the most important data points we get. We'll get the first read on Q1 GDP, consensus is about 1%. I'm sorry, it's about 2% for Q1 and since most strategists and economists expect less than 2% GDP growth for the year, essentially all major shops are factoring in a recession, at least all the forecasts I've seen. I'm sure I've seen dozens. I'm sure you've seen dozens as well. So, you know, first quarter GDP almost doesn't matter as much as it might otherwise because it's just going to kind of set the level, the high water mark for where we decline from there. <Laugh>, what do you think?

Adam Turnquist (30:38):

Yeah, I think that's the math when you look at it in terms of how do you get to a recession and by year end, it's just a different input into the math, but I think the end result is the same <laugh> in terms of GDP for the year. But yeah, I agree with the PCE on Friday could definitely be the most watched, most impactful, even, you know, with some of those big tech earnings, obviously. Next week, we'll get a look at a, a few more, including Apple. That's going to be another big one, but, you know, it's all about inflation right now. And I think that PCE number's going to be a big one on Friday. A big event. We'll call <laugh>. I'll call it a big number.

Jeff Buchbinder (31:20):

Yeah, it probably doesn't change the Fed's plan, right? One more rate hike looks to be pretty much a lock. And then you know, we'll see what happens from there. That's probably the end. We'll have to see, you know, don't expect a, you know, big positive surprise from the PCE because we still have the services piece, the services inflation is kind of sticky, right? Rents are a piece of that. And so we're probably in a little bit of a plateau, I would say, before we get maybe a meaningful move lower in the inflation numbers at the end of the year. But nonetheless, as Jeff has pointed out, Jeff Roach, if you keep putting up point twos and point threes month over month, eventually you're going to get to three and a half, right, or three. And so we're heading there. Inflation's going to be in the threes, we think by the end of the year.

Jeff Buchbinder (32:14):

Markets are going to like that. That probably can help contribute to a year-end rally. We'll see where that potential rally starts from. But we think investors are going to be rewarded by taking risk more later in the year. Now, the outlook is a little more cloudy, so I'd say that's, those are probably the two most important data points of the week. But as you can see here, there's some other data points. Certainly, confidence whether it's conference boards version, or University of Michigan's version, those are going to be of interest to folks. I'm particularly interested in following the inflation outlook in the University of Michigan's survey, which popped up a little bit. So, we'll be watching that one closely over the next couple months. We want to see inflation expectations drop in addition to actual inflation. So, there's the week, a busy week, it'll be fun to see how the market reacts to this as long as it's not too negative <laugh>. So, anything else you want to highlight here, Adam, before we wrap?

Adam Turnquist (33:16):

No, I think that's pretty good. It's going to be, like you said, a busy week. You'll be busy next week going through all this as well, I think.

Jeff Buchbinder (33:22):

Yeah, I mean, we're going to have an earnings decline. It's just a matter of how big of a decline it is. And certainly, the results we get this week will be an important factor in getting an answer to that question. So, no doubt I'll be watching earnings, watching margins probably more closely than anything. But PCE inflation matters quite a bit too. So, with that, I'll thank everybody for tuning in. Really appreciate you giving us your valuable time. Adam, thanks for joining. Thanks for being a part of the Market Signals rotation. Thanks everybody for tuning into another LPL Market Signals. We'll be back with you next week. Have a great day, everybody.

In the latest LPL Market Signals podcast, the LPL Research strategists discuss the generally good start to earnings season, whether bearish positioning in the futures market might be bullish for stocks, and what small businesses are telling us and what it may mean for the economy and markets.

The S&P 500 posted another positive week, the fourth out of the past five. The good start to earnings season and favorable inflation data helped, but bearish positioning among traders may have been an even bigger factor.

The strategists discuss the extreme bearish positioning in the equity futures markets. While generally a contrarian signal, forward returns following major bearish readings historically point to only modest but positive shorter-term returns. Average 12-month forward returns look more constructive.

Next the strategists make the case that stocks may not have to retest the October 2022 lows even in the event of a recession, using the 1990-1991 recessionary period as an analogue. Small businesses are increasingly sending a message that recession is coming, based on their plans for hiring and capital spending, as well as more limited availability of credit.

Finally, the strategists preview a busy week of earnings and key economic data. Mega-cap technology companies will be closely watched as several of the top companies are set to report this week, providing a potential make or break catalyst for the technology sector.

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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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