Subscribe to the Market Signals podcast series on iTunesGoogle Podcasts, or Spotify and find us on the LPL Research YouTube channel.
 

In the latest LPL Market Signals podcast, Chief Equity Strategist Jeffrey Buchbinder and Chief Economist Jeffrey Roach react to the Federal Reserve’s (Fed) hawkish message at Jackson Hole. They also recap second quarter earnings season, make the bullish case for the energy sector, and preview Friday’s jobs report.

Fed Delivers Strong Message

Last Friday Fed Chair Jay Powell delivered his message to the markets quite strongly, causing a repricing of rate hike expectations. After the bond markets adjusted, market expectations appear reasonable. LPL Research expects another 100 basis points of tightening in 2022 and perhaps another hike in 2023. Powell’s message also caused markets to push out expectations for rate cuts.

The Fed’s hawkish stance increases the chance of a whipsaw. After being too slow to recognize the severity of the inflation problem and starting to hike too late, the Fed may now have gotten to the point where its hawkish message is just beginning to take hold at the very time that inflation has started to fall, thereby introducing higher recession risk.

Solid Earnings Growth Despite Challenges

Earnings season is behind us, and LPL Research believes they were a resounding success given the significant challenges of weak economic growth, intensifying inflation, a surging dollar, and persistent supply chain disruptions. The strategists believe 2023 earnings estimates will have to come down further, but they are much more reasonable after cuts during reporting season.

Is Energy a Buy?

The strategists see energy fundamentals as mostly favorable, particularly given tight supply, though the demand picture is more mixed. Additionally, valuations appear attractive while technical analysis also supports a positive near-term outlook. After a brief period of underperformance, the sector has started to outperform again in recent weeks and looks like an interesting opportunity for investors to consider, as appropriate.

Finally, the strategists preview Friday’s August jobs report. In an environment where good news may be bad news, something slightly below the Bloomberg-tracked consensus forecast of 300,000 new jobs would likely be well received. July’s more than 500,000 jobs created may have overstated the strength of the job market, potentially setting up a cool-down this month.

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 iTunesGoogle 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.

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. 

Member FINRA/SIPC

For Public Use — Tracking#: 1-05320833