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The Low is Close

Stocks are down six weeks in a row, but there is light at the end of the tunnel. This week in our latest LPL Market Signals podcast, Jeff Buchbinder and Ryan Detrick discuss why stocks could very well be near a significant low, another strong earnings season, and why valuations for both stocks and bonds look better.

Another Strong Earnings Season

With more than 90% of companies reported, first quarter earnings season is looking like another winner. Jeff notes EPS is up 9.1%, while revenue is up an extremely strong 13.4%, both well above expectations. Not to be outdone, margins have held tough as well. With continued cost pressures, many worried margins could fold here, but that hasn’t been the case. Add it all up and corporate America remains strong, which bodes well for economic strength the rest of this year.

How Close is the Low?

The S&P 500 Index has pulled back more than 18% from the early January peak but has tried to stabilize some. Ryan notes a recent poll that showed money managers have the most cash since post September 11, 2001, while the overall outlook is quite dour. Form a contrarian point of view, this is a good thing. Jeff adds that if you can avoid a recession, stocks tend to bottom right around now, and it’s during recessions that stocks fall well beneath 20%. We believe we continue to see no recession fears this year, therefore and that this weakness could be an opportunity.

Valuation Talk

If there is one positive to the bad start for stocks and bonds, it is they are both much cheaper today than they were at the start of the year. Given earnings have been so strong as well, P/E multiples on stocks are near the lowest they’ve been in years according to Jeff. Just because stocks are cheap isn’t a reason to buy, but this is part of the recipe needed for a major low. Turning to bonds, with yields near multi-year highs, fixed income is another area that is much cheaper than it was five months ago. We continue to favor an overweight to stocks over bonds, but both areas could offer investors a nice return the rest of 2022.

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.

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.

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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