Xi Jinping Consolidates Power, Dollar Strength and Treasury Market Instability

Last Edited by: LPL Research

Last Updated: October 26, 2022

Treasury Liquidity and Fixed-Income Opportunity

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Podcast Intro:

From LPL Financial, welcome to Market Signals.

Marc Zabicki:

Welcome everybody to LPL Research Market Signals podcast. My name is Marc Zabicki, Chief Investment Officer at LPL Financial. Joining me today is Quincy Krosby, Chief Global Strategist of LPL Financial. Quincy, how are you today?

Quincy Krosby:

Doing well, thank you. Thanks very much.

Marc Zabicki:

Good and I'm excited to have you because we are going to get into a conversation about China. We're going to get into a conversation about the dollar, what central bankers need to do about the dollar, about market interest rates, et cetera, et cetera. So, looking forward to your comments on that. So, a lot of big moving parts going on simultaneously. On top of that, we've got earnings to talk about a little bit in terms of your expectations for some key earnings reports coming up and what that may mean for sniffing out the next perhaps direction in the equity and capital markets in general. Is that fair?

Quincy Krosby:

That is super fair, yeah.

Marc Zabicki:

Okay. Important disclosures for everyone. And just to let you know if I haven't already said it we are recording this on Tuesday, October 25th. So recording this on Tuesday, October 25th. Let me just start by opening up with what's happened over the last week. We are actually getting a little bit of a technical reprieve in U.S. equity markets. Not so much in other areas of the globe in terms of equity market performance, but we're seeing some semblance of a technical bounce in equity markets in the U.S. Some equity sectors that have performed rather well. Energy is notably higher. Technology is notably higher. Actually, across the boards strengths in many areas other than real estate and utilities. Quincy, as you think about the last week in equity markets, any key takeaways for the audience as to how things may be shaping up?

Quincy Krosby:

Well, absolutely. I mean, the market was music to the market's ears on Friday, the Wall Street Journal story regarding the November 2nd meeting of the Fed, which is just around the corner. And that they will be discussing, not the November rate hike, which the market expects to be 75 basis points, but what they're going to do in December and whether they're going to de-escalate the aggressive campaign, perhaps, you know, soften the rhetoric and then perhaps for December go to 50 basis points. And then perhaps another 50, but 25. In other words, the terminal rate perhaps ending just under 5% or 5%. This has been music to the market's ears and the market just rejoiced on Friday. And we know it was technical. You mentioned that because it wasn't led by a stock doing very well, a company doing very well because it was across the board the same amount of the market going higher.

It was, it was almost like the algorithms coming in and just pushing everything up with the same amount that is technical. And it was predicated on that story. So, the question now is, does that story portend that the Fed and is the market sniffing out that the Fed may be beginning to, after this November 2nd meeting, beginning to transition, and that's the word we've been using at LPL Research, not pivot, but transition to a softer pace, a less hawkish pace. And that's the best way to to package it. Certainly 50 basis points is not dovish, it's just less hawkish.

Marc Zabicki:

Yeah. And then we've talked a lot about that, obviously in the Strategic and Tactical Asset Allocation Committee and LPL Research. Yes. I mean, you know, we talk about the Federal Reserve, inflation and interest rates every session on a Monday it seems and so is, it's actually good to see the market begin to look ahead over the next six months or 12 months or so and try to figure out what are we actually going to look like when the Federal Reserve either slows down or stops. So those are great points. Not as much fun in bond markets. And we're going to touch on this Quincy in terms of what's going on with treasury yields and what central bankers may need to do there. But the shining point in the last week of the bond market really is high yield as we see some risky assets get more attention over the last week or so.

High yield has been one of those, not grand attention because it's just flat, but certainly better than other areas of the bond market that are still under pressure with the illiquidity in the treasury market and some volatile action across the bond complex. On the commodity side. A weak area. Clearly, I think, you know, if we look at commodities broadly, we've peaked earlier in this year, we may be trending lower. Obviously, the direction of the economy is problematic in that what may or may not be happening in China is probably problematic for this area of the market as well. So, we'll get into a little bit more about China as we move on with this Market Signals podcast. So last week, Quincy, I mean, you touched a little bit on this in terms of Federal Reserve commentary, but we are seeing some cooling in the economy. And I'm going to guess it's probably good news. Bad news is good news in this case. Is that fair?

Quincy Krosby:

Yeah, absolutely. Yeah, absolutely. You know the beige book came out and it, you know, and by the way, you know, it sounds so boring beige book because it used to be beige, but it happens to be up fairly up to date considering, you know, that most data releases are looking back a whole month. And it's anecdotal, but the point is, across the U.S. it looks as if the economy is slowing, it's cooling, but it is not cratering. And that's good news.

Marc Zabicki:

Yeah. And we mentioned a technical bounce for equities. You touched on, you know, what the market may be kind of sniffing out in terms of future fed policy. We still have an illiquidity problem in the treasury market, and we'll touch on that a little bit later as to what central bankers or other policy makers do on that. We'll also get into you know, the dollar strengths as well on this call which is contributing, I should say, to some marketing unease. Obviously the China Communist Party Congress last week was all in the news and what went on. Now, again, we'll touch on that. And then also corporate earnings. So quite a bit to digest last week, in terms of market activity. If we look ahead for this week, we have started off the week in U.S. Economics around the S&P Global PMI composite services and manufacturing, all numbers, which have come in less than expected yesterday, which again, Quincy, part of that cooling aspect of the economy, which feeds into that, you know, kind of semi-bad news perhaps, is good news in terms of Federal Reserve expectations. New home sales coming up, initial claims as always on a Thursday, PCE deflator and then Michigan sentiment, you know, to close the week out, you know, turning to you Quincy, anything here that you have your eye on in terms of a key barometer for folks to watch.

Quincy Krosby:

Absolutely. It is the PCE, the personal Consumption Expenditures index. This is what the Fed looks at. Yes, they watch the consumer price index, but this is their favorite one. Typically, the numbers are cooler than the counterpart in the consumer price index. But remember, if this surprises, how shall I say, to the upside and is hotter than the Fed expected, that's going to be difficult for the market and difficult for the Fed because remember, the market is sniffing out that perhaps the Fed gets less hawkish. Similarly, the University of Michigan, what we don't wanna see is the consumers view of inflation climbing higher. You want to see that lower, if that climbs higher, that is something that the Fed will have to address somehow, and the way they do it is being more hawkish. You may remember that what pushed the Fed to 75 basis points from 50 basis points during a blackout period, by the way, happened to be the PCE, followed by the University of Michigan survey and the consumer view of inflation.

The Fed sent out a message right away during the blackout period, again to the Wall Street Journal, and then it wound up all over the business news that by the way, they would probably be moving from 50 basis points, which is what we all thought, to 75 basis points. So, let's hope that these numbers do not underpin a more hawkish Fed, but rather help the Fed begin to see that inflation is in fact easing. In fact, by the way you mentioned the S&P Global PMI report, one of the things in that manufacturing report indicated that the prices, the input prices towards manufacturing were coming down, not climbing higher, but were coming down. This is the kind of thing we're looking for. This is the kind of thing that the Fed is looking for. So, in many ways that was actually good news.

Marc Zabicki:

Yeah, no, right. Quincy, as a matter of fact, we've spent the last couple editions of this Market Signals podcast talking about some input prices that are indeed coming down and how the CPI and PCE would lag that a little bit. So yes, that really has driven our conversation around inflation and the expectation that it is going to begin to tail off here, not only through 2022, but also into 2023. So that's a really good point. If we look also at PMI activity across the globe in the Eurozone, Germany and the U.K., again, numbers that are less than expected, that cooling scenario in terms of what central bankers would like to see. So, PMIs are probably the biggest numbers across, you know, non-U.S. you know, economic calendars, you know, this week we are getting yeah, CPI numbers in Germany and France later in the week. Anything catching your eye here, Quincy, in terms of things to pay attention to?

Quincy Krosby:

Well, yeah, I mean, you know, the European Central Bank is going to meet and, you know, they've got inflation climbing higher, but they also have export demand weakening for Germany, for example, the largest economy in the Eurozone and also the one that is faced with an energy crisis this winter. So, it's going to be interesting to see whether or not the European Central Bank, and this has to do with the dollars, I know we're going to talk about that later, but whether or not they will stick to a higher interest rate at this point because if they don't, the U.S. Dollar is higher. You know, it's always about the interest rate differential in this market where we are right now. So, we hope that they go to 75 basis points instead of 50 at this point, because otherwise our dollar will climb higher given that the market thinks we're going to 75.

Marc Zabicki:

Yeah, that's a good point. And the ECB is expected to go to up 75 basis points on Thursday. Looking at the key issues this week, and we're going to just touch on these real briefly and get into each one or nearly each one in the next several slides. But, you know, earnings season continues. Let's actually touch a little bit deeper on earning season on this slide, Quincy. You've got I know on the top of your mind some key reports coming up in the near term here that you think are going to be important for perhaps setting direction in terms of expectations of Federal Reserve policy, just setting direction in terms of what the market may be sniffing out in terms of that potential Federal Reserve policy change, etcetera. So, what should we be paying attention to in terms of our earnings calendar?

Quincy Krosby:

Well, this week it is tech, it's big tech. Together they represent about 20% weighted in the weight with the S&P 500, Apple, Microsoft, Google, Alphabet Amazon. These are extremely important. And what we want to see is whether or not, if they surprise to the upside, because again, what we're looking for is all the bad news in. Bad news for big tech is, you know, higher interest rates, right? It is a stronger dollar. It, for Google for example, it's advertising. So, for Apple, it is about whether or not they can maintain their margins and whether or not their sales are going to surprise to the upside. Because remember, there was a scare that the lower priced iPhone was not selling. And we want to see if that changes. Does that pick up?

All of this is going to be important. Obviously, Microsoft with Cloud is going to be important and even Google with Cloud is going to be important. All of these will be crucial and we will see if it can, if it's positive surprises, if the market holds. We had an issue with Netflix. You know, before the Fed was raising rates and whenever there were issues with technology, the market would wait for Netflix, you know, after the bell, always, before the other big tech names. And if Netflix did well, if there was a positive surprise, it would tend to help underpin the market and underpin big tech until their term came in the in the earnings season. Not this time, this time around it didn't help. Netflix did well, but it didn't help the rest of the market. We think that big tech, all of these names could help underpin the market. Because what it would suggest is that the market is sniffing out the tail end of the aggressive trajectory of the Federal Reserve. Therefore, that rates start to come down. The enemy for big tech, by the way, as you know, is higher interest rates.

Marc Zabicki:

Yeah. Well said. And as we look through these other bullet pointed items, we'll probably leave the U.K. Prime Minister for another session of markets. That's probably a longer conversation. Yeah. So, we'll leave that for the next go round. We're going to manufacturing services composite activity. We did look at that earlier in the call and things are in fact slowing, you touched on something interesting to me Quincy yesterday in the Strategic and Tactical Asset Allocation Committee meeting about election expectations and some of the activity that you're seeing across industries and sectors and how the market may be, you know, sniffing out some election results, perhaps. I mean, any, any comment around that. I mean, what we basically kind of want to rehash what we talked about, what you discussed yesterday in front of the committee.

Quincy Krosby:

Well, yeah, I mean, that was yesterday. This is today because it's so close in so many of the tight, you know, very tight elections. But that is that the market seems to be sniffing out a Republican sweep. This is important, you know, it's not going to be the be all and end all, but it's important because what it suggests is that some of the programs from the Democrats will not get through some that the market just don't want, you know, doesn't want to see. But also on a positive note, it will certainly help underpin even more the energy sector. And it will help underpin I think the industrial sector, especially with defense. It doesn't mean that the Democrats are going to say, well, we're not going to spend on defense.

But the point is the Republicans will probably go more. Now, I do want to point something out if it is gridlock, in other words, the Democrats keep the Senate, the Republicans keep or have the house, gridlock is fine for the market. The market actually doesn't mind gridlock at all. But there is one thing I do want to point out in terms of defense, and that is Republicans are now suggesting that for Ukraine aid may be pulling back, not as generous as under the Biden administration. What that could possibly do, at least initially, is hit the defense names. You know, many of the analysts are saying that if that were to happen, it would still be a buying opportunity because budgets are up all over the world, not just because of Russia and NATO, but also because of China and China's aggressive spending with their military budget.

Marc Zabicki:

Yeah, and you raised an interesting point just on energy and kind of what the machinations are between the Democrats and the Republicans on that space. I mean, we took a look. Energy has been up about 7% over the last week. So that speaks to perhaps what the market is telling you in terms of election expectations in an oil price environment that's bounced a little bit, but it hasn't been dramatic. So, it would be unusual for energy to pop up. Although earnings have indeed been, you know, coming in fairly well. I want to turn a little bit to China, Quincy. I know again, we've talked about this and what may or may not happen as a result of the Congress, you know, last week. So, you know, Xi, certainly kind of swung his sword around and got another term and it was basically expected, I think. I'm going to let you tell us whether that was expected or not completely. But as you look at the situation, did last week in China meet your expectations and what do you think this means for the market? Or how should marketer, participants digest what happened last week?

Quincy Krosby:

Well, you know, it is interesting because Xi sort of disappeared. It was like, where is Xi, where is Xi? Just before the meeting. But it began to be clear that he was going to have the third term, and remember, he's the one who got rid of term limits precisely because he wanted a third term. And it looked as if he was going to consolidate his power with his people moving into senior spots. Now they did, and he is, how do I say? But he has made it very clear he is the core of the politburo. He's the core of activity in China. Everyone is calling it, you know, a Mao Tse-Tung reincarnation. He even has something along the lines of his speeches and his writings.

You know, that comes straight out of Mao. But nonetheless, if the market had believed that the economy was going to be the number one priority, and let's remember, China's economy is lagging. They have a debt laden real estate market, but the zero covid policy, stringent, locking down entire communities, 22 million people at a time, you know, has added to it. I mean, no activity whatsoever. I mean, China is also a major supplier to the globe. So if the market had believed that that was going to be lifted, you would see commodity prices, I think, coming out of that meeting, climbing higher. But they didn't. They did not, because he said, look, we want to modernize the economy. Certainly we do, but we're going to make sure that in essence, we're not going to create billionaires.

This is a big focus for him, that it's redistributed, that the middle class can do well. But we're not going to have, he doesn't want the cult, by the way, the cult around the billionaires. If you noticed Jack Ma, where is he? You don't see him anymore. Alibaba, he went away. Remember he went away because there was a cult following. He, Xi, does not want that. So the other part is about do they ease the restrictions? And then there was a rumor that they were going to ease the restrictions regarding the quarantine for visitors. It's a very long quarantine, that they would cut the amount of time you have to be in in quarantine. What that did was it led to the market extrapolating from there and saying, well, this must mean that they're going to ease the restrictions on testing and lockdowns. Not so fast.

And, you know, you'll hear folks say now, well, maybe he has to wait. Maybe he's going to, he sees this as his personal ideology in terms of getting rid of COVID. Not just helping people live with COVID, but getting rid of COVID. Now, either he changes that, there'll be a meeting in December, we'll see if they ease the restrictions, but so far no one is expecting it right away, at all. So that's one thing. And that then keeps the economy, you know, sort of weak. In addition to the debt laden real estate market. Whoa, this is a big one. It is a big one because that market is about quarter, some people even say a half of their GDP, the GDP in China is about $18 trillion, or maybe now 19 trillion. So even if it's a quarter of that, that's a big chunk.

The question really is does the government bail out the developers who are, you know, just debt laden who have defaulted. And by the way, where there's U.S. Dollar denominated debt that's out there, by the way, with foreign investors, most likely what we're going to see is something that has caused Xi heartache and trouble, potential trouble. And that is that many of the people who bought condos and houses, however you wanto to call it, in China, do so before they are actually completed. Well, guess what? And they have to pay the mortgage, by the way. These properties have not been completed, and folks are going nuts on the internet. Mm-Hmm. <Affirmative> on the internet. Well, like, where's our property? Why should we pay? Maybe we'll stop paying and there's a movement to stop paying. Xi made it very clear that they are going to fix this.

And maybe not so much in the plenum, but he has talked about it. They are going to fix it, and they are going to force the property owners, perhaps via a fund, a public fund, and lowering rates and giving them access. They can't really get private funding anymore, but through a public fund where they go in and fix these condos, just get them finished. This is going to be a priority. And why is it going to be a priority? Because President Xi and also the Chinese authorities, do not want any trouble. They don't want demonstrations. They don't want this to lead to something that you're seeing, for example, in Iran. That is something that is verboten in China ever since Tiananmen Square. And that said, the other issue for China is for investors is regulation. The expectations are that the regulatory framework is going to really be very strict.

And that's why you saw the selloff. The selloff was dramatic, particularly in the internet stocks, that's going to shut down. You see the banners going up. Do you see the signs that are being written in the bathrooms in China? You know, why the bathrooms, because there is an assumption that at least in the public bathrooms, there is no surveillance. China is ruled by surveillance cameras everywhere. And so this is it. The offshore Yuan is plunging as we speak. Investors want out, until there's clarity and we have to wait to see if things change for the better.

Marc Zabicki:

Yeah, Quincy, I mean that's a great point. I mean, you know, you just kind of broadly, almost in summary that, you know, if you're an asset allocator Xi Jinping's tighter grip on China has not been a good thing for China's equity market. It has not been a good thing for emerging markets broadly. And some of the issues that you mentioned, fundamentally, debt problems, tighter regulation, things of that nature is certainly no longer moving the direction of a westernized economy have all been problematic for asset allocators and emerging markets in China in particular. And we as a committee believe that will continue to be a problem in some of the issues that you've raised are certainly central to some of that. I want to also turn attention here and let's, let's kind of cover this, if you don't mind.

In really kind of two parts. We'll look at the U.S. Treasury yield. We also look at the dollar. Both have kind of gone parabolic, again, the U.S. Treasury yield and the dollar. We talked yesterday in the asset allocation committee how this is likely going to have to be addressed by policymakers, both monetary policy makers and fiscal policy makers as well. So, Quincy talked to us about, you know, some of the illiquidity in the treasury markets, some of the parabolic nature of the movement and the dollar and what we think central bankers are perhaps going to do about it and what that may mean for future interest rates.

Quincy Krosby:

Well, that's a lot <laugh>. So, what we've seen is, if you look at it, and here's the interesting, we have a virtually synchronized global central bank rate hike campaign, except for the second and third largest economies in the world, China and Japan, for different reasons. Japan is seeing its yen almost collapse. They have done some interventions and let me just, the reason if you're following it is they follow a strategy called yield curve control. This requires the Central Bank of Japan to buy bonds to push down their 10-year yield. They believe that by pushing down their 10-year yield, and it's in a very, very tight range, that they can help induce inflation. Remember, Japan has gone through a terrible deflationary period ever since the economy collapsed. Their markets collapsed decades ago now. However, inflation has been rising, it's above 2%, which is where they wanted it.

But still, the head of the Bank of Japan insists on the yield curve control. You can't have a currency rise on its own if you have your central bank pushing down your 10-year yield, it just doesn't work. So, you've had the authorities, the Ministry of Finance, go in and try to do an intervention. They have not worked. The Japanese yen continues to come down. And here's the problem. We can't get into it, but there's something called the carry trade. I go in and borrow where the cheapest currency is. Hmm. Japanese yen. And then I go out around the rest of the world and I make a lot of money. I'm a speculator. I make a ton of money that way, and then I go back and pay it back in Japanese yen, which is cheap. It has been a buffet for speculators, which is something they do not want.

So in any event, I think the reason they had this intervention, which by the way, they did not announce officially afterwards that we know that it happened. And also the Bank of Japan at the same time is buying bonds for their yield curve control. So that's a whole other issue for scholars to discuss. But in any case, the yen is back down. They need to have Kuroda say at least rhetorically. Well, we will discuss, you know, the future of yield curve control now that we have inflation above 2%. Even that would help, nevermind an adjustment somewhere with the yield curve control. But he's pretty adamant that that is not going to happen. So in any event, why did they choose just recently to do it? How about that the dollar weakened, thank you Wall Street Journal article, because if you have a sense that the Fed is going to be becoming less hawkish, not more dovish, but less hawkish, that we're transitioning to, that your currency is going to weaken.

So, I think they took advantage of that because you saw on Friday that yields inched down a bit. Not, not dramatically, but inched down. But so did the U.S. Dollar actually we're back with a stronger dollar right now. But in any case, so you have that. China does what China does. Their currency is weak. You know, you could argue that Japan, you know, is a major exporter, a weaker currency does help them. And same thing with China. The only problem is that demand is down. So it's not as if your weaker currency is going to help dramatically, because on the other side of that equation is weaker demand. But nonetheless, the yuan, especially the offshore yuan, has been battered. Investors want out. They want out. They don't want to be there. And more and more central banks again, you know, have to deal with the stronger dollar.

Emerging markets is an old, old story. When do emerging markets emerge? When do they finally have love from investors? Because you know, when they're good, they're really, really good. When they're bad, boy are they nasty. So here you have a situation in which commodities are more expensive because of the stronger dollar. Oil is more expensive for those that import oil. You also have dollar denominated debt in the dollar strong. It hurts them paying and servicing that debt. It's a vicious cycle. And you know, you could look at Latin America, they've done well with the stronger dollar, even though it could hurt them, but there's demand for their products. It is a difficult, difficult thing. You mentioned China. How about this, on the institutional side, Marc, more and more portfolio managers are creating emerging market portfolios ex China, ex China, if you want China, we will do a China one, but ex China because they don't want the contamination.

And not in the bad sense, in the financial sense, of anything going wrong. How about Taiwan? How about we heard what Xi had to say. It was pretty direct. It was so direct that there was a response from the U.S. And he basically made it sound as if, you know, our calendar on Taiwan has just gotten a little bit closer. Right? That's what he said. And he said basically they do it the nice way or they do it the more difficult way. That's what he said. And he said it is about the unification that is necessary, the unification that is in our, kind of, in our worldview of things. So that is something that's very difficult. So, the point I make that institutionally, folks are saying, look, if that starts to happen, we don't want to be invested in emerging markets that 35 to 40% is China. Because obviously if something like that happens, you're just in a terrible situation. So more and more that's what we're seeing.

Marc Zabicki:

Yeah, there are quite a few moving parts in the world, big waves. Ukraine policy is one of them. China talk, Taiwan policy is certainly another mm-hmm. <Affirmative>. And the rising dollar, you can rest assured that's been a point of conversation as central bankers talk to each other across the world because they do discuss policy and the workings of the Federal Reserve have made things more difficult from a dollar perspective across the globe. Right? So it's complicated. So let me, let me ask you this, Quincy, in terms of the way Janet Yellen thinks of it in the treasury, the way Jerome Powell thinks of it at the Fed. What do you think the likely action or potential action could come from in terms of any treasury policy or any Federal Reserve policy that may emerge as a result of the illiquidity in the treasury market and the rise in the dollar? Are we expecting anything from either group of policymakers?

Quincy Krosby:

Yes, certainly Janet Yellen. Remember how this all happened, believe it or not, it was because of the great financial crisis, and none other than Paul Volker was involved with this and what the banks could do and not do. And so I think that there's more liquidity is going to be provided. She's working on it, they know it. And remember, what was it, September of 2019, we had a problem in the repo market that scared the daylights out of the overall market because everything just sort of froze up. The Fed does not want to see this happen again. Nor does Janet Yellen, so I think that they are working on it. I think you're going to see much more liquidity coming into the market so that the market can function properly and that there's no fear of liquidity drying up.

Marc Zabicki:

Yeah, I mean, good point. And when you see, you know, the 10-year treasury yield moving by 10, 15, 20 basis points in the day, that's typically not normal. And we expect policy makers to take action. So let me say this, Quincy, I appreciate you joining us today on Market Signals. Always a pleasure having you. Thanks for your insight on China, the dollar, Federal Reserve policy, etc. It certainly has been helpful for our listeners here at Market Signals. I want to thank the audience for joining us today, and we'll talk to you next week.

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Xi Jinping Consolidates Power, Dollar Strength and Treasury Market Instability

In this edition of LPL Market Signals podcast, Director of Research Marc Zabicki and Chief Global Strategist Quincy Krosby discuss the outcome of the 20th China Communist Party Congress and what it may mean for global policy, capital markets, and emerging markets.  They follow that with an important look at U.S. dollar strength and discuss what impact that may be having on global capital markets. The strategists believe that dollar activity may need to be tamped down by U.S. policymakers, and they discuss those options as well as the potential ramifications for asset prices.  Finally, they review what happened last week and the key drivers market participants may want to focus on in the days ahead.

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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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