Nice Progress but Stocks May Not Be Out of the Woods Just Yet

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here, your regular host with my friend and colleague Adam Turnquist. It is a lovely day here in Boston, 70 degrees, sunny. And not only that, but we're seeing a lot of green on our screens. How are you today? Adam? Is the weather as nice over there?

Adam Turnquist (00:22):

Hey, happy to be here. Not quite. We got a lot of wind and really kind of cool temps. So golf clubs still collecting dust, unfortunately, but I'm getting excited after the Masters weekend, it is time to get out golfing and we'll see if we actually get out there and the weather improves a little bit here in the Midwest.

Jeffrey Buchbinder (00:40):

Yes, congrats to Roy McElroy. That was a heck of a tournament no doubt for those of you who, who were interested in the golf yesterday. So it is April 14, 2025. And please announce, you know, we have not only some green on the screen today, Monday afternoon, but we also had a lot of green to talk about last week. Of course, the 90 day pause on tariffs was the reason in particular on Wednesday. So we'll start by just recapping the market really quickly. I mean, really it's all about tariffs, whether you're on agenda 1, 2, 3 or 4 <laugh>. But Adam will help us walk through some charts that tell us that maybe the bottom is in. Next I'll talk about what I think the fair value or what we think in LPL research. The fair value is for the S&P 500.

Jeffrey Buchbinder (01:31):

This is really just a hypothetical scenario kind of analysis because we still don't have enough clarity on where tariffs are going to land to have a high conviction view. But walking through PEs and potential earning scenarios is helpful. And then we'll wrap up with possibly the quickest week ahead we've ever had because the data doesn't matter so much. All that matters is tariff headlines. So to start, of course, we had a big bounce on the tariff reprieve. I mean, and looking through, you know, what worked and what didn't. The S&P was up almost 6% on the week. And of course a lot of that came Wednesday, or all of it came Wednesday when we got what I'll call an about face from President Trump. But when I look at what worked and what didn't, I see some of the areas of the market that have been hit hardest by tariffs bouncing hardest.

Jeffrey Buchbinder (02:30):

So certainly you know, you see that a little bit in in tech. You see that in industrials and even communication services, which certainly has a lot of tech in it. Those were the three leaders. And then the defensive sectors generally not as impacted by tariffs. The defensive sectors generally are more domestic. So, and in a rally you would expect them to lag. So you had utilities up 2 real estate, flat healthcare up 1 staples lagged, but up a little over 3. So that, that will be my first observation here. Looking at intra market. Anything jump out at you here, Adam?

Adam Turnquist (03:14):

I think the volume over the last week was unbelievable, really unprecedented. We had some record trading volume across U.S. equity exchanges last week that stemmed from that Friday sell off all the way back to April 4. We continue to see volume pick up huge volume day last Monday as well. So lots of volatility, lots of big price swings in the market, and liquidity actually started to dry up amid that volatility. I was looking at some data from Goldman Sachs and the median bid ask spread for the S&P 500 stocks. So if you're looking at trading that bid ask spread dictates where you get filled at and how wide that is, of course is a indicator of liquidity that actually reached its highest level since March of 2020. Perhaps not that surprising given the level of volatility last week we saw the VIX jumping around as well, of course the implied volatility of the S&P 500. So a very, very wild week, but by the end when the dust settled, pretty constructive price action here with a little bit of risk appetite coming back into the market finally.

Jeffrey Buchbinder (04:20):

Yeah, a little bit. I actually understated it there.

Jeffrey Buchbinder (04:24):

But I saw the intra market swings, intraday market swings last week by day. This is tremendous. 7. So starting with Monday, 8.5, 7.3, 10.8, 4.7 and 3.1. So, I mean, just to put that in perspective, like a seven point swing, that means you start off down three and you end up four, or you start off down four and you end up three. You don't typically see that <laugh> in a day. That just puts it into perspective. That is a lot of volatility. So not, not a normal market by any stretch. We're certainly pleased to see it's calmed down a little bit since last Friday. I think the other thing that maybe jumps out is some of these international markets are still having good years, despite the fact that, you know, everybody's suffering from this you know, global recession fear on the tariffs and risk of trade war escalating, especially with China. So look at, I mean, Korea's up year to date up over two. Hong Kong's up over five.

Jeffrey Buchbinder (05:39):

Spain's up 7, these are in local currency. Brazil and Mexico, certainly less impacted by tariffs up 6 and 4. So you've got, I mean, we've said this before, but diversification's really working within the equity market. It hasn't worked in the bond market lately, which we'll get to in a minute. But it's really working in, in in terms of equities, diversifying across regions has certainly helped mitigate some of these declines, which we in LPL Research always recommend to varying degrees, but certainly always recommend international allocations. So here's the bond market damage and it was ugly. We had a 2.5 percent drop in the Bloomberg aggregate bond index. And you saw, actually, it's one of the biggest down weeks you'll ever see in high yield down 5%. And I think the move in treasure yields was 47 basis points for the week from the low to the high.

Jeffrey Buchbinder (06:43):

That is enormous. So frankly, it's a surprise that the bond market didn't sell off even more than it did with a rate move like that. So bonds just did not present any you know, diversification benefit last week for sure. We still think they will. They, are today. Yields are dropping. The question we keep getting is, are the Chinese selling or are the Japanese selling? We don't think so, not in any meaningful amount, you know, based on what our Chief Fixed Income strategist Lawrence Gillum is telling us. Any thoughts on the bond market move, Adam, or do you want to go to commodities?

Adam Turnquist (07:22):

That's a loaded question. After last week, given all the different hypotheses out there on why rates were moving so much, they did not provide that, that cushion in some of the sell off. And it yields moving materially higher last week. And it was a messy week for example, the 10-year traded from I think 387, 3.87% up to almost 4.6% intraweek. That's the highest trading range since the, I think November of 2008 during the global financial crisis. So some really, really big moves. I think it was a multitude of things going on. The indiscriminate selling, we heard a lot about that over the last couple weeks where investors were maybe selling what they have to not what they want. I think the fixed income market caught some of that early Monday, and we had a little bit of a flip in positioning as well on that fake news Monday with the tariffs being delayed.

Adam Turnquist (08:18):

So that I think helped contribute to some of the volatility. And there were a lot of long positions. So people that were long, the treasury in anticipation of lower yields coming into the week, some of that long positioning has been unwound. And then of course you'll hear a lot about the basis trade where there's speculators out there that are highly leveraged, profiting and arbitraging off discrepancy between the cash treasury market and the futures market. Looking at some of the data though, not, I don't think it's a full blown basis trade unwind because if you look at some of the open interest, for example, that has not collapsed on the future side, that would be indicative of some covering on those shorts. So I think it's just a multitude of things going on in the fixed income market. Not to mention just the macro with inflation expectations. For example, Friday moving materially higher from the University of Michigan, yields did jump a little bit higher on that news. So it's a messy bond market. Happy to see things stabilize a little bit. The move index, which is basically the VIX for the treasury market coming in a little bit off year to date highs as well. Some, some potential signs we'll cool off a little bit in the fixed income market. I think that will be a welcome sign for equities as well.

Jeffrey Buchbinder (09:36):

Yeah, and speaking of cooling off the gold market's finally cooling off a little bit today after a huge week last week. It's pretty clear that central banks continue to buy and some are using the gold market as a defensive hedge, as a safe haven, if you will, when treasuries are not providing that. So we still like precious metals as a little bit of a buffer, including gold. But I certainly wouldn't be surprised to see it cool off a little bit here. Thoughts on any either gold or other commodities? Adam?

Adam Turnquist (10:11):

I would agree there technically on the gold trade, very, very crowded trade of course with I think fear of missing out chasing that in the ETF market. That's something we haven't really seen. Of course driving that is just the geopolitical risk and tariff risk, but it does seem a little bit extended here on a short-term basis. At the same time, the dollar extremely oversold at a key support level would not be surprised to see a little bit of a short-term bounce in the dollar and maybe throw a headwind into that gold rally.

Jeffrey Buchbinder (10:43):

Yeah, and it wasn't just safe haven currencies working. Really every non-dollar currency worked. It seems well, I guess China's a different story. You didn't see much movement there yet, but there's certainly a lot of rumors that they're going to devalue their currency as a response to the tariffs from the Trump administration. So we'll talk more about the dollar in a bit. I know you have a dollar chart in here, Adam. So let, let's run through your charts. This section we'll just call the bottom could be in, it's really hard to say this is the Weekly Market Commentary for this week, by the way. Really hard to say really hard to predict. But you have seen some signs that you know, maybe that, I guess it's 4835 was the intraday low in the S&P. We've seen some signs that may hold

Adam Turnquist (11:37):

Right, and it, we had some technical progress finally last week and we'll fully acknowledge that finding a bottom is more art than signs. We've said that many times here before. But when you look at the puzzle pieces that we're picking up, we try to assemble the mosaic of the market, what does it look like? And we think at least now on the technicals, it does point to a capitulation level. And when you go through kind of the checklist, overall price action on the week and trading activity, we had record volumes. Again, huge price swings, but most importantly, bulls did defend the uptrend off the covid lows. Going back to 2020, that level near kind of 4800 4820, we were 15 points away, so call it close enough. And we had a lot of buying come off that level. So this is the type of price action and price swings that you see at a market low.

Adam Turnquist (12:28):

You have that record volume levels or near record volumes and those huge price swings. Of course we all know momentum historically oversold really across any rate of change metric that you look at pretty unprecedented levels that were we experienced on this drop sentiment. I think we know the story there. Extremely bearish. Not only was it the VIX, was it sentiment gauges AAII pretty much across the board, extremely bearish. So I think it does warrant a contrarian view and you have to start thinking about maybe what could go right when you see some of those sentiment gauges hit historically high levels or historically bearish levels. Market breadth. We're talking about how many stocks are participating are above key moving averages, things like that. All the metrics there washed out that are near levels or at levels that were commensurate with other capitulation points.

Adam Turnquist (13:19):

So we can check that off the list. And then the other big one has just been leadership. We've had a very defensive rotation in the market during the first quarter going into April as investors really did a flight to safety out of the higher risk or more cyclical sectors as we highlighted on the performance. We did get more of a offensive tilt in leadership. And most importantly I think is that tech was leading last week, tech's been a laggard, has not really participated much in the first quarter and just been underwhelming across the board. I don't think tech needs to lead the market higher. It'd be great, a great sign given it's weighting, but it did participate or really lead last week. But just participation alone I think would really help the S&P 500 recover here. And we'll get more evidence of that this week, hopefully as we get through a few more days and some, some earnings.

Jeffrey Buchbinder (14:12):

Yeah, a little bit of a disappointing day today for tech. Because we got the headline over the weekend about electronics having a tariff reprieve, but tech's kind of a middling performance like middle of the road which I think is interesting.

Adam Turnquist (14:30):

Yeah, I was surprised to see semiconductors not doing very well. There was calls over the weekend for 5+, 10% type rallies in the tech space. Semiconductors part of that story and they're disappointing a little bit today, to say the least.

Jeffrey Buchbinder (14:45):

Yeah, some of the reason that they're lagging is because rates are down so much that the income oriented sectors are leading. So you see real estate and utilities up, up at the top. So you know, we'll see if that holds over the next few days. We'll see what happens with the bond market, but at least today tax performing pretty well, but not leading. So here's your S&P 500. Why don't you keep going with the chart talk. This is a wide range, <laugh>, a lot.

Adam Turnquist (15:17):

Wide range, and you can see that waterfall type price action after we broke through the, the 200-day moving average and we finally found support again near that kind of 5,400 level, there's a faint uptrend that I drew off the bear market lows of 2022. If you draw that further back, that goes all the way to the, the covid lows. But bulls basically came in and stepped up right at that uptrend level. And you can see what's happened since we've actually made some technical progress. We got back above the August lows we got in today's price action, we got through 5,400. That's the September lows. So keep an eye this week on that 50-day or the 20-day moving average, right around 5,500. That goes right back to the March lows a key retracement level. You can see how we failed at that 20-day moving average, the last couple minor relief rallies.

Adam Turnquist (16:12):

So that's a short-term test we'll call it before we start talking about a retest of the 200-day moving average right around 5750. And we did get the ominous death cross today, at least we haven't got to the close yet, but the 50-day crossing below the 200-day moving average, we'll get to that in a minute. We'll put a pin in that for now. But the market very oversold on the bottom panel. That relative strength index or RSI hitting its lowest level since the covid lows March, 2020. That's a kind of 99th percentile reading within the index. So we're talking beyond just the, the index level. Over half the S&P 500 stocks reached oversold levels. That's another anomaly. Typically you see those type of washed out or oversold readings at capitulation points. So again we're checking the box here from not only price action holding the uptrend, but those momentum indicators getting flushed and now we're starting to see a rebound the other way in some of those metrics.

Adam Turnquist (17:17):

All right. Yeah, here's the death cross. You're going to hear more about this probably this week. I've already had some reporters calling and asking about the death cross. So I started working on this a little bit earlier, and this is again, when the 50-day crosses below the 200-day moving average. The opposite is the golden cross. That's the 50-day crossing above the 200-day moving average. But we'll focus on the death cross here today as we're going to get the signal. You can see over the last 25 years, these red dots mark previous death crosses and there's been some pretty timely signals, notably the last one occurring on March of 2022. So it was a good job of getting you maybe out of the market during that bear market that unfolded throughout the year. The problem is some of these signals not as timely as they could be.

Adam Turnquist (18:06):

We had a, a v-shaped recovery of course in March of 2020. The signal there, you can see it maybe on the bottom right of the table that I brought March 30. Not exactly a time you want to be talking about death crosses in the S&P 500 because we quickly recovered there. Even 2018, I was debating if I'd call that, it was a very timely signal because it came early December 2018, but by the time you traded that <laugh>, it probably, you know, got back in, you probably missed it. It avoided a, maybe a 10% drawdown, but it was such a quick recovery in that V-shaped December '18 timeframe. It's a mixed signal we'll call it, but there's been some good ones. But when you and, and some bad ones overall for the death cross, we break it all down on the right.

Adam Turnquist (18:56):

And the bottom line is it's not as ominous as the headlines will suggest. You can see out of all the death crosses on the S&P going back to the 1950s average return, 12 months later, you're up just over 6% higher, about 72% of the time. So it can be a little bit late. And I think when you put it into context of today's market and look at it at some of the other signals, it does look more like the 2020, 2018, more of these potential V-shaped recoveries. Of course, time will tell if that's the case. And just given the severity of this drop that we witnessed I think that's really more of a factor compared to 2022, or even if you go back to the .com era, we didn't have washed out oversold conditions in those moments. It was more of a drawn out process that turned the 200-day or the 50-day back below the 200-day moving average.

Jeffrey Buchbinder (19:53):

Yeah, I'll just add Adam, that bespoke did this for the NASDAQ and the returns are even better if you buy death crosses on the NASDAQ or the NASDAQ 100. I just thought that was interesting. So yeah, despite the ominous name.

Adam Turnquist (20:08):

Yeah, they need to change the name on that.

Jeffrey Buchbinder (20:10):

<Laugh>, not <laugh>, right? Well, a lot of people think, oh, that's a great time to sell, but not so much when you look at the numbers. It's probably the case where, where most of the damage is done as you suggest. So let's turn back to the fixed income markets and that massive swing <laugh>. I mean, I get it, it matters whether you look at an intraday versus close to close. But regardless, as as you said, this is one of the biggest swings in the, in the treasury market that, that we've ever seen.

Adam Turnquist (20:43):

Yeah, so much for the bond market being boring, as we were told in, in college, at least I was <laugh> that changed when I got a fixed income trading desk. It was nothing but exciting in that world. Of course, some days are a little bit boring, but not last week for the 10-year, you can see down to 386 387 intraday. And then we bounced materially higher again, 460, I think the, the intra week high last week, we actually got back above the 200-day moving average, the 50-day back above 435, which was a resistance level. Kind of stalled out though around resistance at 450 and today's price action, we've, we've faded a little bit. So for downside here, you have support around 435 and then the 200-day moving average at 422, the drivers of yields moving, of course, we talked about those.

Adam Turnquist (21:37):

You know, de-leveraging, indiscriminate selling. I would, I would argue inflation, even though break even rates are moving lower the consumer level inflation expectations, certainly not. And I think that's played out. I I threw the term premium in here because we did get a spike in that. I'm not going to go into the metrics there, but that's the added premium or added yield investors required to own longer duration. It's a mix of different measures that go into that model, but importantly, it did have a pretty big bounce last week. And then the move index on the bottom panel, that's again, think of the vix, but for the treasury market, 137 for context, the long-term average, right around 93. So we're materially higher in terms of the market expecting higher volatility. Good news that came in a little bit today. We'll see if this market can at least go maybe more range bound and we start to take out some upside risk and yields here with a breakdown maybe back below that 435 level. Again, I think that would be a welcome message for equity markets because oftentimes when rates move too high, too fast or too low too fast, that usually is the problem. It's those two standard deviation moves that really kind of upset the apple cart when it comes to equity markets.

Jeffrey Buchbinder (22:54):

Yeah, and it also seems like the shift in funds from the fed balance sheet to the treasury and back moves yields more than you might think. So things like the debt ceiling or tax day, right? Happy tax day, everybody tomorrow you know, and refunds and tax collections and all of these things, all the plumbing involved in the short term Treasury account, the Treasury general account actually has been moving yields. So that could potentially explain while we're getting a little bit of cooling off today. So that that's something we continue to follow. All right, so we preview the dollar as a, it was a big deal, big deal last week, right? It was down 3% in just one week and it looks like it's on at some interesting support levels here.

Adam Turnquist (23:44):

Yeah, big moves for a currency. You can see here we're down to the, the lower end of the range, call it a hundred, the technical level's kind of 99.25. So keep an eye on that level. And that's important technically of course, because if we break below, it can no longer make the case of the dollars in this consolidation range that it's been in for the last two years. And that is, is arguably entering a new downtrend as buyers are not coming in at that support level. So keep an eye on that. And I think fundamentally, or the read throughs on the macro the market may be pricing in a little bit weaker economy in the U.S. relative to the world. The euro is a big weighting in this dollar index. So there's a caveat there that's a 58% weight and it does come down to central bank policy as well with the Fed and the ECB.

Adam Turnquist (24:33):

We'll get a meeting from the ECB this week as well. So something to watch there in terms of some of the other metrics we look at. Speculative positioning in the dollar. That's that middle panel. You can see we're kind of flat, we've come down materially, but where the other bottoms have formed in the dollar, you can see speculator positioning much more negative, so much more bearish dollar in terms of their overall book. We haven't hit those levels and we also haven't had a divergence in momentum. Usually when you come down to this low end of a range, an important bottom here for the dollar, you want to see that Relative Strength Index on the bottom register a higher low. So price making lower lows, momentum making higher lows, those divergences are often pretty good signs that selling pressure could dry up. Haven't seen that we're actually getting more and more oversold. So there's been really no signs of a capitulation and downside momentum. So an important chart I think this week to watch.

Jeffrey Buchbinder (25:34):

Yeah, no doubt. If, trade is reduced then you know, you would potentially see, or let's just say higher tariff reduced trade, you would expect to see a higher dollar. But if that causes capital flows to leave the U.S. then that would offset that, right? And so you would see the capital flows maybe dominate and, and lead to a weaker dollar. So there are a lot of cross currents going on here, but I'd say the weaker dollar is probably the more dominant theme between now and year end if this trade war or series of trade tensions continues. So hard to predict. But certainly a weak dollar could be. We, we could see a break here if the negative trade lines trade headlines persist. So this is a interesting comparison that you did, Adam, I guess with the thought being that Trump in 2017 was kind of similar in his rhetoric to Trump in 2025.

Adam Turnquist (26:43):

Yeah. And the dollar here following the similar path to the 2016 2017 timeframe you can see in, in dark blue or almost black, that's the dollar going into the 2016 election and then inauguration day. And of course throughout the rest of of 2017, we're comparing it to the current dollar. And it just goes to show how narratives can change pretty quickly in the market in terms of price action. Where we were looking at a material breakout in the dollar through the upper end of the range above 107, and there was a lot of concerns about the impact from a higher dollar. And then we had that completely unwind here and now we're maybe breaking down from that range. So tracking very similar to the 2016 2017 timeframe. Of course, this time is different as we <laugh> often say and I threw the Mark Twain line in there that history doesn't repeat itself, but it often rhymes.

Adam Turnquist (27:38):

And I have been updating this chart through January and I did not expect to see when we were breaking out on the dollar and we had a kind of a false breakout. I was looking at this chart and I was assuming there's no way we're going to start tracking lower here as we did in, in 2017, when you look at what's going on globally. And, and here we are now that gains completely been paired. So some pretty interesting comparisons. Again, the macro much different now versus then, but at least the price action seems to rhyme here.

Jeffrey Buchbinder (28:09):

Yeah, that'll be interesting to continue to follow. So this is one of my favorite charts, Adam, so I'll jump in here. And so this just shows you the max drawdown per year against the annual change in the S&P 500. You know, so for example, a really dramatic one was 2020, where you had a 33.9% drawdown at the low, but then for the year you ended up 16% higher. That is not normal <laugh>, right? Obviously during the pandemic. And we're not going to make the case that, you know, we're going to see any gains close to that. Not at all. But what I thought was really interesting is to go through all of these years when this S&P 500 was down mid to high teens and see where we ended up. All right? So here's again, I won't read the declines, but here are the annual performance numbers for the high teens declines plus 27, -6, flat, -6, 13+, 26+, and 15+, right?

Jeffrey Buchbinder (29:22):

So you have a mix there. You don't have any really big declines and you have some pretty big gains. What I think is interesting is the declines are around recessions. So if we don't have a recession, not all of them, but if we don't have a recession and we don't have a major mistake from the Fed, that was what caused the you know, the challenges in 2018 2019. If we don't have a mistake from the Fed, still have a shot, we could be up. So these are, I looked at these nine years with those drawdowns. We were up five of those years out of nine, and then we had a medium, medium return was flat, not horrible. We'd be up near 5,900 if we had a flat year that is excluding dividends, right? So you'd be up two-ish and then the average was five, 5+ because you had some of those big years.

Jeffrey Buchbinder (30:17):

So with dividends, call it six and a half, seven, something like that. So, point here is we still have a shot at an up year and history shows that again, we don't think we're going to have recession. If you don't have recession, you don't have a major mistake from the Fed. Now we could get a mistake from the Fed <laugh>, but if we don't have one then, then there's a decent chance that we're up for the year. So we haven't quite given up hope. So Adam, this is kind of a similar concept, I guess how markets behave when you're, when you're down a lot and why it makes sense to, to stay the course.

Adam Turnquist (30:57):

Right? And I threw this in there just as a reminder because we've had some extremely negative sentiment and some scary headlines related to trade. You can see the recession calls all over TV and just want remind investors out there that a lot of times the best days in the S&P 500 here happen near the worst times. And that's what we're showcasing. These are all the best trading days are the, the top 50 for the S&P 500 going back to 1950. And we added where the market was on each day in terms of its drawdown state. And you can see where we had April 9, Wednesdays 10% rally or nine and a half percent rally on the index and where the drawdown was. But on average, the 50 best trading days, the average draw down on those days is negative 27%.

Adam Turnquist (31:44):

And a lot of times they're, you know, we're in bear markets recessions. But it goes to show, you know, staying invested. So you're not missing those days is extremely important. I know you've talked about the importance of not missing the best days or the few best days in the market and how that can materially impact your annualized percent over time. And this is just a good reminder to stay invested. Of course, you can alter your allocation, overweight, underweight, but trying to trade around market lows, you're bound to miss some of these best days and, and that will materially impact your longer term performance.

Jeffrey Buchbinder (32:21):

Yeah, after the correction post April 2 tariff announcement, we were delivering this message <laugh>, right? We weren't the only ones, but delivering this message that when you're down and markets are volatile, that's when you have these big days and that's when it's most painful to miss out. Usually when you deliver those messages, you, you don't get an example of what not to do just a couple days later, <laugh>. But, but that's exactly what happened here. Just a couple days later, you got a face ripping rally <laugh>, right? The third biggest update since 1950. That, that this is just a, it's a good reminder that you, you know, the markets are a coiled spring. Yeah. And when you're down a lot and there's a lot of negativity priced in it doesn't take a lot. You don't even have to have great news, just a little bit less bad news and you can really see these, these big rallies. That doesn't mean you're going to just go straight up v-shaped recovery. Not at all. We don't think it's going to be a V but it certainly gets you on the, on the road to recovery.

Adam Turnquist (33:25):

Yeah, it reminds me of the, the Charles Dickens the last two weeks, the worst of times. It was the best of times. And a tale of two tapes, we'll call it with equity markets the last couple weeks here,

Jeffrey Buchbinder (33:36):

There you go. Showing your literary <laugh> clout right there. Well done, <laugh>. Well done. So just we'll wrap up with this section. And then a quick preview of the week ahead. What's fair value on the S&P 500? Nobody really has any clue where earnings are going to come in because we don't have tariff clarity. Not only that, but valuations are impacted by higher yields. So even though yields are coming down at a 4, 3 10-year or 4, 4 10-year, that's a little bit of a drag compared to where we think we're going to be. So it's really hard to make a case that stocks are worth 6,000 or more where we just came from. So with that as set up we'll go through the charts. These are from the Weekly Market Commentary, which you can find on lpl.com. So it's earning season, frankly, it's one of the more least, one of the least anticipated earning seasons in my career.

Jeffrey Buchbinder (34:38):

Because I just think it's going to be largely meaningless because companies just don't have any visibility into their environment for the rest of the year. So some, some companies will have some pretty decent visibility if they're more domestically focused. Others are just going to have to be vague, give very wide ranges or just pull guidance entirely. So I think these numbers that I'm showing you are, are kind of a waste to focus on. But I do think it's interesting that expectations are still for double digit earnings growth this year. Bottom up consensus from analysts. Frankly, we'll be, lucky if we get five, let alone 10, that's kind of where we're landing right now. And it's not just that they're going to have to pay the tariffs or pass the tariffs on to consumers, which are going to be demand destroying. It's also the uncertainty that paralyzes companies, right?

Jeffrey Buchbinder (35:34):

They can't make big investments because they don't know what the landscape's going to look like. So these are all earnings negative and frankly analysts are just a little late to the party here. So here's valuations based on the equity risk premium. And look how low this is. This is, this is still two points below the long-term average on a forward PE basis. So you take the forward PE and you invert it, that creates an earnings yield. You compare that to the 10-year treasury yield and whatever the difference is, that's your equity risk premium. You would expect after the sell off stock valuations to be down and you would expect yields to be down. They weren't, but you would expect that normally stocks get cheaper. That wasn't the case this time. They really didn't get much cheaper at all because yields have gone up and we are down about 10% from the highs, a little more than that, but the PE was really high coming into that, this latest sell off, and now it's still a little high.

Jeffrey Buchbinder (36:36):

So stocks are not cheap, some are, but the market isn't cheap. And so we, we thought it'd be helpful to put in the piece, the scenario analysis. Now this, I updated this, so this isn't exactly what you see in the commentary. I also widened the ranges a little bit after the tech tariffs were, were suspended or actually re-categorized. So they don't fall into the China 125% bucket anymore. They're going to fall into their own bucket, a sector bucket. But anyway the, the point here is that even if you put a 20 PE on our current estimates, which might be a little bit overly optimistic here, you're talking about only like a one or 2% gain between now and the end of the year, not much at all. So to justify stocks going much higher between now and year end, you either have to create a very favorable trade scenario where tariffs come down on our partners and other trade bears come down below where they were before, and we bring tariffs down maybe to where they were before possible.

Jeffrey Buchbinder (37:50):

Sure, maybe that happens in some cases, but it's hard to make the call that, that we're going to be better off than we were before in terms of earnings with regard to tariffs. Or you can make a a forecast based on AI productivity, boom, right? And so maybe all that spending still comes through. By the way, that's going to be one of the interesting things to watch during earning season. Are we still going to get the CapEx from big tech? If we do, maybe 2026 starts to really bear some fruit and you get a productivity boom. So, you know, some shops are still at 280, 285 for, for next year. We're using 275 right now, but with a big asterisk that that could go up or down Still, we have a hard time justifying a year-end fair value for, you know, more than maybe 5600, 5700 maybe if you want to be a little more optimistic on trade. So don't want to sound too bearish, but I think we're pretty balanced in terms of the risk reward. So let's turn to the week ahead and then we'll wrap. So Adam, I think tariff headlines is all that matters, but we do have some data and we do have some earnings coming through this week. Not big tech by the way, but we do have some earnings coming through. What do you think folks should be watching?

Adam Turnquist (39:18):

Retail sales will obviously be a big one. You know, that will be for March. So not full tariff impact, but I think the starting point now for a lot of this data, pre tariff type levels where we're benchmarking things off, that's probably going to be the big one. Anything inflationary. We had the New York Fed today that came out above expectations, yields moved lower and opposite of what happened Friday. So again, it is really just tariffs. You can't really make sense of some of these reactions to be honest. Jobless claims and another one you got that highlighted, that's going to be interesting to watch just how the labor market holds up. You know, we've seen signs of it cooling, but not so much in the initial jobless claims. When you look at just the, the four-week average there, 223, that's pretty constructive. And something our Chief Economist, Jeffrey Roach, has been watching closely for any cracks surfacing and so far haven't seen it yet.

Jeffrey Buchbinder (40:17):

Yeah, still very, very low numbers of layoffs and, and jobless claims. You are seeing some impact of, of the doge job cuts. I mean, if you're going to see them, you're going to see them now or you're going to see them very soon. So that's maybe something to watch that's going to make the economic data pre tariffs a little more interesting than it might be otherwise. But again, generally speaking, the, these numbers don't really matter that much. We will see a little bit of bump in retail sales as folks spent to beat the tariffs, right? I know Apple was trying to beat the tariffs and they shipped a lot of iPhones to the U.S. <Laugh> over the last few days, right? So we're going to see that in buying, you know, car prices probably going to go up, although that's another headline today that maybe auto part tariffs will be exempt or have some special carve out of some sort.

Jeffrey Buchbinder (41:12):

So maybe we don't get the $4,000 or $5,000 price increase in cars that people are worried about. Maybe it's smaller than that, but still, you're probably going to see a bump up in people rushing out to try to beat the tariffs. But that means that after that happens, then you have softer data in subsequent months. So it's really not anything to celebrate so much, it's just it, it's just noise, total noise in the data. So you know, bottom line, just keep watching those tariff headlines and we'll keep, keep you updated on, on where these numbers shake out. I guess you could say that maybe we're, you know, headed from 20+ to low teens on the weighted average tariff rate, which is good news, but we really want be lower than that. We really want to see some of these trade deals come through before we're going to say that you should be aggressively buying here.

Jeffrey Buchbinder (42:04):

So we're kind of waiting and seeing the risk reward looks fairly balanced, not too exciting. So even though we have the technical evidence that Adam walked through that maybe the bottom is in, you know, a lot of the upside we think from folks calling the bottom, at least in the very short term might be, might be behind us. And we're at, we're certainly over 5,400 now. We're 5434 as we're recording this. So hopefully I'm wrong and there's some upside here, but the upside from this point forward in the very short term looks, looks pretty limited again, unless we get a change in the tariff regime. So we'll watch for that. Market's clearly excited about what's coming we'll have to wait and see. So with that, we'll go ahead and wrap. Thanks Adam for jumping on again. I guess you're, you're going to get a you know, frequent flyer card or something because I think you've been, I think you've been on three out of four, three out of four weeks, which is awesome. So thanks for doing that. I'm pretty sure we're going to bring somebody else different in next week, so it's probably going to be Jeffrey Roach to talk about the economy and, and the impact of tariffs. So we'll look forward to that. Thank you all of you for listening to another LPL Market signals. We'll be back with you next week. See you then. Thanks.