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UPDATE: LPL Financial Research Issues Midyear Outlook 2016

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Leading retail investment advisory firm and independent broker/dealer LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA), today announced that its research publication, Midyear Outlook 2016: A Vote of Confidence, is now available for download. Published by LPL Financial's Research department ("LPL Research"), the publication contains investment insights and market guidance for investors in the second half of 2016.

It has been a volatile year thus far, leaving some to question the continued strength for the second-longest bull market in history, which began in March 2009. LPL Research provides a vote of confidence in the economic recovery, the bull market potentially continuing through 2016 and beyond, and most importantly, in investors' ability to remain focused on long-term goals.

LPL Research reports that through this steady, although slow, economic growth, the following four themes will potentially influence success for the remainder of 2016:

Federal Reserve (Fed) rate hikes. In part due to the political and economic uncertainty created by the Brexit vote, LPL Research has reduced its forecast for Fed rate hikes in 2016 from two to one, with additional rate increases next year. Should financial and economic conditions tighten more than expected, the Fed could remain on the sidelines all year.

International opportunities. LPL Research remains cautious in its global outlook, but continues to look for opportunities, especially in emerging markets.

Corporate America investments. A pickup in economic growth and an energy sector turnaround may boost companies' investments in their future growth, an element that has been lacking recently.

Possible second half turnarounds: oil, dollar, earnings. These three turnaround stories are key for the rest of 2016. Despite heightened political uncertainty in Europe, LPL Research expects continued stabilization in oil prices and the U.S. dollar, both of which have been an earnings drag in the past several quarters. Should these drags ease, an earnings rebound may occur in the second half of the year.
Against this backdrop, LPL Research forecasts the following within the report:

Slow and steady U.S. economic growth. LPL Research expects the U.S. economy—as measured by real gross domestic product (GDP)—may grow between 2–2.5% in 2016, based upon expectations of a dollar tailwind, stable oil prices, steady consumer spending, record high household net worth, and a slowing, but still solid labor market. But even at just over 2%, actual GDP is growing faster than potential GDP (the maximum pace the economy can grow without causing inflation), taking up slack and slowly pushing up wages and inflation. If this persists, the Fed is likely on a path of one more rate hike this year.

Mid-single-digit returns for the S&P 500. LPL Research maintains the forecast for mid-single-digit returns for the S&P 500 in 2016, consistent with historical mid-to-late cycle economic performance. Those gains are expected to be driven by mid- to high-single-digit earnings growth over the second half 2016, supported by steady U.S. economic growth and stability in oil prices and the U.S. dollar. Given we are in the later stage of the business cycle, investors must stay poised to experience more bouts of volatility.

Improving, but still limited bond environment. LPL Research has increased its full-year 2016 total return forecast for high-quality bonds to a low- to mid-single-digit total return, up from flat. A reduced number of Fed rate hikes, continued aggressive easing policy by overseas central banks (most notably the European Central Bank and Bank of Japan), and below-trend economic growth translate to a more supportive backdrop for bonds globally. The recent Brexit vote and potential implications have added support to these forces.
"We may be entering the eighth year of this economic recovery and bull market, but that doesn't mean the memories of the Great Recession have faded away; and the volatility we've seen this year revives those memories and takes an emotional toll," said LPL Financial Chief Investment Officer Burt White. "A vote of confidence means having the belief that someone or something has the ability to succeed. It is more than being positive or negative, a bull or a bear. It is about trusting our assessments of the opportunities—and risks—that may lie ahead, formulating a solid investment plan, and sticking with it through the ups and downs we may face in the coming months and beyond."

The full publication is available on the firm's website: http://www.lpl.com

 

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