L.I.F.E. Newsletter February 2022
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- We expect solid economic and earnings growth to help U.S. stocks deliver solid gains in 2022. Despite the rough start to 2022, we believe the U.S. economic cycle is in its middle stages, making the chances of another good year for stocks in 2022 quite high.
- Our value and growth style views are neutral. Slowing economic growth, a flattening yield curve, and earnings trends are bullish for the growth style, but value stocks are attractively valued and we believe reopening beneficiaries in cyclical value still have attractive upside.
- Our market cap views are leveled out at neutral. Small cap valuations have gotten attractive after the recent sharp decline, but as the economic cycle matures and small cap stocks recover some lost ground, we would expect large caps to resume leadership.
- We continue to recommend a slight underweight allocation to fixed income as higher rates may put some pressure on bond returns.
- Although we’ve seen a move slightly higher in yields recently, reduction of Federal Reserve (Fed) policy support and a strengthening global recovery may push yields still higher in the months ahead.
- As interest rates have moved off last year’s record lows, we no longer think a max underweight to Treasury securities is warranted. While yields may move modestly higher from current levels, the biggest moves may have already occurred.
- Even in positive years for the S&P 500, on average the index experiences a maximum peak-to-trough decline of 11%. This year’s max drawdown is now 9.8%.
- After a correction of 10-15%, the index has experienced an average one-year gain off the lows of 22% and has risen in 12 of the 13 one-year periods.
- The average stock market gain one year after the first Fed rate hike of an economic cycle has been 11%, with gains the past eight cycles dating back to 1983.
- When investor sentiment is most negative, as it was during the past two weeks based on the American Association of Individual Investors (AAII) investor sentiment survey, stocks have risen an average of 11% in the next year.
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 may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites 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.
All data is provided as of December 1, 2021.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.