Midyear Outlook for the U.S. Economy, Stocks and Bonds

Jeff Buchbinder:

Hello everyone, and welcome to the latest LPL Market Signals Podcast. Jeff Buchbinder here, your host for this week, with my friend and colleague Lawrence Gillum. It's a special edition of the Market Signals Podcast because we are rolling out the 2024 Midyear Outlook, at least part of it. Lawrence, thanks for joining this week. How are you?

Lawrence Gillum:

Oh, I'm great, Jeff. Just trying to stay cool and inside these days, but yeah. I'm really excited to talk about the Midyear Outlook. There's a lot of great pieces, a lot of great teamwork that went into this, and excited to roll it out.

Jeff Buchbinder:

Yeah. Me too. It's a lot of fun to work on. It's even more fun to roll it out. So there it is in all of its glory. The 2024 Midyear Outlook, available on LPL.com as you are listening to this. We are recording this on Monday afternoon, July 8, 2024. But we're going to put this out on Tuesday morning after the publication is out. We certainly do not want to front-run ourselves, so we'll spend most of this podcast just talking about the Outlook and showing you some of the charts, but we'll do a little bit of market recap and week ahead as well. So speaking of the market recap, let's do that here. First, we had another positive week for the S&P 500. The S&P was up 1.6% on a total return basis.

Jeff Buchbinder:

The all-time high count is at 34. It's 34 record highs. Maybe making a run at the all-time full-year record. We'll have to see what happens in the second half. Tech, you know, I sound like a broken record, but tech was the leader again. And, you know, it was a holiday shortened week, so there really wasn't a ton of news to change The dynamic. We're in a very positive seasonal period, and tech has been working. So tech continue to work. Although also worth noting that consumer discretionary was another big outperformer as Tesla was up 27% for the week, believe it or not. The, you know, growth style continues to dominate value. Generally speaking, the U.S. continues to lead developed international markets, although we did have a pretty good week in Japan last week.

Jeff Buchbinder:

And, you know, the French election uncertainty. Markets got a little more comfortable with that situation last week so we got some nice gains in France, but that market still hasn't dug itself completely out of its recent hole. And in general, we just think Europe is going to struggle to keep up with the U.S. political uncertainty, or no. The economics and the earnings picture continue to point to favoring the U.S. So turning into the bond market. That's your baby, Lawrence. We had really big gains. I know we had some weak economic data that was certainly part of the story. What do you think of that move?

Lawrence Gillum:

Yeah. So we did have a pretty good week last week, and most of that week came on Friday actually after the jobs report. At first blush, that jobs report came out and beat expectations on the headline number. But I think markets were really focused on those negative revisions, showing that the job market is softening. It's not falling off a cliff or anything that's, you know, too concerning at this point but it has got into better balance, as we like to say. And that helped the bond market. It helped push yields a little bit lower. 10-year Treasury yield was down about 10 basis points last week. Most of that did come on Friday. But that did serve to generate positive returns for most of these fixed income markets. The aggregate bond index up about 0.7%, still negative for the year, barely.

Lawrence Gillum:

I think we've got a little rounding issue on this screen, but we do have some some slight negative in the bond market this year, but slowly crawling out of the hole that took place in January and February after a lot of that repricing that took place based upon Fed rate cut expectations. Looking at just the individual sectors, mortgages were up about 20 basis points down about 30 basis points or so on the year still. So, once again, trying to claw out of that big hole that a lot of these markets started in. High grade corporates, up about 50 basis points, high yield bonds up about 30 basis points. So corporate credit performed well last last week, despite the fact that there was some softer economic data, which again, is just another kind of data point that we look at to see that right now the economy is still doing fine.

Lawrence Gillum:

Markets aren't overly concerned about this softening data. Spreads are stayed relatively contained. So it's kind of this orderly slow down, if you will. And that's been good for both equity and fixed income markets. One last comment. The preferred space. That's an area that we've had active exposure to over the past, call it year or so, up about 60 basis points on the week, up over 12% over the past year. That's looking like an equity market type of return out of the fixed income market. So that's been a good space in an area that we continue to like, given current valuations.

Jeff Buchbinder:

Yeah. That's been a great call no doubt and certainly, you know, focusing on the U.S. has worked for us as well in the first half. So we'll see if it continues. More thoughts on that in a minute, but yeah. Great run for preferreds. For sure. You know, turning into commodities. I mean, oil certainly is in a pretty good spot. Seasonally, actually, stocks are too in the first half of July, you know, with the summer driving season starting up, that's been positive. And then unfortunately, the geopolitical environment is still quite treacherous and that's been positive for oil too. So it's made it a little bit of a run here up another couple percent last week. LPL Research continues to like the energy sector here for the second half. And then the dollar. Here's an interesting one.

Jeff Buchbinder:

We don't talk too much about big moves down in the dollar. There you go. 1% move down. Certainly, that is welcome news for the yen, which has really struggled to find its footing. It has a little bit here over the last few trading days. And that certainly was recognized with the solid gain in the nikkei last week. The dollar was reacting to the increased chances of the Fed cutting rates in September or the increased chances of two cuts this year. We'll hear more from Lawrence on that in a bit when we get to the Outlook and specifically, the fixed income section. So let's get rolling so we can squeeze all this in, Lawrence. We got the economy first which, you know, for the headline, it's expected to slow down.

Jeff Buchbinder:

I had this great idea this week to bring in, you know, Jeff Roach and, go through the, you know, have each subject matter expert go through each section, but Jeff went ahead and went on vacation so that spoiled that plan. I guess we're just harder workers than Jeff it seems. So we'll do his section the best we can. And then we'll get into our sections where we'll be certainly a little more comfortable. So starting with, you know, kind of why this economy's been so resilient in the first half. I think the mortgage refi boom might be the biggest reason. You also had some stimulus certainly left over from the pandemic, but this chart shows you how much in equity at the top that homeowners have pulled out of their homes, equity extraction from refinancing, and you see that big burst in like 2022, right?

Jeff Buchbinder:

Late 2021 into 2022. You know, that's clearly put more money in consumer's pockets and has facilitated more spending. Same thing with the bottom chart here. Refinancing activity reached a record high in 2021. That, you know, locking in those low mortgage rates has given consumers more money to spend. It's as simple as that. So, you know, this is such an important theme here to explain the first half that Jeff put several charts in on that. So this next chart shows you that, you know, the job is harder for the Fed because they are dealing with a lot of mortgages that are not interest rate sensitive, or homes that don't have a mortgage, right? That's the left-hand side showing you the percentage of consumers in 2022 that had mortgages versus no mortgage. We know there were a lot of cash buyers back then, so that reduces the interest rate sensitivity of the economy and of consumers, and therefore, makes the Fed's job a little bit tougher.

Jeff Buchbinder:

Of course, fewer people are renting. You know, they're impacted by inflation. Certainly. Here's another way to look at this, and then I'll turn it over to you, Lawrence, for your comments on this theme. The light blue line is basically mortgage obligations and as a percentage of disposable income. And you can see here, it's essentially never been as low, not at least in modern history. Come back obviously off the lows as interest rates have risen, but still, the percentage that people are putting toward their mortgages in aggregate is quite low. And that just, again, given consumers more spending power. The black line isn't really that interesting. The consumer debt service ratio, it's a broader measure of consumer debt. It is kind of in the middle of its historical range. But, you know, you might think because interest rates have moved higher, that it would be at the top of this range, and it's not. So maybe there's a positive out of that, too. Thoughts on this, Lawrence?

Lawrence Gillum:

Yeah. I would say that the housing market theme is a theme that we've been playing in the fixed income markets as well. We've had an overweight to agency mortgage-backed securities because of the fact that there are fewer mortgages being refinanced, and there's being fewer mortgages originated. So the supply of mortgage-backed securities has come down a little bit. So that's one of the thesis behind our overweight as well as valuations too. So, you know, this isn't an area that we certainly pay attention to on the economic front, but also on the investment side as well. So to your point, to Jeff's point, I mean this is a pretty important topic, which again, is the reason why we have so many charts in this Outlook. But, you know, it's one of those things where it's... One other thing.

Lawrence Gillum:

These are aggregate numbers. So there are going to be, you know, folks that are going to be more or less impacted by these numbers. But I mean, just by and large, you look at this chart here, and I mean, yeah, there's, it's no doubt that the, the Fed is trying to slow aggregate demand by making things more expensive. But this chart alone is saying that they're not able to because of the mortgages that a lot of these consumers have and look to, you know, keep for longer than maybe than they have historically. I know I don't want to give up my 3% mortgage anytime soon and refinance at these higher levels. So eventually, I think we're all going to have to, you know, we're going to have a mortgage with a higher interest rate that we've had over the past decade or so. But right now it feels good to have a 3% mortgage rate on your home.

Jeff Buchbinder:

Yeah. And a lot of people in this hybrid environment are also saving on commuting costs so including myself and occasionally you, Lawrence. So that's, you know, another support. So good stuff. Let's move on to inflation. Obviously, that's been a big story for markets. Here's good news. This is the employment cost index. And Jeff always talks about how this is a really good measure of labor costs, but it's also stale. You know, it comes with a bit of a lag so you're not getting a June read here. You're not even getting a May read. But nonetheless, I think it's very instructive to see how much progress we've made since the peak, right? This has come come off the highs quite dramatically actually. The black line is services inflation, and that's been trickier.

Jeff Buchbinder:

And then the light-blue line is goods producing labor costs. Services, jobs are more important, obviously for services. Inflation wages are a bigger component of services costs. So that's been the sticky piece and the one we really want to see move lower in the second half. We made progress here. If we take out housing and do core services, inflation ex-housing, the blue bars, light-blue bars are just month over month. And, you know, the June reading was, or I guess this is May, the May reading was nicely down and we should see another down reading or tepid reading next month. Year over year is the darker-blue line, and it just started to tick lower. So I think that's why Jeff used this phrase "turn to corner."

Jeff Buchbinder:

Actually that's the theme of the Outlook. "Still Waiting for a Turn." It looks like a turn might be here, but as we continue to hear from Powell, we need more evidence to be confident that inflation is moving towards 2%. So here in the forecast. You know, I'll let you Lawrence pull out anything here that you think is interesting, but I'll just start with the, you know, the GDP line. Look, we expect to slower economy, but not a recession. We don't think recession is coming in the second half. It may not even come early 2025 based on the resilience of this economy. It appears that a slowdown will be gradual. So that's our call. Of course, as you know, Lawrence better than anybody, that'll probably put some downward pressure on inflation and on interest rates. So what do you think here is worth calling out Lawrence?

Lawrence Gillum:

Yeah, it is just our rate cut expectations. I think what we did particularly well in the first half of this year, is not buy into this notion that the Fed was going to be an aggressive rate cutting mode in the first, or in the first half, or even throughout 2024. Our view is maybe we get two rate cuts this year. I think we penciled in three, possibly at the start of the year, but, you know, we certainly did not agree with the seven rate cuts that were priced into the markets back in January. So I still, you know, think that we're in line with Fed expectations in terms of rate cuts. And we do think that we're going to get a couple, get a pair of 25 basis point rate cuts this year, which to your point, should help with the bond market, which should help with consumer loans should help. We don't think it's going to reignite the inflation story, but we do think it's going to help the Fed achieve its dual mandate as it relates to the labor market.

Lawrence Gillum:

We did see some slight weakening there. So that should allow the Fed to start to cut rates, you know, sometime this year.

Jeff Buchbinder:

Yeah. The market certainly priced in a pretty high likelihood of September based on the softer data last week. So we'll see. Two cuts would certainly be consistent with our economic views here, I think it's fair to say. The core PCE, you know, Jeff has a 2.7 for fourth quarter. That's one I think maybe we could even do better. We'll have to see. But, you know, that's our forecast. So I think we'll keep moving and get into stocks, certainly my favorite section of this report. I threw the S&P 500 chart in here because I just couldn't imagine a Market Signals without an S&P 500 chart. So here you go. Closed on Friday, the holiday shortened week, at 5,567, which as I mentioned, was, I think it was a 34th record high this year.

Jeff Buchbinder:

The RSI 14 is how we measure overbought conditions when it's over 70. It's now 76 and change. So this market is overbought. We've been saying we need a pullback for a while, and we're repeating that in the Outlook. Frankly, our view is more "buy the dip" and wait for a correction, or a pullback, rather than add to equities now. So yeah. There's a little bit of a cautious tone to the piece. Certainly, we think some of the gains in the first half have pulled forward potential gains in the second half. We're starting to see a little bit more, you know, 52 week highs. But that middle panel, the green bars, only about 4%. That tells you that this is still a narrow market. Another reason to think, you know, we'll have a pullback or a correction once the AI theme starts to wane a little bit that we haven't really seen that yet, but at some point it will.

Jeff Buchbinder:

So let's go into the the Outlook charts here. Now, this is first one. So as I did in the outlook back in November for the full year, 2024 we identified cycles, right, to help us gauge where this market might go. So we've done the same thing here a little bit in this publication. So this first cycle is just the bull market cycle. So if you look back at all the bull markets since World War II, and you see how they did the first two years we're almost done with the second year. It's coming in October, right? So not quite to two years, but we'll say close enough. On average, two year bulls gain 60% for the S&P. This bull's up about 53, 54, something like that.

Jeff Buchbinder:

But if you look at these blue bars, you know, bull market by bull market, you see '09 and 2020 were especially strong. Well, that's because the bear markets that set up those bull markets were really nasty. And when you have a sharper and bigger decline, it sets up a bigger rally. So if you take those out, the averages in 60, the averages are up about 53. Well, we basically have that already. So, you know, we're not necessarily saying that stocks will be flat in the second half, but certainly this analysis suggests that any gains from here are going to be tough. This next cycle, certainly this is one that Lawrence can relate to is around Fed pauses. So how does the S&P 500 do historically when the Fed is neither cutting nor hiking?

Jeff Buchbinder:

Right. Here's another anniversary. We're almost at the one year mark since the Fed last hiked. We've seen no changes to the Fed funds rate since July 23 of last year. It's one of the longer pauses. The horizontal axis here is the length of the pause. So we're at right around 340 days now. The vertical axis is the S&P 500 performance during those pauses. So this is also one of the best pauses we've had. That number actually now is a little bit better. You know, call it twenty one, twenty 2% during this pause here. Again, same message. We've kind of, I mean, we don't know for sure, obviously if we're going to get a cut in September, but if we do, probably not a lot of upside between now and September. You know, it's typical in any given year to have a correction in the summer or early fall.

Jeff Buchbinder:

So we think we're going to get that again, it's just hard to know when exactly it's going to come. Maybe around the election maybe earlier. We'll see. But this is just another way to say, this market is kind of priced in a lot of good news and may not have a lot more ahead of it in the second half, especially if some of these risks start to get priced in. By the way, if some of these risks aren't priced in, or we get a benign outcome to some of these risks, geopolitical, election, et cetera, then we certainly could see upside to the S&P 500, potentially even meaningful upside. If we're going to get gains in the second half, it's probably going to come from earnings because stocks are expensive. We either need the earnings to rise and reduce the PE or as you'll see on the next slide, we need rates to come down.

Jeff Buchbinder:

This is our updated earnings forecast. We just raised these. So we are taking our valuation assumptions down a bit. We're not $240 and $260 per share in S&P 500 earnings for 2024 and 2025. We were previously at 235 and 250. Frankly we and many others underestimated the earnings boost from from AI investment. I mean, that's the biggest piece of this. And certainly the economy has been a little more resilient than most analysts thought. So at these numbers, you know, we can keep a PE ratio in the neighborhood of 20, which we think is fair, given the fundamentals. And still maybe, you know, maybe have a little bit more upside in the second half. So I mentioned that valuations can get support from lower rates so this is a way to see that.

Jeff Buchbinder:

We've showed this chart before the equity risk premium. It's basically comparing the PE ratio to Treasury yields, right? You just have to invert the PE to align the denominators, and you can have kind of an apples to apples comparison. So essentially, the earnings that stocks are spitting off are less than the income that Treasuries are spitting off. So you've got a higher, essentially amount of compensation for bonds than you have for stocks, right? If you align income and earnings. So valuations are high. We've been saying that for a while. They're not great timing tools. However, over time valuation metrics certainly matter. And this is one where we're either going to have to grow our way out of it with more earnings, which is certainly possible, or we need lower rates to increase the value of future earnings. Any thoughts on the equity risk premium here, Lawrence? Where where could rates go?

Lawrence Gillum:

Yeah. So our view is that we will likely see lower rates throughout the course of this year, but absent of broader economic contraction, we're probably not going to get much lower yields which we'll talk about in just a second. But I think the main point that you made earlier about these types of valuation metrics not being great timing tools is an important one. This is certainly not to suggest that you sell all your equities and buy bonds because it, you know, it's not how it works. It's just not. That's not what the point of this slide is. But this shows that there's, you know, I would argue there's a lot of value in fixed income right now.

Jeff Buchbinder:

Oh, absolutely. So, yeah. We have a slight preference for fixed income, but over equities, but we're still neutral equities that extra fixed income allocation comes from cash. So, you know, I've used the phrase riding the wave, right? Technicals haven't given us a reason to sell equities just yet. So we're neutral despite high valuations. The earnings has been, you know, frankly, I think stronger than virtually any Wall Street strategist expected. And, you know, that might just carry us higher here. As we wrote about in our last Weekly Market Commentary last week, the first half of quarters has been very strong over the last several years, and that aligns with when you get the bulk of of earnings reports. So, before we get to bonds, let me do just quick election. I feel like this is a public service announcement.

Jeff Buchbinder:

Because so many of you think, well, if I don't like the outcome of the election, I'm going to sell my stocks. So we feel like it's, you know, we're almost obligated to show these studies every four years. So here you go. Stocks can do quite well under Democratic or Republican presidents. Markets tend to like gridlock. We'll see how much they like it in France, but markets tend to like gridlock in the U.S. Certainly, you see these solid gains on the right-hand side of the blue set of bars and the red set of bars. It looks like we're probably going to get gridlock. But there is a chance, I don't want to say it's a low probability, but at least polling and the betting markets are suggesting maybe there's like a one in three chance of a Republican sweep, maybe a little bit more than that.

Jeff Buchbinder:

Just based on the, you know, the house, the sort of, you know, who's defending seats in the house? We'll have to see. It's obviously early. And this is hard to predict even the day before the election, frankly. But this is a good chance we'll be in one of these positive bars. But you know what, even if we're not, it's not a reason to sell because look at this next study. The, you know, the line that's way north, way up into the right is if you invested one hundred thousand dollars in 1950 and stayed with the market that whole time, you'd have over 32 million if you invested only when Democrats were in the White House, or only when Republicans were in the White House, you did a lot worse, right? 1 million under Republicans, 3 million under Democrats, and change. Just the message here, stay invested.

Jeff Buchbinder:

Corporate America and profits are very resilient, right? To whatever political environment it might get. We've seen this the last several administrations where stocks have done well, even as we flip back from Republican to Democrat and vice versa. So important message especially for advisors listening and, and looking for stories for clients. So here's the bonds. So Lawrence, I'm going to let you just take it away. You kind of hinted at it a little bit, couple of cuts maybe in the second half. And you know, yields may be lower, but not a ton lower.

Lawrence Gillum:

Yeah, absolutely. One comment though on the election real quick if you go back to that slide where it had the Democratic presidents, Republican presidents, and right. Just before any sort of hardened partisan comes in and says, well, we want Joe Biden to win, just because of the blue line there. It's done better than the red line. The difference really comes from 2008 at the end of the global, or because of the global financial crisis. You take that global financial crisis out of this equation. And they look pretty similar. So I think that's a, you know, that's the message. It's that markets don't care about politics. They care about policy. And regardless if it's a Republican or Democratic president, you tend to get similar type returns. But that one year really kind of makes it seem like the markets have done better with a Democratic president. I mean, they have. That's what the data shows, but it's because of that one year. So if you don't have global financial crisis in your outlook, you're probably going to get similar type of returns regardless of who's president.

Jeff Buchbinder:

Totally fair. Yeah. 2001 was certainly a little bit of drag for the Republican side as well. Poor Bush 43. So, but good point. Yeah. He had to live through two pretty big downturns there In the White House. So let's go back to back to bonds, but yeah. Thanks for adding that color. Pretty upbeat outlook for bonds. I thought you guys are downbeat.

Lawrence Gillum:

I know, I'm shedding the pessimistic title that a lot of fixed income investors are saddled with. I think or we think that the bond market is in a really good spot for really two reasons. And this first chart is probably the wonkiest one that in, in my section, but I would argue also one of the most important ones. This is showing what the markets are expecting in terms of the fed funds rate over time. It's called the neutral rate. The neutral rate is neither restrictive nor accommodative. It's just kind of the neutral interest rate. And markets are saying that the Fed is only going to be able to take the fed funds rate back down to around 4%, which is a pretty big difference from what the Fed has told us in their remarks and through their statements that they think 2.5% is the neutral rate.

Lawrence Gillum:

The 4% level is notable for two reasons. One, if the, if the markets are right and the Fed only cuts the Fed funds rate down to around 4%, that means that income component that we finally saw come back into the fixed income markets, is going to stick around for longer. That makes fixed income a more durable asset class. Means yields are going to stay elevated relative to history for longer than, you know, perhaps we were expecting this time last year. So that just means that there's going to be a lot of income opportunities within the fixed income markets if the markets are right. If you want to go to the next slide, I would say it's important because the income component has been the biggest contributor to total returns over time. This is looking at the Bloomberg Aggregate Bond Index, which is that main fixed income index.

Lawrence Gillum:

That light-blue line, that's the price performance over time. Whereas that solid blue line or black line, that's the total return. That difference represents the income component. So overwhelming majority, 90 plus percent of total returns come from income. So if the markets are right, the Fed doesn't cut rates aggressively because they don't need to because there's not a deep economic contraction. The income component is going to be a pretty positive contributor to total returns on a go forward basis too. So that gets us excited because, you know, the fixed income markets are generally lower risk. There's a lot of high quality fixed income options out there that are, are yielding, you know, five, five and a half, 6%. And, and that's a, a really good return if you're a, an income oriented investor.

Lawrence Gillum:

So you know, as long as the Fed doesn't need to cut rates, the income component we think is going to be a big contributor to total returns on a go forward basis for longer. The next slide that I have on here is that if the markets are wrong and the Fed does need to cut rates, fixed income has an optionality associated with it, that cash does not, right? So if you look at cash yields, and I should preface this by saying cash is absolutely an attractive asset class. Again, especially for those investors that have like a short term time horizon. If your time horizon is measured in quarters or even a year or two, cash is a great option. But if your time horizon is measured in, you know, years fixed income has been the better performer relative to bonds, or I'm sorry, relative to cash because of that optionality, if things go bad, if the Fed does need to cut rates more aggressively than what the price, then you get that price appreciation as well.

Lawrence Gillum:

So the story out of the fixed income markets is you know, you get the income component and hopefully that income component stays elevated for long periods of time, meaning the economy's on stable footing. The Fed doesn't need to aggressively cut rates. That's a great scenario for income-oriented investors. But if things do go sideways or south in the economy when the Fed has to cut rates more than what's priced in, you're going to get price appreciation out of bonds that you don't get in cash too. So the takeaway is really there's two levers that bonds have going for them right now that is one of the reasons why we're pretty excited about fixed income is you got the income and then you got the potential price appreciation if things don't go well in the economy.

Lawrence Gillum:

So to your point, we do like bonds over cash. We think the high-quality fixed income agency, mortgage-backed securities, Treasury bonds, we'd like the short to intermediate part of the corporate credit curve. We don't like the index broadly because it has a lot more interest rates and sensitivity to it, but you're not giving up a lot of income just to own, you know, corporate bonds with a three year maturity or so. And then we like preferred securities, again, as a way to help generate income. Right now you're looking at a portfolio of high-quality fixed income that can generate, you know, 5.5 or 6% type income which is something that we really like. So pretty positive on the outlook, as you mentioned. It's not often that we have this kind of dynamic in the fixed income markets. So it is, we think, a pretty positive story for income oriented investors.

Jeff Buchbinder:

Yeah. I can't believe as an equity guy I'm saying this, but I think it's easier to, you know, paint a picture of a, I don't know, mid-single-digit gain in the second half in the bond market than it is in the stock market. Hopefully we get that out of both asset classes. That's certainly possible. But you know, the bar just keeps getting higher and higher on the equity markets, which is why we're in this position where we think it makes sense to wait for a pullback rather than getting too aggressive at this point, even though momentum has been very, very strong. So thanks for that, Lawrence. Frankly, I think that was pretty good in getting through all that in the short amount of time that we just did. So, but we'll do the week ahead quickly. We're running up on our allotted time. I think the I mean, clearly the CPI and the PPI, are what matters most, but we actually got this New York Fed one-year inflation expectations number this morning, and it was right at 3%. So I think that was somewhat encouraging. You know, the conference board's version of that and the University of Michigan's version of that have been kind of around that same 3% number, but they've been moving in the right direction. What are your thoughts Lawrence on the inflation data this week?

Lawrence Gillum:

Yeah. It's going to be a big week for the inflation data. CPI on, what is that, Tuesday or Wednesday? And then we had PPI this week as well. So big inflation data dump this week. But I think markets are really going to be focused on Chairman Powell's congressional testimony. He goes to the Senate, I believe, and correct me if I'm wrong, I probably get this mixed up. I think he goes to the Senate tomorrow and then the house on Wednesday. But this will be big meetings for sure for markets to see if the tune has changed from the Fed because we have gotten some softer economic data, some better inflation data than what we got just, you know, last month. So it'll be an interesting kind of topic when that undoubtedly comes up in these congressional testimonies on the path of interest rates.

Jeff Buchbinder:

Yeah. And so I mentioned we wrote about earnings last week in the Weekly Market Commentary. Earning season starts Friday with the big banks. We get JP Morgan, I think Wells Fargo and Citigroup, so that'll be very interesting. The banks, you know, make up a pretty decent sized weighting in the well, not just in the financials sector, but the overall S&P 500, so that matters. And you know, hopefully we'll get us on our way to a double-digit earnings growth quarter for Q2, which would be the first time we've seen that in a couple of years. So we think it'll be a pretty good earnings season and has a good chance to be supportive of stock prices in the near term. The last thing I'll mention about this week that jobless claims are getting more and more interesting because they have ticked higher and kind of stayed a little higher.

Jeff Buchbinder:

You know, our forecast is that we will see some weakening in the labor markets in the second half as the economy slows. We're getting close to triggering some of those historical moves and jobless claims that have been consistent with a recession. So, you know, we'll see that. Those signals tend to take a while to play out. But certainly we gotta continue to watch the job market. Unemployment is still low, even if it ticks higher. So really we don't see much to worry about now. But that is something else to watch this week. So let's go ahead and stop there. So, thanks Lawrence for helping me get through the Outlook, or at least a chunk of it, by the way. It's not just those sections. We have section on geopolitics, we have section on commodities, we have a section on currencies, we have a section on alternative investments. There's a lot of stuff there. So as I'm sure many of you have seen already, so check it out. I hope you like it. Thanks for spending some time with us to walk through that and squeeze in a few other things. So thanks again, Lawrence, everybody, have a wonderful week. Hope y'all had a great fourth, and we will see you next week on LPL Market Signals.