Portfolio Compass | January 15, 2019


  • Upgraded financials view to neutral/positive from neutral
  • Upgraded industrial metals view to neutral from negative/neutral


  • Our S&P 500 Index year-end 2020 fair value target range of 3,250–3,300 is based on a price to-earnings (P/E) ratio of 18.75 and our 2020 S&P 500 earnings forecast of $175 per share. With stocks at our year-end fair value target, the magnitude of a potential stock market advance in 2020 may be limited.
  • We favor large cap stocks as the business cycle ages and recommend balanced exposure between the growth and value styles in equity allocations.
  • Attractive valuations, solid economic growth may favor emerging markets over foreign developed markets. Trade deal with China may be supportive though trade risk remains.
  • Our upgraded financials sector view reflects an improved interest rate environment while valuations remain attractive.
  • Slower but still solid economic growth and modest inflation may put upward pressure on yields, but trade uncertainty and the global appetite for U.S. Treasuries increase the likelihood they remain range bound.
  • We emphasize a blend of high-quality intermediate bonds, with an emphasis on mortgage backed securities (MBS) and underweight exposure to U.S. Treasuries in suitable strategies. MBS could provide a diversifying source of yield within the investment-grade space that may tolerate modestly rising rates better than other options.
  • High-yield corporates could be an attractive alternative to equities on a risk-adjusted basis.
  • While economic growth is supportive of investment-grade corporates, tight credit spreads and declining credit quality lead to our neutral view.
  • The global stock rally continues to be buoyed by strong participation; however, with overly optimistic sentiment becoming a tactical risk, we see technical support near 3,030 on the S&P 500 Index.

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This Research material was prepared by LPL Financial, LLC.

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