Outlook Brightens as Iran Off Ramp Emerges
The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.
Key changes from STAAC:
- Upgraded view on energy commodities to positive
Investment Takeaways
U.S. equities closed lower in March, sealing a quarterly loss amid broad-based selling as markets navigated the U.S.-Iran geopolitical conflict. The de facto closure of the Strait of Hormuz kindled energy-driven inflation and economic growth worries, as well as supply disruption fears, fueling to a notable uptick in cross-asset volatility. Although, domestic stocks displayed some relative resilience with the S&P 500 remaining only modestly below record levels for much of the month. On the earnings front, data center hyperscaler Oracle (ORCL) topped estimates and posted continued other comprehensive income growth, while in consumer names Target (TGT) beat earnings estimates and offset weaker traffic in the fourth quarter with healthy guidance. Entering April, attention turned to potential paths to ending the U.S.-Iran conflict.
Core bonds also faced downside pressure last month, measured by a 1.3% loss in the Bloomberg U.S. Aggregate Index. Treasury yields rallied alongside crude prices as markets pared back expectations of Federal Reserve (Fed) rate cuts this year, while weak auctions of multiple tenors accelerated an awakening in rate volatility. These dynamics drove some spread widening in the corporate space, while private credit returned to the headlines on additional withdrawal restrictions. However, structural risks remain limited. Mortgage-backed securities outperformed slightly last month. Looking ahead, an off ramp has started to emerge in Iran with the two-week ceasefire agreement struck on April 8. While the stock market’s resilient track record during geopolitical events is reassuring, leaving STAAC to look for opportunities to potentially add equities, investors may be well served by continuing to brace for bouts of volatility. LPL Research continues to expect mid-tohigh single digit returns for the S&P 500 in 2026, as discussed in Outlook 2026: The Policy Engine.
Underpinning the outlook is an economy still growing above trend, though surging oil prices and damaged infrastructure in the Persian Gulf have increased the risk of a near-term slowdown in growth. Tailwinds to growth are expected to come from higherthan-expected tax refunds, business tax incentives, and clarity on trade policy. Risks to the outlook include further spikes in oil from the Iran conflict, sticky inflation, a softening job market, and potential business disruption from AI. For fixed income, we expect yields to remain rangebound, although high oil prices may delay Fed rate cuts until later in the year.
The STAAC’s recommended tactical asset allocation includes:
- A neutral stance toward U.S. equities. Watching for an off ramp in Iran that holds, evidence of selling “capitulation,” or a resumption of the technical uptrend before considering a potential upgrade.
- The Committee slightly favors growth over value for exposure to AI and compelling earnings growth, but recent value strength is nearing an inflection point that could prove sustainable.
- The Committee favors large caps over small caps, partly due to balance sheet quality as credit markets may tighten further. Massive AI investment favors large caps.
- Positive industrials stance is supported by strong earnings momentum, a favorable technical backdrop, and continued tailwinds from fiscal spending and AI-driven investment.
- The Committee maintains its overweight recommendation on the communication services sector amid a combination of solid growth, reasonable valuations, and supportive technicals.
- The Committee continues to debate technology as a possible upgrade candidate given strong earnings and attractive valuations.
- Within fixed income, the STAAC keeps a neutral allocation to core bonds and shows a slight preference for mortgage-backed securities over investment-grade corporates. The Committee views the risk-reward profile of core sectors such as Treasuries, agency MBS, and high-quality corporates as more attractive than that of the plus sectors.
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IMPORTANT DISCLOSURES
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. Precious metal investing involves greater fluctuation and potential for losses.
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All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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