Breakout to New Highs Increases Conviction in U.S. Equities Overweight
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 in July:
- Exited thematic equity exposure to U.S. minimum volatility
- Initiated thematic equity exposure to U.S. quality
Investment Takeaways
U.S. stocks kicked off the second half on a muted note with major averages finishing a dizzying month mixed. The S&P 500 edged lower in July, displaying some noteworthy resilience as sharp bouts of momentum and leverage unwinding in the semiconductor and memory spaces were generally offset by extended market broadening — powering outperformance for the equal-weight S&P 500 Index. Simultaneously, the artificial intelligence (AI) narrative shifted from demand and spending promises to showing returns on massive outlays amid spending scrutiny and open-source model competition concerns. Nonetheless, hyperscaler earnings reinforced AI demand and improving monetization during a broadly strong start to the earnings season. Meanwhile, equity markets generally shrugged off geopolitics.
Core bonds, measured by the Bloomberg U.S. Aggregate Index (Agg), declined in July, marking their first monthly drop since March. Treasuries posted a loss as well, weighed down by a selloff on the backend of the curve as 10- to 30-year yields peaked at month’s end on Federal Reserve (Fed) credibility jitters. The 30- year yield reached its highest level since 2007 after another ambiguous press conference from Chairman Warsh left markets mulling the central bank’s reaction function. Meanwhile, corporate and mortgage-backed securities (MBS) underperformed the Agg.
We expect an improving but still challenging macro backdrop and AI-driven earnings strength will continue to be the key pillars of support that may help the broader equity advance continue through year-end. STAAC maintains a moderate equity overweight recommendation, while staying diversified across the AI theme and potential rotation beneficiaries. The technical analysis picture has gotten more supportive on the recent breakout to new highs.
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IMPORTANT DISCLOSURES
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Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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