Staying the Course as S&P 500 Threatens New Highs
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 nvestment 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:
• No Changes
Investment Takeaways
U.S. stocks settled sharply higher last month with the S&P 500 and Nasdaq delivering their best month since November 2023. A rapid trade de-escalation between Washington and Beijing was the major upside catalyst after the world’s largest economies agreed to slash tariff duties for 90 days. The U.K. also stuck a deal with the U.S. in early May, but volatile trade headlines remained an overhang for markets with threats of 50% tariffs on the European Union (EU), a U.S. legal tariff block, and “stalled” negotiations
with China near month end. Corporate results remained robust despite tariff-related pressures, with the S&P 500 posting 12.9% earnings growth last quarter, and artificial intelligence (AI)
tailwinds from strong NVIDIA (NVDA) results.
Treasury yields ended May higher, led by a notable rise in longer dated yields. Core bonds, measured by the Bloomberg U.S. Aggregate Bond Index, declined 0.7% to log their first monthly decline of 2025. Upward pressure on yields stemmed from debt and fiscal deficit concerns as policy makers negotiated President Trump’s signature reconciliation and tax bill, the Moody’s downgrade of U.S. debt, and elevated inflation expectations. Exacerbating the duration sell-off was middling auctions, namely in the U.S. and Japan, briefly sending the U.S. 10-year yield above 4.5% and the 30-year yield above 5.15%. Domestic corporate credit ended May little changed.
Looking forward, investors may be well served by bracing for heightened volatility until trade uncertainties are resolved. LPL Research advises against increasing portfolio risk beyond benchmark targets at this time, as the market seems to be factoring in a lot of positive news. The fixed income market remains volatile, with longer-term yields nearing critical levels for risk appetite in stocks. While the U.S. economy is holding up well, LPL Research believes the S&P 500 is fairly valued and that any further gains would necessitate an earnings surprise and carefully balanced lower Treasury yields (too low could signal rising
recession risks). The trajectory of tariffs and the tax bill will be crucial.
The STAAC’s recommended tactical asset allocation includes:
- A neutral stance toward U.S. equities as elevated valuations amid limited corporate visibility and a cooling economy (that likely skirts recession) offset the opportunity for upside in our view, even with lowered tariffs.
- The Committee favors growth over value for exposure to the AI theme and compelling earnings growth, at a premium, as the economy slows.
- The Committee favors large caps over small caps for their balance sheet quality and better position to manage tariffs.
- The Committee recommends well diversified regional exposures, with benchmark-level allocations to the U.S., developed international, and emerging markets. Non-U.S. equities offer upside from a potentially weaker U.S. dollar.
- Within fixed income, the STAAC holds a neutral weight in core bonds, with a slight preference for mortgage-backed securities (MBS) over investment-grade corporates. The Committee believes the risk-reward for core bond sectors (U.S. Treasury, agency MBS, investment-grade corporates) is more attractive than plus sectors
Click here to download a PDF of this report.
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.
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.
Tracking #753968 | #753969 (Exp. 06/2026)