COMPASS CHANGES

  • Downgraded small growth from neutral to negative/neutral.
  • Downgraded small value from neutral/positive to neutral.
  • Upgraded large growth from negative/neutral to neutral.
  • Downgraded hedged foreign bonds from neutral to negative/neutral.

INVESTMENT TAKEAWAYS

  • Expectations for solid corporate profits and steady economic growth support our forecast of 8–10% returns for the S&P 500 Index in 2019*.
  • We expect a U.S. economic growth tailwind and attractive relative valuations compared with growth to help buoy value stocks.
  • We expect a transition to market leadership from large cap stocks in 2019 as the economic cycle ages and trade issues ease.
  • We favor EM equities over developed international for their solid economic growth trajectory, favorable demographics, attractive valuations, and prospects for a U.S.-China trade agreement.
  • We emphasize a blend of high-quality intermediate bonds, with a preference for investmentgrade corporates and mortgage-backed securities (MBS) over Treasuries and a small allocation to less interest-rate sensitive sectors, such as bank loans or high-yield bonds, for suitable investors. That said, higher issuance, fewer investor protections temper bank loan optimism.
  • Yield per unit of duration remains attractive for MBS.
  • A Federal Reserve (Fed) rate hike in December is likely, potentially followed by two more in 2019. A moderate pickup in economic growth and inflation may be headwinds for fixed income.
  • Technicals have weakened over the past month as the S&P 500 made new year-to-date lows and fell below its 200-day moving average. While year-end seasonality is a tailwind, we continue to look for signs of capitulation among investors.

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IMPORTANT DISCLOSURES

All performance referenced is historical and is no guarantee of future results.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

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