Staying Overweight Equities After Modest Defensive Shift
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 April:
- Downgraded large/mid growth to neutral
- nitiated thematic exposure to U.S. equity minimum volatility
- Downgraded technology to neutral
- Upgraded energy to overweight
- Downgraded consumer discretionary to strong underweight
- Upgraded real estate to neutral
Investment Takeaways
Stocks followed April’s strong monthly gain with another healthy advance in May with all three major large cap averages closing the month at record levels. Artificial intelligence (AI) tailwinds continued to support and were the most prominent market driver last month with key takeaways around “insatiable” demand and upbeat spending plans and outlooks. The blockbuster first quarter earnings season was also tabbed for the upside with the S&P 500 pacing its best quarter since the end of 2021 with blended earnings growth reaching 29%. Developments from the Mideast also remained in focus with optimism around a U.S.-Iran peace deal supporting equities with both sides appearing to be closing in on a potential initial agreement, despite some flare-ups in hostilities late in the month.
In fixed income markets, core bonds edged higher in May, measured by a 0.3% rise in the Bloomberg U.S. Aggregate Index (Agg). Treasuries eked out a 0.1% gain with shorter-dated securities weakening as inflation data suggested price pressures remained evident, while some central banker remarks left the door open to tighter policy. However, cooling energy prices helped the Treasury curve stabilize despite some pressure from rising yields in the U.K. and Japan. Elsewhere, corporate bonds outperformed and mortgage-backed securities (MBS) rose in line with the Agg.
Looking ahead, as geopolitical risk fades, we expect the strong earnings outlook to provide support for further, albeit modest, equity market gains in 2026. LPL Research maintains a slight equities overweight but has moved to a more conservative equities allocation.
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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.
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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