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Sell in May? Not so fast….

May’s arrival has brought warmer weather to many parts of the U.S. (finally), but it also brings talk of one of the most widely cited stock market clichés in history. “Sell in May and go away” is a longstanding investment adage because historically, the six-month period from May through October has been the weakest stretch of the year. However, before you spring into action, it’s important to step back and look at the big picture of what’s really driving our current market environment. The fundamentals of impressive earnings, modest valuations, and a strong economic backdrop may be better indicators to watch.

Looking at these underlying factors of today’s economic and market environment suggests opportunity for further growth, despite this historically weaker season. Here are a few highlights to note:

  • Impressive earnings season. With most companies having reported first quarter results, earnings for the quarter are tracking to a double-digit increase (more than 20%) compared to the first quarter of last year. Guidance for future earnings has also been positive.
  • Solid economic growth. The initial estimate for gross domestic product for the first quarter was a slowdown from the prior three quarters, but it still exceeded expectations. The slowdown seems to be a result of temporary factors, and leading indicators suggest continued growth for the U.S. economy.
  • Reasonable stock valuations. Although stock valuations are slightly above average right now, when considering the positive earnings outlook, low inflation, and low interest rates, stocks don’t appear to be as expensive as some would suggest.

Combined, these factors paint a favorable picture overall for the potential of further market gains. At the same time, it’s prudent not to dismiss the possibility for some seasonal weakness or other risk factors that could impact the markets. The possibility for a modest pullback during this upcoming period remains; for suitable investors, this could present an opportunity to rebalance portfolios and potentially add to equity positions. All in all, for many investors, the main takeaway is to stay focused on the long term, as reacting to seasonal weakness by selling stocks could prove detrimental to the long-term performance of portfolios.

While keeping an eye on historical trends and seasonal patterns is important, as they can provide valuable context to the market environment—they shouldn’t dictate your investment strategy. So don’t let the “sell in May” adage bring you down. Enjoy the warmer weather and extra hours of sunlight, and stick to your long-term investment plan.

As always, if you have any questions, I encourage you to contact me.

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Economic forecasts set forth may not develop as predicted. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This research material has been prepared by LPL Financial LLC.

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Fed Move Suggests Economy Is On Track”

The first quarter of 2018 is wrapping up, and it’s time to spring forward and look ahead to what we could expect in the coming months. After a large market drop kicking off the month of February, March has been relatively calm for stocks so far. The biggest event of the month was the Federal Reserve (Fed) meeting held on March 21—the first with new Fed Chair Powell at the helm.

As anticipated by the markets, the Fed raised the fed funds rate by 0.25% (25 basis points), bringing its target interest rate to 1.50–1.75%. The Fed also upgraded its outlook on economic growth and kept its inflation projection unchanged.

So what does this latest step forward mean for markets overall? Although sometimes markets react negatively to rate hikes, these increases tend to signal the Fed’s confidence in the U.S. economy. The Fed’s dual mandate seeks to balance the often-competing goals of maximum employment and low, stable inflation. With the economy growing above potential and job growth steady, the Fed’s attention has been increasingly focused on finding a rate hike path that does not lead to any bubbles in markets or cause the economy to overheat.

One of the contributing factors to the market decline in early February was the January employment report, which showed a surprise uptick in wage growth. As a result, this increased concerns regarding inflation and whether a faster path of rate hikes was on the horizon. Since then, fears of escalating inflationary pressures may have faded somewhat, although price pressures could continue to build in the coming months. LPL Research continues to believe the Fed will need to see a sustained pace of higher inflation, and potentially a wage growth number as high as 4% annually, before becoming significantly more aggressive.

In addition to the Fed and inflation, there are a number of factors that could have meaningful implications down the line, including:

  • Economic growth: Market participants generally expect the U.S. economy to get a boost from the new tax law, which supports both consumer spending and business spending.
  • Earnings: Corporate America produced the best earnings growth in several years during the fourth quarter of 2017, while 2018 has seen the biggest upward revision to S&P 500 Index earnings to start a year since these data have been collected.
  • Trade policy: LPL Research believes trade policy is among the biggest risks facing stocks right now. The recently announced tariffs may have limited immediate economic impact, but the big concern is China’s intellectual property trade practices.

Although there may never be a dull moment when watching the markets and economy in this day and age, the latest action by the Fed was taken in stride. However, it is important to acknowledge the possibility for further volatility, given geopolitics and trade protectionism. Overall, LPL Research’s outlook remains positive for the remainder of 2018, as continued economic and earnings growth may help offset trade tensions.

If you have any questions, I encourage you to contact me.

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Economic forecasts set forth may not develop as predicted.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC. Tracking #1-712538

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A Setback for the Fiduciary Rule

A Court of Appeals ruling could set the stage for a Supreme Court opinion.

The fiduciary rule is now a retirement planning standard – at least in 47 states. A recent appeals court ruling has dealt a blow to this new financial industry regulation, which has been applauded by investors and financial professionals alike.1

You probably have heard of this rule; if not, here is a brief explanation. The fiduciary rule is the recent directive from the Department of Labor requiring financial professionals who serve as retirement plan advisors to adopt a fiduciary standard. In other words, the advisor must regularly put the client’s interest first in the client-advisor relationship.1

In Louisiana, Mississippi, and Texas, the fiduciary rule has been struck down. The Fifth Circuit Court of Appeals decided 2-1 in March to vacate the fiduciary rule in those states. As of May 7, it will no longer apply within their borders. If the DoL appeals the court’s decision on or before that date, that means limbo.1,2

This ruling opened a legal door, and some financial industry analysts think that a Supreme Court ruling may be ahead.1,3

The 2-1 decision reflects the fact that the full court was not present, so the DoL could simply ask for a rehearing before the full court instead of an appeal. The DoL also has a legal plus on its side: no other court has reviewed the fiduciary rule and concluded that it amounts to the DoL overstepping its bounds under the Employee Retirement Income Security Act (ERISA).1,3

Many financial services companies and financial professionals are hoping for resolution soon, for they have already altered their business practices and compensation models to align with the fiduciary rule. Having made that commitment, they could lose face by turning legally away from it to any degree. They might keep upholding the fiduciary standard whether the rule stands or falls.1,2

If the fiduciary rule does fall, you can at least say that the industry rose to meet its standard. Whether the highest court in the land is called upon to determine the validity of the rule or not, whether the rule ends up standing or not, it definitely prompted a paradigm shift in the way retirement plan advisors and retirement planners thought about their roles – and that shift may be permanent.1

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – thestreet.com/story/14527631/1/court-ruling-puts-fiduciary-rule-and-retirement-investors-in-limbo.html [3/20/18]

2 – tinyurl.com/ycgk3vmf [3/27/18]

3 – employeebenefitadviser.com/opinion/rip-fiduciary-rule-not-so-fast [3/6/18]

 

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Staying Focused

The month of April has opened with some volatile market swings, accompanied by speculation of an escalating trade war. It’s during times like this that we need to take a step back, avoid getting caught up in the headlines, and look at the big picture of the economic and market environment. In this case, that means focusing on the fundamentals of positive economic growth, a strong earnings outlook, and still low interest rates. These are the factors that may ultimately lead to this market’s recovery and get us back into positive territory.

We’ve been experiencing volatility in the markets since early February of this year, driven first by wage inflation fears (which have since been discounted), and now the big stories are trade concerns and regulatory risk in technology. Concerning trade, the war of words between China and the United States has escalated, but it’s important to note that nothing has been put into effect yet. There is room for negotiation, and a compromise may be reached before these proposed tariffs are put in place. That said, uncertainty about the outcome is weighing on the markets.

However, it’s important to remember that volatility and the process of the stock market bottoming out is often not a one-time sell-off. For example, looking back to late 2015, we experienced a market decline in August but—despite a temporary rebound—volatility continued and the decline did not hit bottom until February 2016. So essentially, this period of volatility extended from August 2015 until February 2016. The important takeaway here is that this volatility could continue for a period of time and it doesn’t necessarily mean we’re entering a bear market.

In fact, having begun 2018 expecting a degree of volatility, LPL Research continues to maintain its forecast for positive stock returns for the year.* They also remain confident in their expectation that a “return of the business cycle”—driven by fundamentals and fiscal stimulus—will lead to continued growth and stock market gains.

The following factors may be supportive of positive market returns:

  • Increased fiscal stimulus thanks to tax cuts and increased government spending
  • Estimated double-digit earnings growth throughout 2018*
  • Still low interest rates, relative to historical averages

The bottom line is that wavering market sentiment can last over a period of weeks (or months). And although you should never be dismissive of risk, the fundamentals may win out. Back in 2015, there were low interest rates but economic growth was slowing and earnings were weakening. Now, we have strong profits and coordinated global growth to support the recovery process.

Market declines and alarming headlines are always going to grab our attention. But that’s when I encourage you to remain focused on the underlying factors that have a longer-term impact on the markets and economy. These factors suggest that the market has the potential to weather this bout of volatility, and we may see positive stock market returns for the year.

If you have any questions, I encourage you to contact me.

Important Information

*LPL Research’s S&P 500 Index total return forecast of 8–10% (including dividends), is supported by a largely stable price-to-earnings (PE) ratio of 19 and LPL Research’s earnings growth forecast of 8–10%. Earnings gains are supported by LPL Research’s expectations of better economic growth, with potential added benefit from lower corporate tax rates.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. 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.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC. Tracking #1-716923

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LPL Ranks #1 in Customer Loyalty in 2018

The most meaningful measure of how well we’re serving our clients is whether we exceed their expectations in delivering the value and commitment they need to pursue their life and financial goals.

That’s why I wanted to share with you the news that LPL and its affiliated advisors, including Cornerstone Wealth Management, were recently ranked No. 1 in customer loyalty among 21 leading financial distributor firms. It means a great deal for us to be part of a network that’s a recognized industry leader in providing quality personal service—and it’s an even greater honor that LPL has risen in these rankings in each of the past three years.

The rankings were among the findings in Investor Brand BuilderTM, a Cogent ReportsTM study released by Market Strategies International, in which 4,408 affluent investors nationwide were surveyed.*

The study explored the key aspects of client experience that drive investor loyalty. On each of the top 5 drivers of investor loyalty, LPL earned No. 1 rankings by exceeding client expectations in the following areas:

  • Quality of investment advice
  • Financial stability
  • Easy to do business with
  • Range of investment products and services
  • Retirement planning services

In addition, LPL ranked No. 1 in the likelihood of its investors recommending the firm and its advisors to their friends, families, and colleagues.

As an advisors affiliated with LPL Financial, I we are proud of this recognition by investors of the value of the objective financial advice we offer to help clients pursue their goals, and of the innovative products and services our affiliation with LPL allows us to provide access to.

I appreciate the opportunity to partner with you, and I look forward to our continued work together. Thank you for your business.

This letter was prepared by LPL Financial LLC. This is not a recommendation to purchase, or an endorsement of, LPL Financial stock. LPL Financial and Cogent are unaffiliated entities.

*Market Strategies International, Cogent Wealth Reports, “Investor Brand Builder™: Maximize Purchase Intent Among Investors and Expand Client Relationships,” November 2017.

ABOUT THE REPORT: Market Strategies International’s Cogent Wealth Reports: Investor Brand Builder™ provides a holistic view of key trends affecting the affluent investor marketplace. The November 2017 report is based on a web survey of over 4,000 affluent investors, who hold $100,000 or more in investable assets. A total of n=82 LPL advisor clients were represented in the study. Customer Loyalty is based on how likely the participant would recommend each of their investment account companies to friends, family, or colleagues. Participants also evaluate their investment account companies using a 5-point rating scale across 10 aspects of client experience.