Global Portfolio Strategy | A Bridge to the Other Side | April 9, 2020

Investment Takeaways

We continue to follow our Road to Recovery Playbook to determine where we are in the stock market’s bottoming process. We believe the proces is well underway, and we anticipate having visibility into a peak in COVID-19 cases soon—our key to stocks establishing a durable bottom. Bold fiscal and monetary stimulus will help bridge the economy to the other side, though the recent bounce has left the near term risk-reward less attractive.

  • We believe stocks may be approaching a near-term low. Our bear case has the S&P 500 Index potentially hitting 2,200 before recovering in the second half of the year as the COVID-19 containment efforts bear fruit and economic activity can resume.* Equities View: Overweight
  • Our year-end 2020 fair value target on the S&P 500 of 3,150–3,200, based on a price to earnings (P/E) ratio of about 18 and the S&P 500 reaching normalized earnings potential in 2021 at around a $175 per share run rate, depends on the pandemic peaking in the United States in April and economic activity beginning a gradual recovery to something close to pre-crisis trends by year-end.*
  • We favor large cap stocks for their greater potential resilience during the recession and recommend balanced exposure between the growth and value styles in equity allocations where suitable.
  • China has led the way out of the global crisis and supported emerging market equities, which remain attractively valued relative to developed markets and should return to pre-crisis economic growth rates before Europe, Japan, or possibly the United States.
  • The Federal Reserve’s (Fed) comprehensive response to the crisis, including a near zero policy rate and open-ended bond purchases, may limit any upward movement in yields. Fixed Income View: Underweight.
  • We favor a blend of high-quality intermediate bonds with a modest underweight to US Treasuries and an emphasis on short-to-intermediate maturities.
  • While valuations from riskier bond sectors have become very attractive, we think there may be more opportunities in equities. We have downgraded our view of high-yield bonds to negative, but we believe they may still have value for more income-oriented investors who can tolerate the added risk.

Our Asset Class & Sector Choices

2020 Market Forecasts

2020 Economic Forecasts

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This material has been prepared for informational purposes only, and is not intended as specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors and they do not take into account the particular needs, investment objectives, tax and financial condition of any specific person. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing. Any economic forecasts set forth may not develop as predicted and are subject to change.

Stock investing involves risk including loss of principal. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Value investments can perform differently from the market as a whole and can remain undervalued by the market for long periods of time. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. Bonds are subject to market and interest rate risk if sold prior to maturity.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Corporate bonds are considered higher risk than government bonds. Municipal bonds are subject to availability and change in price. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

Credit Quality is one of the principal criteria for judging the investment quality of a bond or bond mutual fund. Credit ratings are published rankings based on detailed financial analyses by a credit bureau specifically as it relates the bond issue’s ability to meet debt obligations. The highest rating is AAA, and the lowest is D. Securities with credit ratings of BBB and above are considered investment grade. Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. It is expressed as a number of years.

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

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.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

For a list of descriptions of the indexes referenced in this publication, please visit our website at

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