Global Portfolio Strategy | May 11, 2020

Investment Takeaways

As May began, investors continued to try to reconcile the strong rebound in stocks with the devastating economic damage from COVID-19. Given the strength of the rally since the March lows, in our view, the risk of a correction in the short term has risen, supported by our Road to Recovery Playbook. Our intermediate- to long-term outlook for stocks remains positive.

  • Our equities recommendation remains overweight. Optimism around the re opening of the US and global economies, coupled with massive fiscal and monetary stimulus, suggest a full retest of the March 23 lows may be unlikely. At the same time, however, stocks may be pricing in a V-shaped recovery that may be difficult to achieve, and a pullback appears likely.
  • Our year-end 2020 fair value target for the S&P 500 Index of 3,150–3,200, based on a price-toearnings multiple (PE) of 19 on $165 in normalized index earnings per share (EPS), in our view is reasonable, although the timing around achieving that level of earnings is very uncertain.*
  • We favor large cap stocks for their greater potential resilience during the recession and recommend balanced exposure between 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 we find attractively valued relative to developed markets.
  • Our fixed income view remains underweight. While Federal Reserve (Fed) policy and current economic uncertainty may limit the risk of yields moving substantially higher, a likely second-half economic recovery may continue to support riskier assets as we look out a full year.
  • We favor a blend of high-quality intermediate bonds with a modest underweight to US Treasuries and an emphasis on short-to-intermediate maturities with sector weightings tilted toward mortgage-backed securities.
  • We have downgraded our views of the financials and industrials sectors and upgraded our consumer staples view to better position our lineup for the challenging near-term economic environment.
  • We have upgraded our mortgage-backed securities (MBS) view from neutral to positive. Fed buying is expected to be supportive, risk from increased refinancing has receded, and spreads have not compressed as much as they did during previous periods of quantitative easing (QE)

Key changes from April’s report: Upgraded consumer staples from negative to neutral; downgraded financials and industrials from positive to neutral.

Broad Asset Class Views: LPL Research’s Views on Stocks, Bonds, and Cash

Our Asset Class & Sector Choices

2020 Market Forecasts
COVID-19 Creates Significant Earnings and Interest Rate Uncertainty

2020 Economic Forecasts
COVID-19 May Have Sparked a Global Recession

Click here to download a PDF of this report.



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.

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.

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

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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