Boston, MA - June 27, 2014 - At this year's halfway point, LPL Financial Research is pleased to offer the Mid-Year Outlook 2014: Investor's Almanac Field Notes containing key observations and updates to their outlook for 2014. Similar to a farming almanac, LPL Financial Research's Investor's Almanac is a publication containing a guide to patterns, tendencies, and seasonal observations important to growing. The goal of farming is not merely to grow crops, but to sustain living things-investing shares the same goal.
As LPL Financial Research expected, markets in 2014 have been less influenced by politics and policymakers than in 2013 and more dependent upon growth. Growth is an essential characteristic of all living things, and in 2014, growth is vital to LPL Financial Research's outlook for the economy and markets. LPL Financial Research's notes from the field contain these key observations and reaffirm their forecasts:
After an extreme winter weather-induced slowdown in the first quarter, the U.S. economy began to thaw with the warmer temperatures in the spring. LPL Financial Research continues to believe U.S. economic growth is on track to accelerate by about 1 percent over last year, owing to the return of business spending and the elimination of the drag from fiscal policy. As a result, the Federal Reserve (Fed) is likely to continue to taper its bond purchases and end its bond-buying program in the fall, leaving rate hikes on the calendar for some time next year.
Stocks spent the winter months dormant, but emerged in the spring rising to new highs and producing a gain of about 6 percent by early June-halfway to LPL Financial Research's target range of 10-15 percent for the full-year of 2014.* Historically double-digit gains are typical for years in the middle stage of the economic cycle. The current mid-cycle environment has even produced double-digit gains in four of the past ten quarters. Critical to LPL Financial Research's outlook, earnings for S&P 500 Index companies are on track for 5-10 percent growth-with 6 percent achieved in the relatively weak first quarter. Confidence in the durability of growth may contribute to a slight rise in valuations and, along with earnings growth, may potentially generate a low double-digit gain for stocks in 2014.
Opportunities in the bond market have become scarce. Yields are unattractive and gains are not likely in the second half. LPL Financial Research finds fewer sectors attractive than at the beginning of the year. LPL Financial Research expects yields to rise in the second half of 2014, as global growth strengthens and inflation picks up from the low point in the first half.
The primary risk to LPL Financial Research's outlook, the possibility that better growth in the economy and profits do not develop, has gained even sharper focus as we move from the threshold of the new year into the midst of 2014. That risk is likely to be more significant in the second half of the year than the distractions posed by the end of the Fed's bond-buying program and the mid-term elections.
About LPL Financial Research LPL Financial Research is the in-house investment advice provider for all advisors who leverage the LPL Financial Research platforms. Our mission is to be a trusted partner to our advisors who provide investors with choices to help meet their financial goals. We provide market, investment management, and due diligence advice. Our Outlook publications, produced twice annually, serve as the backdrop for all of our investment recommendations and communications efforts for the rest of the year.
About LPL Financial
LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA), is the nation's largest independent broker/dealer (based on total revenues, Financial Planning magazine, June 1996-2014), an RIA custodian, and an independent consultant to retirement plans. LPL Financial offers proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 13,700 financial advisors and more than 720 financial institutions. In addition LPL Financial supports approximately 4,500 financial advisors licensed with insurance companies by providing customized clearing, advisory platforms and technology solutions. LPL Financial and its affiliates have more than 3,000 employees with primary offices in Boston, Charlotte, and San Diego. For more information, please visit www.lpl.com.
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Economic forecasts set forth may not develop as predicted.
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.
Stock investing involves risk including loss of principal.
LPL Financial, Member FINRA/SIPC
*As noted in our 2014 Outlook, The Investors Almanac, the stock market may produce a total return in the low double digits (10-15 percent). This gain is derived from earnings per share (EPS) for S&P 500 companies growing 5-10 percent and a rise in the price-to-earnings ratio (PE) of about half a point from just under 16 to 16.5, leaving more room to grow. The PE gain is due to increased confidence in improved growth allowing the ratio to slowly move toward the higher levels that marked the end of every bull market since World War II (WWII).