Outlook 2017: Gauging Market Milestones

  In 2016, financial markets, the economy, and geopolitics experienced an unusual number of milestones. While markets are testing new directions, it’s easy to overemphasize change, putting a spotlight on uncertainty and playing up the worst case scenario. The way to assess the new dynamic is not to ask, “What’s broken?” or “What’s fixed?” but “How will businesses, markets, and the economy adapt?” Being prepared for 2017 is about gauging the milestones, understanding their significance, and responding without overreacting.

  The LPL Research Outlook 2017: Gauging Market Milestones, contains financial market forecasts, economic insights, and investment guidance for the year ahead. Some of LPL Research’s expectations for the upcoming year include:

•   Accelerating U.S. economic growth*. LPL Research expects the U.S. economy—as measured by real gross domestic product—may grow modestly to near 2.5% in 2017, after spending most of the seven‐plus years of the expansion averaging just over 2.1%. The potential growth lift is based upon expectations that rising business investment and fiscal stimulus may complement steady consumer spending. The details and timing of the passage of President‐elect Donald Trump’s proposals on taxes and infrastructure, and the speed of implementation will be important growth impact factors in 2017.

•   Mid‐single‐digit returns for the S&P 500**. LPL Research forecasts mid‐single‐digit returns for the S&P 500 in 2017, consistent with historical mid‐to‐late economic cycle performance. Gains will likely be driven by mid‐ to high‐single‐digit earnings growth and stable valuations (a stable price‐to‐earnings ratio of 18 – 19). In addition, LPL Research expects the current bull market to reach its eighth year. However, gains will likely come with increased volatility as the economic cycle ages further and interest rates may rise (bond prices fall), increasing borrowing costs and making bonds a more competitive alternative to stocks.

•   Limited bond return environment. LPL Research expects the 10‐year Treasury yield to end 2017 in its current range of 2.25–2.75%, with a potential for 3%. Scenario analysis based on this potential interest rate range and the duration of the index indicates lowto mid‐single‐digit returns for the Barclays Aggregate Bond Index. The recent rate hike shows the Federal Reserve may start gradually normalizing interest rates in earnest. Importantly, rising interest rates, along with a pickup in the pace of economic growth and inflation, will limit return potential.

  For additional insight, view the complete LPL Research Outlook 2017: Gauging Market Milestones.

This research material was prepared by LPL Financial, Member FINRA/SIPC.

Important Information

*Our forecast for GDP growth of 2.5+% is based on the historical mid‐cycle growth rate of the last 50 years. Economic growth is affected by changes to inputs such as business and consumer spending,

housing, net exports, capital investments, and government spending.

**Historically since WWII, the average annual gain on stocks has been 7–9%. Thus, our forecast is in‐line with average stock market growth. We forecast a mid‐single‐digit gain, including dividends, for U.S. stocks in 2017 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid‐ to high‐single‐digit earnings gains, and a largely stable price‐to‐earnings ratio (PE). Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2017.

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.

Economic forecasts set forth may not develop as predicted.

Outlook 2016: Embrace the Routine

A key to success, in life and investing, is juggling the familiarity and wisdom of old routines with the adjustments demanded by an ever-evolving world. As we look forward to 2016, the LPL Research team expects a return to routine for some key areas of the economy and market, but by a path that may catch some investors unprepared. Investors will need a solid plan to navigate the changing landscape as they adjust to changes like the start of Federal Reserve (Fed) rate hikes, a maturing economic cycle, and the 2016 elections. As a guide to revitalizing routines for 2016, we are excited to introduce the LPL Research Outlook 2016: Embrace the Routine, with financial market forecasts, economic insights, and investment guidance for the year ahead. Some of the expectations for 2016 include:

• U.S. economic growth of 2.5–3%.¹ The mix of that growth may look different than in 2015, with manufacturing, business capital spending, and net exports taking larger roles. Labor markets are almost back to long-term expectations, and inflation may be poised to accelerate. An extraordinary extended period of loose monetary policy in the United States should start to normalize.
• Mid-single-digit returns for the S&P 500.² Stocks, we believe, will not collapse, as many think, or soar, as many hope, but may offer near historical routine returns. Earnings may start to normalize, and oil markets should find their equilibrium. International markets may re-emerge as a more viable investing opportunity. But we are still in the second half of the economic cycle, and investors need to be vigilant about monitoring pockets of volatility and potential signs of an economic downturn.
• Limited returns for bonds. The year as a whole may look similar to 2015, with bond prices facing the challenges of high valuations, steady economic growth, and the prospect of interest rate hikes. Still, bonds play a vital role in investors’ portfolios to help with risk mitigation and diversification.

We believe LPL Research’s Outlook 2016 will help investors refresh, renew, and embrace their routines in the face of unexpected developments and a changing environment. By embracing new routines, investors will be able to focus on what matters most to markets, block out short-term distractions that will quickly fade, and seek to make progress toward long-term financial goals.

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

Sincerely,

Mark C. Gosselin 
General Securities Principal
Investment Consultant
1100 Nasa Parkway
Suite 420 Q
Nassau Bay, TX 77058
281 772 4416

mark.gosselin@lpl.com

LPL Financial, Member FINRA/SIPC

1  Our forecast for GDP growth of between 2.5–3% is based on the historical mid-cycle growth rate of the last 50 years. Economic growth is affected by changes to inputs such as: business and consumer spending, housing, net exports, capital investments, and government spending.

2  Historically since WWII, the average annual gain on stocks has been 7–9%. Thus, our forecast is in-line with average stock market growth. We forecast a mid-single-digit gain, including dividends, for U.S. stocks in 2016 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid- to high-single-digit earnings gains, and a largely stable price-to-earnings ratio (PE). Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.

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.

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 in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.

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.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

This research material has been prepared by LPL Financial LLC.

Securities offered through LPL Financial LLC. Member FINRA/SIPC.

Tracking # 1-444135 (Exp. 11/16)

2012 Mid-Year Outlook: What the Elections Hold for Investors

At the end of last year finding a middle ground, or Meeting in the Middle, was key for growth in the markets and economy. So far, this has been reflected in economic and market data. Notably, at this year’s midpoint, the gap between consumer confidence and leading economic indicators has narrowed about halfway.

However, when divergent rational facts and emotional feelings attempt to converge, it usually comes with some ups and downs. We have experienced this in the first half of 2012, with large upswings and dramatic downdrafts in market performance. We do anticipate that this volatility will persist for the rest of 2012—though it hopefully mellows a bit as we get some clarity around the November elections.

We continue to believe that:

§         The U.S. economy will grow about 2%, supported by soft sentiment and hard data continuing to converge.

§         The U.S. stock market will likely post high single-digit to low double-digit gains, backed by mid-to-high single-digit earnings growth.

§         Corporate bonds will post modest single-digit gains and outperform government bonds.

§         Policy-driven events will hold major consequences for investors.*

In our 2012 Outlook, we stated that the party that emerges in control following the November 2012 elections will forge the decisions that represent one of the biggest shifts in the federal budget policy since World War II. During the next several months, the elections will likely become an increasingly potent driver of the overall markets and particular investments as well as determine whether our expectations for the year come to fruition.

In our Mid-Year Outlook, we explore the potential investment impacts of policy and legislative changes resulting from the election. Our outlook over the second half of 2012 for the economy, the stock market, and the bond market are on track based on our 2012 Outlook forecasts. However, financial markets will react in anticipation of potential election impacts and influence stock and bond market performance. In the stock market, we continue to focus on sectors that derive more of their growth from more rapidly growing emerging markets and business spending. In the bond market, we continue to focus on higher yielding sectors that may outperform in a low-yield environment resulting from political uncertainty, sluggish economic growth, and ongoing risks from Europe.

This election can be broken down into many issues for analysis. We can think of these issues as campaign stops on our journey across the current political landscape. As we explore these issues, we will be making stops at the White House, Congress at the Capitol Building, and the Federal Reserve. We will head down Main Street to discuss the budget, move on to talk taxes in the town square, and then make a pit stop to talk about the sector impacts of policy changes on Wall Street. Finally, we will move on to Europe for the impact of the numerous elections on the second half of 2012.

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

Sincerely,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC

Important Disclosures

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

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

Tracking # 1-079551 | Exp. 6/13

Will the bull market last?

It seems like such a long time ago. American icons General Motors and Chrysler were getting bailouts, the big banks were being merged, and after a year and a half of steep losses we all were wondering if the stock market would ever stop falling.

Now, three years later, we marked the third anniversary of the bull market on March 9, 2012. And it hasn’t been just another bull market. This has been the strongest bull market since WWII, with the S&P 500 Index up a little over 100% in the past three years.

As the bull market enters its fourth year, many of us are questioning how far stocks will continue to climb after doubling in three years. Although the markets will likely renew the volatility that characterized much of the past three years, we believe the bull market will persist. What might spur on the bull for a fourth year?

· The confidence of consumers is rising. Retail sales have been posting solid gains. And, as a sign of improved confidence, consumers are beginning to borrow for the first time since the financial crisis and ensuing bear market.

· The employment picture is improving. The weekly total of first time filings for unemployment benefits has fallen to a four-year low. The U.S. continues to add approximately 200,000 private sector jobs each month, most recently in construction, health care, leisure and hospitality, and manufacturing.

· U.S. manufacturing trends are encouraging. One of the mainstays of U.S. manufacturing—the auto industry—is resurgent. Auto sales reached 15 million vehicles in February, the highest level since 2008. And U.S. vehicle production schedules look robust so far in 2012 as demand is helped by increasing access to credit and continuing consumer confidence.

These positive facts for the bull market are further supported by historical bull market performance. Six of the past seven bull markets since WWII lasted more than four years and the average return in year four of those bull markets has been a solid 12.7%.

Obviously, bull riding can be a rough, though potentially rewarding, experience. There are still areas of concern for investors– for example, high gas prices, slowing earnings growth and fiscal challenges. However, current trends and other positive U.S. economic data, all of which have been gaining momentum, could spur on the record-breaking bull market ride to a fourth year.

As always, please contact me with any questions.


Sincerely,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC





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


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 economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing involves risk including the risk of loss. 


The United States Census Bureau is a division of the federal government of the United States Bureau of Commerce that is responsible for conducting the national census at least once every 10 years, in which the population of the United States is counted. The Bureau of Census is also responsible for collecting data on the people, economy and country of the United States.


The Bureau of Labor Statistics is a government agency that produces economic data that reflects the state of the U.S. economy. This data includes the Consumer Price Index, the unemployment rate and the Producer Price Index.


The Bureau of Economic Analysis is a division of the U.S. federal government's Department of Commerce that is responsible for the analysis and reporting of economic data used to confirm and predict economic trends and business cycles. Reports from the Bureau of Economic Analysis are the foundation upon which many economic policy decisions are made by government, and many investment decisions are made in the private sector by companies and individual investors.


This research material has been prepared by LPL Financial. 


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Over the last four years, the market declined in excess of 2% in a single day around 100 times, more than any other four-year period since the S&P 500 Index’s formation in 1957. On the flip-side, the market also recorded a 2% or greater gain in a single day more than any other four-year period. While the last few years have been highlighted with record swings in market returns and widely oscillating economic data, we expect 2012 will be less about the fringes and more about the middle.

While moving away from the drastic extremes will be a welcome environment for whipsawed investors, the center offers its own distinct challenges and opportunities. In 2012, finding a middle ground, or Meeting in the Middle, is going to be key for growth in the markets and economy. We believe that:

• Soft sentiment and hard data find middle ground. We expect the U.S. economy to grow about 2%, while emerging markets post stronger growth and Europe experiences a mild recession. U.S. gross domestic product (GDP) is likely to produce below-average growth of about 2% in 2012, supported by solid business spending and modest, but stable, consumer spending.
• Stocks are supported by a converging outlook for earnings growth. The U.S. stock market is likely to post a high single-digit to low double-digit gain, supported by earnings growth and a boost from a slight improvement in valuations as the pessimistic outlook for profits reflected in the markets rise to converge with a slide in the lofty expectations for earnings projected by Wall Street analysts.
• The government and corporate bond yield gap narrows. The performance gap between government and corporate bonds reverses in 2012 with corporate bonds outperforming as they post modest single-digit gains as interest rates rise and credit spreads narrow. Bond yields may be volatile, but we expect them to rise over the course of the year, with the yield on the 10-year Treasury ending the year around 3%.
• Major policy-driven events will converge on the financial markets in 2012. We believe a mild recession emerges in Europe and the debt dilemma continues to grab headlines and move markets as will the outlook for growth and financial stress in China. In addition, the 2012 elections are likely to hold major consequences for investors. The party that emerges in control following the November 2012 elections will forge the decisions that will represent one of the biggest shifts in the federal budget policy since World War II.

Consumer sentiment, business leaders, policymakers and geopolitics are going to have a significant impact on the investment environment in 2012. While volatility is likely to remain elevated, the market and its economic backdrop may begin to migrate from the extremes toward a more normalized period where investor sentiment, economic activity and the market’s direction start to move increasingly in alignment.

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

Sincerely

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC
　
　Important DisclosureThe opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

Tracking # 1-026870 | Exp. 11/12

Volatility May Create Opportunity

The 84th Academy Awards nominations are to be announced in late January and many movie studios are now releasing their candidates for consideration. While there are many worthy contenders to win the Oscar for best picture of 2011, it is hard for any of them to match the action, intrigue, fireworks and scope of this year’s drama in Europe that has played out on small screens across the world. The swings in the plot have been matched by swings in the markets making for a challenging environment for investors.

European policymakers agreed on a script in late October that avoided a financial crisis, but Italian and Spanish bond yields continued to rise in November threatening to undermine the efforts to close budget gaps. The European Central Bank has been buying Italian and Spanish government bonds in an effort to stem the rise in yields. However, the recently elected governments in Italy and Spain must now follow through on mandates to adopt more stringent austerity measures to reduce their nations’ budget deficits in order to reverse the rise in yields and return to fiscal sustainability.

Investors were already fragile from the European debt concerns when their attention changed scenes to Washington in November and sentiment slumped further following the Super Committee’s failure to agree on budget deficit reduction measures which would avoid automatic cuts starting in 2013. The market’s skepticism over the ability of lawmakers to address U.S. fiscal imbalances means that inaction is likely already priced into valuations and any progress could provide a catalyst for a stock market rally. However, Congress must act soon to extend the payroll tax cut and unemployment benefits scheduled to expire at the end of 2011. The incentive to keep these stimulus measures intact ought to be strong, as they put money directly into consumers’ pockets which helps boost the U.S. economy.

Though the main stage is taken by European and U.S. government actions, behind the scenes, the U.S. economy has posted solid results most recently reflected in a blockbuster Thanksgiving weekend for retailers. Also, companies continue to generate positive earnings results. Nearly every S&P 500 company has reported third-quarter earnings results with 70% beating estimates—reflecting strong 18% earnings growth from a year ago. Importantly, the impressive results are not just a function of cost-cutting, as 60% of companies have also outpaced sales projections. This strong earnings growth coupled with declining stock market levels has resulted in valuations well below their historical average.

As life continues to imitate art, the drama and market volatility may continue. The European debt problems are likely to remain front and center and additional steps need to be taken. U.S. lawmakers must prove they can work together and act decisively by extending the payroll tax cut and expanding unemployment benefits. And, as business leaders feel greater assurance that the economic recovery is on firm footing, they must invest their record profits and stockpiles of cash in capital expenditures to grow their business and hire workers.

A positive fundamental backdrop and compelling valuations set the stage for investment opportunities. However, policymakers need to restore investor confidence. While it will take years to resolve the debt problems in Europe, as with the lingering subprime mortgage debt and housing problems in the United States, merely stabilizing the problem can allow markets and the economy to heal from the damage. The tagline for investors is: volatility may create opportunity. As always, if you have questions, I encourage you to contact me.

Sincerely,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC

　

Important Disclosure

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

Tracking # 1-026938 | Exp. 11/12 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

European Rescue Package

The European summit on October 26, the fourteenth in 21 months, finally produced a deal in a late-night negotiating session. European leaders announced a deal that was close to what had been carefully leaked over the prior weeks of deliberations and had helped the S&P 500 Index to rally off of the lows of the year. From the closing low on October 3, the Index has climbed nearly 17% in just three and a half weeks and is on pace for the largest monthly gain since 1987.

Overall, the statement confirms the view that the risk of a 2008-like financial crisis erupting in Europe, which has been the focus of global markets in recent months, has been taken off the table. However, over the long term, concerns remain about the outlook for economic growth in Europe and the ability of some peripheral countries to meet budget targets. While the statement does not clarify all the details, it does lay out the three most important aspects of the rescue package:

•  Reducing Greece’s debt. The package cuts Greece’s debt burden with a 50% “haircut” on Greek bonds. Private investors, including banks, will swap their Greek bonds for those with half the face value, but higher quality given an additional 30 billion euro cushion provided against further losses. 

• A bigger buffer against bank losses. Overall, European banks will be required to raise 106 billion euros to temporarily maintain a higher buffer against additional losses on their bond holdings. Banks will be given the opportunity to raise this capital on their own and plug any gaps with funding from their own government and the ability to tap the European Financial Stability Facility (EFSF) as a last resort. 

• Insurance against loss on European government bonds. The EFSF will provide guarantees against the first 20-25% of losses on about one trillion euros of European government debt. 

The concerns may be shifting from a crisis to a recession in Europe, as it is likely that Europe will experience a mild recession next year. However, European growth could be even weaker in light of the spending austerity and potential for less lending by the banks. The next step in a successful plan to stabilize Europe is for the European Central Bank to cut interest rates soon and reverse the two rate hikes they made earlier this year to promote growth and lending.

While the devil of the European plan remains in the details, the deal could shift investor focus to U.S. markets where economic growth and corporate profits continue to chug along. Third-quarter economic growth, as measured by gross domestic product (GDP), was recently reported at 2.5%, nearly double the pace of growth witnessed in the first two quarters of the year combined. Within the S&P 500, 75% of the companies that have reported third-quarter earnings thus far have exceeded expectations and the companies, in aggregate, are tracking to 15% year-over-year earnings growth, surpassing the 12-13% growth rate that was forecast. Given the current backdrop, we adhere to our forecast of a moderate upside from current levels for the S&P 500 Index in 2011, though we expect the market to remain volatile between now and year-end. As always, I encourage you to contact me with any questions.

Best regards,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

www.markgosselin.com

LPL Financial, Member FINRA/SIPC


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


The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.


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.


International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.


This research material has been prepared by LPL Financial. 


Tracking #1-018841 | (Exp.10/12)