As stocks rallied 30% off the March 23 lows and earnings expectations were cut dramatically, valuations have become increasingly concerning for many investors (including some high-profile hedge fund managers being quoted in the financial press).

As shown in the LPL Chart of the Day, the forward (next 12 months) price-to-earnings (PE) multiple for the S&P 500 Index recently eclipsed 20, which is overvalued based on historical averages and at the highest level since the tech bubble in the late 1990s.

While stocks look expensive on this metric—one of the reasons why we expect a correction of perh

Gold has done quite well so far in 2020, up more than 12% year to date versus the S&P 500 Index which is down about 10%. We started to warm to the yellow metal late last year and continue to think it can serve as a potential hedge in a well-diversified portfolio for suitable investors.

“From COVID-19, to massive monetary stimulus, to historically lower yields, to potentially negative fed funds rates down the road, there are many reasons to think gold could continue its recent strength,” explained LPL Financial Senior Market Strategist Ryan Detrick.

As shown in the LPL Chart of the Day, gold based for

Like most major segments of the bond market outside Treasuries, mortgage-backed securities (MBS) experienced increased market stress as global COVID-19 containment efforts accelerated. And, like most major segments of the bond market, market stress declined after the Federal Reserve (Fed) stepped in, which included renewed MBS purchases.

Despite the market volatility, MBS were relatively resilient. As shown in the LPL Chart of the Day, while MBS spreads did widen the most since the financial crisis in March, they have returned to close to their long-term average and were not nearly as volatile as corporate spreads.

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