The S&P 500 index has seen impressive expansion in operating margins in recent years. Rolling back the clock, operating margins for the index averaged ~11.4% from 1991 through to 2009, with highwater marks set during the 90s and early 2000s notably below more recent averages. Structural drivers of expanding margins in the 90s included globalization, technology adoption, and the financialization of corporate America. Globalization allowed U.S. multinationals to shift labor-intensive manufacturing to lower-cost jurisdictions, compressing cost of goods sold while maintaining pricing power in domestic and developed markets. Supply chains beca

Friday’s slightly hot Consumer Price Index (CPI) report lifted the bond market’s odds of a rate hike from the Federal Reserve (Fed) this week to near 90%. The positive reactions from stocks and bonds were interesting, suggesting that perhaps market participants have been more worried about rate hikes than they should have been (though the S&P 500 is only about 2% off its all-time high). In this week’s Weekly Market Commentary, we explain how this market reaction makes sense based on history, provide perspective on the latest move up in rates, and share some reasons why the economy is more resilient in the face of rising

A compelling multi-year track record does exactly what it is supposed to do. It attracts attention, and ultimately garners inflows of new capital. This is not a criticism of successful managers but rather a description of the investment industry cycle. However, once new investor flows begin to arrive in size, the strategy that produced the track record and the strategy that is now being managed can shift dramatically.

The change is rarely, if ever, announced but instead tends to show up in small, defensible adjustments:

1. Position sizes that quietly grow to accommodate a larger asset base
2. Holdings that are added s

With so much attention focused on what the Federal Reserve (Fed) might do at its policy meeting next week, it’s a good time to look back at history to get a sense of how stocks might respond should the Fed hike rates as the market (barely) expects. LPL Research had been characterizing the rate decision as a coin flip until Chair Warsh’s hawkish comments at the Jackson Hole meeting and the strong August jobs report released last week. With the Fed fund futures market pegging the odds of a hike at 61% currently, we now believe the odds do, ever so slightly, favor a hike.

To get a sense of how stocks might react if the F