Stocks have come a long way since the S&P 500 bear market low way back on March 23, 2020, but despite the general strength of the bull market we’ve seen two very different types of trades leading markets at different times. They include a “work-from-home” trade characterized by strength among large caps and growth-style oriented stocks, strong performance by U.S. stocks in particular, and well contained interest rates. At other times, we’ve seen a “reopening trade,” where mid- and small-cap stocks have performed well, cyclically-oriented value-style stocks have led, interest rates have pressed higher, a

LPL Research is downgrading its 2021 U.S. GDP growth forecast from 6.25–6.75% to 5.75–6.25%. Growth is likely to come in at an annualized pace near 5% over the second half of the year. So, while expectations have been tempered, the recovery still has a lot of momentum, which is likely to extend well into 2022. In 2022 we may see economic growth exceed potential, creating a Z-shaped recovery— something we haven’t really seen since the early 1970s. What is a Z-shaped recovery and what might it mean for the Federal Reserve (Fed), inflation, and markets? We attempt to answer those questions below.

Early in the

Index Performance

U.S. and International Equities

Major U.S. Markets Finished higher while International Markets Selloff

The major markets finished the week higher, with the Dow Jones Industrials leading the averages. Moreover, US small caps have been a leader for the last rolling one month time frame.  LPL Research continues to be positive on small caps amid strong earnings growth prospects and rising earnings estimates, supporting valuations which appear reasonable.  Emerging markets, as represented by the MSCI EM Index, continue to be the largest detractor on the back of increased risk of Chines

Until recently, we expected the 10-year Treasury yield to end the year between 1.75% and 2.0%. Now, however, there are two key elements suggesting we are unlikely to see significantly higher interest rates by year end: The Delta variant’s impact on economic growth expectations, and the continued demand for U.S. Treasuries by foreign investors. As such, our new year-end target for the 10-year Treasury yield is between 1.50% and 1.75%.  

Coming into the year, and into our 2021 mid-year outlook, we expected Treasury yields would move higher than current levels. Higher inflation expectations, less involvement in the b