“Though the volatility has been uncomfortable, it’s normal for U.S. stocks to endure periodic pullbacks,” said LPL Research Chief Investment Strategist John Lynch. “These experiences typically provide opportunities for suitable investors to rebalance, diversify portfolios toward targeted allocations, or to add to equity positions based on what we see as a generally favorable macroeconomic environment.”

Stocks’ recent sell-off has been especially brisk. Just 10 days ago on July 26, the S&P 500 reached a new all-time high, bolstered by Federal Reserve (Fed) rate cut hopes, improving economic data, and cooling trade tensions. Since then, the Fed’s rate cut and messaging wasn’t met with investor enthusiasm, the United States threatened tariffs on $300 billion in Chinese goods, and China pulled prior commitments to purchase U.S. agriculture goods. In addition, China’s central bank let its currency (the yuan) fall below the key 7 per dollar level that some view as a line in the sand relative to currency manipulation.

The fundamental picture for stocks hasn’t really changed, though. Economic growth has exceeded expectations, inflation and interest rates are low, and second quarter earnings have been better than expected. Trade uncertainty continues to weigh on global markets, but tariffs haven’t significantly affected the domestic economy and the Fed has indicated willingness to loosen policy as needed. While there are still geopolitical risks, including trade, a review of all of the above fundamentals suggests to us that the odds of an imminent recession are quite low.

We’ll continue to watch the trade and front monetary policy, along with their impacts to the U.S. dollar, economic output and corporate profit growth. For now, though, we see few reasons that suggest this market pullback will result in anything more than a typical correction, and we maintain our belief that the S&P 500 is fairly valued in the range of 3,000 by year-end.

IMPORTANT DISCLOSURES

Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

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. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

This Research material was prepared by LPL Financial, LLC.

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