Portfolio Compass | September 19, 2019


  • Upgraded short-maturity municipal bonds from neutral/negative to neutral


  • We have maintained our S&P 500 Index year-end fair value target of 3,000, even after the index broached that target September 17.*
  • We favor large caps as the business cycle ages, though recent small cap strength suggests large cap leadership may have been stretched.
  • We recommend balanced style exposure. Relative valuations, higher interest rates, and rising oil prices favor value stocks, but the Federal Reserve (Fed) rate-cutting environment and slowing economic growth favor growth.
  • We expect a U.S.-China trade deal late this year or in early 2020, but the risk of a more prolonged conflict has risen. Still, valuations and economic growth favor emerging markets over developed foreign markets.
  • Slower but still solid economic growth and modest inflation may put upward pressure on yields, but trade uncertainty and the global appetite for U.S. Treasuries increase the likelihood they remain range bound.
  • We emphasize a blend of high-quality intermediate bonds, with a preference for investment grade corporates and mortgage-backed securities (MBS) over Treasuries, in suitable strategies. MBS provides a diversifying source of yield within the investment-grade space, while economic growth is supportive of investment grade corporates. High-yield corporates could become an alternative to equities on a risk-adjusted basis.
  • Following a strong month, the S&P 500 is back near all-time highs and importantly has seen strong participation from cyclicals and small caps, two areas of the market that have struggled for much of the past year. Breadth has been strong, and sentiment remains restrained, supporting a bullish technical bias for U.S. equities.

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All performance referenced is historical and is no guarantee of future results.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies.

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.

Stock and Pooled Investment Risks

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

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.

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.

The prices of small and mid cap stocks are generally more volatile than large cap stocks.

Bond and Debt Equity Risks

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Alternative Risks

Event-driven strategies, such as merger arbitrage, consist of buying shares of the target company in a proposed merger and fully or partially hedging the exposure to the acquirer by shorting the stock of the acquiring company or other means. This strategy involves significant risk as events may not occur as planned and disruptions to a planned merger may result in significant loss to a hedged position.

Managed futures strategies use systematic quantitative programs to find and invest in positive and negative trends in the futures markets for financials and commodities. Futures and forward trading is speculative, includes a high degree of risk that the anticipated market outcome may not occur, and may not be suitable for all investors.


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.

The Bloomberg Barclays U.S. Municipal Bond Index covers the U.S. dollar-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

This Research material was prepared by LPL Financial, LLC.

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