Global Portfolio Strategy | August 11, 2020

Stocks continued to rally in July despite elevated COVID-19 cases in many US states and globally, as well as evidence that the economic recovery was leveling off based on high-frequency economic data. Low interest rates amid ongoing massive stimulus and optimism surrounding vaccine prospects helped push stocks higher. Credit-sensitive bond sectors continued to perform well, but rate sensitivity was also rewarded as US Treasury yields drifted lower.


  • Upgraded materials sector stocks from neutral to positive
  • Downgraded financials stocks from neutral to negative


  • Our equities recommendation remains overweight. Although we continue to believe markets may be pricing in an overly optimistic economic recovery scenario and a pullback may be overdue, we continue to favor stocks over bonds in a low-rate environment and on prospects for an end to the pandemic within our investment time horizon of 6 to 12 months.
  • Our year-end 2020 fair-value target for the S&P 500 Index of 3,250–3,300 is based on a price-to-earnings multiple (PE) near 20 on $165 in normalized index earnings per share (EPS), though we acknowledge achieving that level of earnings may take another 12 to 24 months. We have raised our 2020 forecast to $125–$130 per share from $120–$125.
  • We maintain our preference for large cap stocks for their relatively stronger financial positions as the economy faces a challenging road back to pre-pandemic levels of activity.
  • ƒ Despite significant outperformance during the pandemic and elevated valuations, we continue to believe growth stocks are better positioned for the economic recovery, which we expect to be more restrained in the second half of the year.
  • The relative strength of China’s economy, a weakening US dollar, and low valuations enhance the attractiveness of emerging market equities, which we continue to favor over equities in developed international markets.
  • Our fixed income view remains underweight. While Federal Reserve (Fed) policy and current economic uncertainty may limit the risk of yields moving substantially higher, a likely second-half economic recovery may continue to support riskier assets going out a full year.
  • We favor a blend of high-quality intermediate bonds with a modest underweight to US Treasuries and an emphasis on short-to-intermediate maturities with sector weightings tilted toward mortgage-backed securities (MBS).

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This material has been prepared for informational purposes only, and is not intended as specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors and they do not take into account the particular needs, investment objectives, tax and financial condition of any specific person. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing. Any economic forecasts set forth may not develop as predicted and are subject to change.

Stock investing involves risk including loss of principal. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Value investments can perform differently from the market as a whole and can remain undervalued by the market for long periods of time. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. Bonds are subject to market and interest rate risk if sold prior to maturity.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Corporate bonds are considered higher risk than government bonds. Municipal bonds are subject to availability and change in price. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield. Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

Credit Quality is one of the principal criteria for judging the investment quality of a bond or bond mutual fund. Credit ratings are published rankings based on detailed financial analyses by a credit bureau specifically as it relates the bond issue’s ability to meet debt obligations. The highest rating is AAA, and the lowest is D. Securities with credit ratings of BBB and above are considered investment grade. Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. It is expressed as a number of years.

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

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. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

All index data from FactSet.

For a list of descriptions of the indexes referenced in this publication, please visit our website at

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