Key changes from August report:
- Downgrading emerging market (EM) equities view from neutral to negative
- Upgrading industrials view to neutral from negative.
- Downgrading consumer staples view to negative from neutral.
Stocks were unable to add to July’s gains as the S&P 500 Index lost 4.1% in August, bringing the index’s year to date loss to 16.1% as of August 31.
Federal Reserve (Fed) Chairman Jerome (Jay) Powell’s “short and not so sweet” message at the Kansas City Fed’s August 25 symposium in Jackson Hole, WY, was the primary reason for the monthly decline. The S&P 500 returned 2% from August 1 through August 25 before losing almost 6% the rest of the month after Powell’s Jackson Hole jolt. Recession fears continue to linger as markets adjust to a Fed that may keep rates higher for longer.
Core bonds, as measured by the Bloomberg Aggregate Bond index, lost 2.8% during the month as Treasury yields were steadily higher in August. Powell’s remarks as well as continued pockets of Treasury market illiquidity were the dominant drivers of higher yields during the month.
The Strategic and Tactical Asset Allocation Committee (STAAC) downgraded its view of emerging market (EM) equities in August. The modest reduction in EM equities accompanies an increase in U.S. equities.
The LPL Research S&P 500 year-end fair value target range remains 4,300— 4,400, based on a price-to earnings ratio (PE) of 18-19 and an earnings per share (EPS) forecast of $235 for 2023.
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All index data from FactSet.
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