Inflation Upticks Likely Transitory

Inflation Upticks Likely Transitory

March 29, 2021
Share |

Are We on the Brink of an Inflation Crisis?

LPL Research explains why any upticks in inflation will ultimately prove transitory in this week’s Weekly Market Commentary, available at 1 p.m. ET.

Daily Insights

U.S. stocks open lower as investors digest the impact of leveraged trades

  • European markets are mixed in midday trading with the United Kingdom the lone decliner.
  • Asian stocks were mostly higher despite unwinding of leveraged technology trades that lead to broad based pressure last week.

A humble victory lap

It’s been just under a year since we upgraded our equity recommendation from neutral to overweight.

  • While the timing of our recommendation allowed us to capture the bulk of the strongest rally from a bear market low for the S&P 500 Index in history, investing is a challenging endeavor that requires consistent discipline as markets always find a way to challenge its participants.
  • We take a closer look at the historic rally and our asset allocation recommendations in today’s LPL Research blog, available at 12pm ET.

LPL Financial closed on Friday, April 2, 2021

LPL Financial will be closed along with stock and bond markets for the observation of Good Friday. There will be no Morning Call, Daily Market Update or blog post.

Leveraged trades at the source of last week’s weakness

  • The unwinding of nearly $20 billion in holdings linked to a hedge fund garnered attention over the weekend, and is being cited as the primary driver of weakness in Chinese technology and U.S. media stocks last week.
  • Adding to the calamity, the trades were executed via derivative securities, creating indirect exposure to certain stocks while allowing the buildup of significant positions without conventional disclosure of the trades.

New Highs

  • In the face of many growing worries, stocks climbed to new all-time highs yet again on Friday. In fact, it was the 15th new high of 2021 for the S&P 500 Index.
  • As the chart below shows, new highs tend to happen in clusters that can last a decade or more.
  • We continue to believe we are in a secular bull market, similar to secular bulls from the ‘50s/’60s and ‘80s/’90s bull markets, suggesting potentially years left of gains for stocks this time around.

View enlarged chart.

Week ahead

The following economic data is slated to be released this week:

  • Tuesday: S&P/Case-Schiller Home Price Index (Jan.), Consumer Confidence (Mar.)
  • Wednesday: Pending home sales (Feb.)
  • Thursday: Weekly initial and continuing claims, Institute for Supply Management (ISM) Manufacturing index (Mar.), construction spending (Feb.)
  • Friday: Domestic auto sales (Mar.), labor statistics and payroll data (Mar.), unemployment report (Mar.)

Technical update

A furious late afternoon rally on Friday propelled the S&P 500 to a new all-time closing high. Stocks are giving up some, but not all of those gains in early trading today. Last Thursday’s intraday low at 3853 can be viewed as the first tactical support level for the S&P 500.

COVID-19 news

The United States reported 45,000 new COVID-19 cases on Sunday, up 33% from the Sunday prior (source: New York Times). https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

  • Over the past week, cases rose 16% compared to the previous week, marking a stark acceleration from the 1% weekly rate of change before.
  • Case growth remains most prominent in northern states such as Michigan and New Jersey.
  • Cases are still rising in Western Europe despite increased restrictions, with France still suffering the worst outbreak.
  • The B117 variant has been cited as the likely driver of new case growth, though vaccination efforts remain robust which may limit the rate growth.

4 Things That Really Matter For Stocks in 2021

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss four things that matter the most for stocks in 2021.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any 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.

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

All index and market data are from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use – Tracking # 1-05127153