We are at the midpoint of 2020, and it would be an understatement to say it’s been a challenging year so far in the United States and around the world. We’ve faced health, social, and economic crises that continue to impact our communities and our economy.
That is why we’re looking ahead for new ways to face these challenges together and to prepare now for better times. LPL Research’s Midyear Outlook 2020: The Trail to Recovery charts a path forward.
The stock market is forward-looking: It focuses on what’s happening today and what it sees on the path ahead. Much of the recent real-time economic data—such as transportation activity, home sales, and jobless claims—is showing tangible evidence that economic activity—while still depressed—has begun to make a comeback. The path of the economic recovery remains uncertain, but based on the deep impact and multi-staged recovery, LPL Research expects a 3–5% contraction in gross domestic product in 2020.
Already stocks are pricing in a steady economic recovery beyond 2020 that may be supported if we receive breakthrough treatments to end the COVID-19 pandemic. LPL Research’s 2020 year-end S&P 500 Index target range is 3,250–3,300, based on a price-to-earnings ratio (PE) of just below 20 and a normalized earnings per share (EPS) number of $165. However, the optimism showing in the S&P 500 Index now may limit the size of the gains over the rest of the year.
Turning to the bond market, LPL Research expects interest rates to head higher over the rest of 2020 but remain near historically low levels, with a year-end forecast of 1–1.5% on the 10-year US Treasury yield. If realized, this would be the lowest interest-rate level on record to end a year.
It’s still going to be a challenging environment with significant uncertainty that may lead to more volatility for the next few months, especially with the highly anticipated presidential election in November. It’s important for investors to continue to focus on the fundamental drivers of investment returns and their long-term financial goals.
LPL Research’s Midyear Outlook 2020 provides updated views of the pillars for investing—the economy, bonds, and stocks. As the headlines change daily, continue to look to these pillars as trail markers on your investment journey, and to the Midyear Outlook 2020 to help provide perspective on facing these challenges now and preparing to move forward together.
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.
All data is provided as of June 30, 2020.
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 index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.