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Global Portfolio Strategy | December 1, 2021

Key changes from November’s report:

  • Downgraded materials sector view from positive to neutral
  • Upgraded view on Treasury securities from negative to neutral

Stocks fell slightly in November, as the S&P 500 lost 0.8% for the month. For much of the month, stocks benefited from evidence of a strong rebound in economic activity during the fourth quarter, solid third quarter earnings results, fiscal stimulus, and generally stable interest rates, though gains were erased late in the month on COVID-19 variant fears.

Our year-end 2021 S&P 500 fair value target range remains 4,650—4,700, based on a price-to-earnings ratio (PE) of 21.5 and our 2022 earnings per share (EPS) estimate of $218. We expect the 10-year Treasury yield to end the year between 1.50%—1.75% and rise slightly next year. Primary risks include another COVID-19 wave in the U.S., lockdowns in Europe, prolonged supply chain disruptions, elevated inflation, higher interest rates, and geopolitics.

Against this backdrop, LPL Research continues to believe that tactical investors should tilt portfolios in favor of stocks over bonds relative to their respective targets.


  • We favor stocks over bonds based on our expectation for strong economic growth through year-end, continued solid earnings momentum, and still-low interest rates.
  • We expect cyclical value stocks to outperform their growth counterparts near-term as economic growth picks up
  • Our materials downgrade reflects slower growth in China, the strong U.S. dollar, and recent deterioration in relative strength, while the postpandemic pickup in global growth is being delayed by Europe’s wave of COVID-19 and may be delayed further by the Omicron variant.
  • § Our positive views of small and midcaps are supported by the early-stage bull market and economic expansion, strong earnings, and healthy merger and acquisition environment.
  • § China’s slowdown amid its regulatory crackdown supports our cautious view of emerging markets (EM).
  • § We continue to recommend a slight underweight allocation to fixed income as higher rates may put some pressure on bond returns.
  • Although we’ve seen a move slightly higher in yields recently, reduction of Federal Reserve (Fed) policy support and a strengthening global recovery may push yields still higher in the months ahead.
  • We have upgraded our Treasuries view. As interest rates have moved off last year’s record lows, we no longer think a max underweight to Treasury securities is warranted. While yields may move modestly higher from current levels, the biggest moves may have already occurred.

Click here to download a PDF of this report.


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. Mortgagebacked 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 bondmutual fund. Credit ratings are published rankings based on detailed financial analyses by a credit bureau specifically as it relates to 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.

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.

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-toearnings 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

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 Financial affiliate, please note LPL Financial makes no representation with respect to such entity. Not Insured by FDIC/NCUA or Any Other Government Agency

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