With the release of the LPL Research Midyear Outlook 2024: Still Waiting for the Turn, in this week’s commentary we pull out key themes from the publication and add some context for our views given stocks have continued to rally — with Thursday a glaring exception as stocks sold off, somewhat surprisingly, after a good consumer inflation report.

LPL Research believes stocks have gotten a bit over their skis, but earnings season may not be the catalyst for a pullback in the near term given all signs point to another solid earnings season and stocks have mostly performed well during the peak weeks of reporting season in recent years.

Developments in artificial intelligence may be the antidote for an aging population, but it takes time for these advancements to work themselves into the fabric of our nation’s businesses. The impact of new developments can persist in markets, so investors need to carefully discern what could be different this time around.

Fed meetings have been important drivers of market performance, especially in the Treasury market.

Global markets will be monitoring the composition of the new cabinet and the introduction of the budget in July to ascertain that the Modi doctrine remains relevant, pro-business, and above all else, pro-India.

To say May was an eventful month for the market is an understatement. Investors navigated around the latter half of first-quarter earnings, a breakout to record highs for the broader market, elevated volatility across fixed income and currency markets, and a mixed bag of economic data — not to mention elevated political uncertainty stemming from the conviction of former President Donald Trump. Overall, markets shrugged off political uncertainty, bad economic data was mostly taken as good news for stocks by reviving hope for interest rate cuts, while good news helped write the goldilocks narrative of economic conditions being just right.

The first quarter earnings season is largely in the books, and it was excellent. In fact, S&P 500 earnings per share (EPS) would have been up double digits in the quarter if not for a big loss Bristol Myers Squibb (BMY) absorbed in an acquisition.

Since millions of homeowners refinanced mortgages to extremely low rates a few years ago, the economy is less sensitive to interest rate policy. In fact, the Jackson Hole Economic Policy Symposium sponsored by the Kansas City Federal Reserve in August will debate the effectiveness and transmission of monetary policy because of these post-COVID-19 dynamics, likely revealing important investment implications.

It continues to be a challenging environment for a lot of fixed income markets, especially higher quality markets. With the Federal Reserve (Fed) seemingly unlikely to lower interest rates until after the summer months (at the earliest), the “higher for longer” narrative has kept a lid on any sort of bond market rally. And while falling interest rates help provide price appreciation in this higher-for-longer environment, fixed income investors are likely better served by focusing on income opportunities. That’s where preferreds come in. With yields still elevated relative to history, we think preferred securities are an attractive option for income-oriented investors.

With the Federal Reserve (Fed) pointing to higher-for-longer monetary policy last week (before Friday’s softer jobs report), we also explore how stocks perform during prolonged Fed pause periods.