Navigating The Markets

Compass Changes

• Upgraded energy commodities view to neutral/positive from neutral/negative.
• Upgraded energy sector to neutral from negative/neutral.

Investment Takeaways

• Our 2014 stock market return forecast remains for gains of 10 – 15% despite the recent increase in volatility, supported by continued near double- digit earnings gains in the second half.*
• Our recent downgrade to our foreign equities view reflected lackluster growth and structural impediments in Europe, despite bold actions from the European Central Bank (ECB).
• Our upgraded energy commodities view follows oil’s bear market decline to the low $80s, providing what we view as attractive valuations for the energy sector.
• A lower than benchmark weighting to bonds may be appropriate, as the yield does not compensate investors for the interest rate risk.
• A growth scare is driving strong demand for high-quality bonds, but a return to focus on fundamental data will likely reveal an economy that remains quite healthy and may reverse the recent surge.
• From a technical perspective, the S&P 500 is testing key support at the 200-day simple moving average; if support holds, there may be an opportunity to buy in on a dip at these levels.

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*As noted in our Outlook 2014: The Investor’s Almanac, the stock market may produce a total return in the low double digits (10-15%). This gain is derived from earnings per share (EPS) for S&P 500 companies growing 5-10% and a rise in the price-to-earnings ratio (PE) of about half a point from just under 16 to 16.5, leaving more room to grow. The PE gain is due to increased confidence in improved growth allowing the ratio to slowly move toward the higher levels that marked the end of every bull market since World War II (WWII).

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

Past performance is no guarantee of future results.

Stock investing involves risk including loss of principal.

Preferred stock investing involves risk, which may include loss of principal.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

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