Mid Year Outlook 2016: A Vote of Confidence

As we embark on the second half of 2016, the headlines and much of our attention will be focused on the 2016 presidential election, which can distract us with the barrage of promises and heightened political drama. Against that backdrop, however, LPL Research continues to encourage investors to remain focused on their long-term investment plans.

LPL Research proposes a vote of confidence in the economy, the market, and most importantly, in our ability as investors to remain focused on our long-term goals. This is not always easy; but a vote of confidence means having the belief that someone or something has the ability to succeed. It is more than being positive or negative, a bull or a bear. It is about trusting our assessments of the opportunities — and risks — that may lie ahead, formulating a solid investment plan, and sticking with it through the ups and downs we may face in the coming months and beyond.

LPL Financial Midyear Outlook 2016

U.S. Economy: 2–2.5% GDP

For the first half of 2016, the U.S. economy — as measured by real gross domestic product (GDP) — is on track to grow at around 2.0%. Looking out into the second half of the year, aided by a dollar tailwind, stable oil prices, steady consumer spending, record high household net worth, and a slowing, but still solid labor market, the U.S. economy may grow between 2.0% and 2.5%.

Stocks: Mid-Single-Digit Returns

LPL Research continues to expect mid-single-digit returns for the S&P 500 in 2016, consistent with historical mid-to-late economic cycle performance.LPL Research expects those gains to be derived from mid- to high-single-digit earnings growth over the second half 2016, supported by steady U.S. economic growth and stability in oil prices and the U.S. dollar.

LPL Financial Midyear Outlook 2016
LPL Financial Midyear Outlook 2016

Bonds: Low- to Mid-Single-Digit Returns

LPL Research has increased their full-year 2016 total return forecast for high-quality bonds to a low- to midsingle- digit total return, up from flat. A reduced number of Fed rate hikes, continued aggressive policy easing by overseas central banks, and below-trend economic growth translate to a more supportive backdrop for bonds globally; but LPL Research expects limited bond returns over the second half of 2016.

Midyear Outlook 2016

This has been a volatile year thus far, leaving some to question the continued strength for the second longest bull market in history. But having a vote of confidence means having the belief that someone or something has the ability to succeed. It is about trusting our assessments of the opportunities — and risks — that may lie ahead, formulating a solid investment plan, and sticking with it through the ups and downs we may face in the coming months and beyond.

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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 security. 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.
Economic forecasts set forth may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.

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.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, market and interest rate risk.
Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate, and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non diversified portfolio. Diversification does not ensure against market risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

The S&P 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.