LPL Research

Equities rose during the holiday-shortened week as investors digested several geopolitical and trade headlines alongside a mixed batch of key economic data.

U.S. economic data was mixed in August, reflecting the complicated macro economic environment in the midst of high trade uncertainty.

We lowered our 2019 earnings growth forecast for the S&P 500 Index on August 19 due to increased risk to economic growth and corporate profits from the ongoing trade conflict between the United States and China. Until we get clarity on trade, we believe earnings will likely continue to grow but only modestly.

Fundamentals of the U.S. economy remain solid even as trade uncertainty weighs on investor sentiment.

We recently reduced our year-end forecast range for the 10-year U.S. Treasury yield from 2.5–2.75% to 1.75–2%. This significant reduction reflects what we consider the many somewhat curious aspects of the domestic and global macroeconomic environments. Trade uncertainty, low inflation, geopolitical risks, monetary policy, and relative valuation all played a role in our decision. To be sure, delayed prospects for a U.S.-China trade agreement remain central to our economic and market projections in the coming months.

We have lowered our projections for U.S. gross domestic product (GDP), the 10-year U.S. Treasury yield, and operating earnings for the S&P 500 Index in 2019, as we noted in the August 19 Weekly Market Commentary: Tweaking Forecasts, and introduced our preliminary 2020 forecasts.

We have maintained our S&P 500 Index year-end fair value target of 3,000 despite our lowered economic and earnings growth forecasts amid trade uncertainty.

Recession fears from the yield curve inversion offset the boost from the tariff delay.

Stocks endured significant volatility last week but showed some resilience Wednesday, August 7.

Investors endured another volatile five-day stretch as the combination of trade uncertainty, plunging global bond yields, and conflicting messages between the United States and global economies further pressured stock prices.