WEEKLY MARKET COMMENTARY
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aded. In act, the path o the S&P 500 and the Google search trends or theword recession are a nearly perect mirror image o each other, as you cansee inChart 2.While the stock market aces signicant challenges ahead, we expectanother year o gains or stocks. But that gain may be accompanied by thereturn o volatility. Already stocks have surged 9% this year (through Friday,March 9, 2012), within the range o our 8 – 12%* return orecast. In the nearterm, we believe a modest pullback may be in store or the stock marketdriven by a combination o actors:
The Worst Earnings Season in Years
– Earnings have mattered a lot orthe stock market. Since the end o 2008, S&P 500 companies’ earningsare up about 50%, and the S&P 500 is up about 50%. That one-to-onerelationship is no coincidence. With such a heavy reliance on earningsgrowth, stocks are vulnerable to declines with earnings growth nowappearing to stall. Earnings growth in the rst quarter o 2012 will likely befat on a year-over-year basis, the worst showing in a year.
High Economic Expectations
– The economic surprise index is nearprior peaks, suggesting the bar o expectations is high and economicdata is much less likely to surprise to the upside and risks disappointingthe market. Rising gasoline prices and relatively fat incomes, along withslowing global growth, raise the risks.
Central Banks Stimulus Ending
– The Federal Reserve (Fed) and theEuropean Central Bank (ECB) policy actions are coming to an end. The ECBhas completed their renancing operations and the Fed’s Operation Twistis set to end in June o this year — the end o the Fed’s ormer programsQE1 and QE2 prompted market sell-os in the past two years.
“Recession” Fades and Stocks Surge
Jan11Jul11Jul10Jul09Jan09Jul08Jan10Jan111600140012001000800600400S&P 500Frequency of Google Searches for “Recession”
I n d e x L e v e l S e a r c h F r e q u e n c y
Source: LPL Financial, Google Trends, Bloomberg data 03/09/12*LPL Financial Research provided this range based on our earningsper share growth estimate or 2012, and a modest expansion in theprice-to-earnings ratio.
S&P 500 Bull Markets
BeginEndAfter 1 YearAfter 2 YearsAfter 3 YearsAfter 4 YearsAfter 5 YearsDuration (Months)
Source: LPL Financial, Bloomberg data 03/09/12The S&P 500 is an unmanaged index, which cannot be invested into directly. Past perormance is no guarantee o uture results.