LPL Financial Weekly Market Commentary for August 2, 2010

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• A catalyst for a late year rally could be the upcoming mid-term elections.

• The market’s reaction to mid-term elections has almost always been positive, with fourth quarter gains averaging 8% in mid-term election years.

• So far, the stock market performance in 2010 has tracked the typical pattern for U.S. stocks in midterm election years, albeit with a bit more than the usual volatility.

We continue to adhere to our long-held forecast for modest single-digit gains for the stock market in 2010, despite the lack of any year-to-date gain. As the August recess for Congress gets underway this week, the campaigning for mid-term elections heats up. A catalyst for a late year rally could be the upcoming mid-term elections. The elections may mark a shift away from the uncertainty surrounding the potential for sweeping legislative changes. In addition, as we noted last week, given the shifting sentiment on taxes the elections may be followed by Congress enacting fewer tax hikes for 2011 than are currently expected by market participants.

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