The LPL Financial Current Conditions Index is a weekly measure of the conditions that underline our outlook for the markets and economy. The CCI provides real-time context and insight into the trends that shape our recommended actions to manage portfolios. This index has been a useful tool for investment decision making.

Over the past week, the LPL Financial Current Conditions Index rose slightly to 236, the highest level in the past year. The stock market has tracked the CCI closely this year as it did last year reflecting the attention investors are paying to real time measures of economic and market conditions as they assess the likelihood of a successful transition from recovery to sustainable growth. The level of the Current Conditions Index indicates an environment fostering strong growth in the economy and markets. We expect that the CCI may weaken in the latter half of 2010 to reflect an environment of slow growth.

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The CCI component that demonstrated the most improvement during the week was Shipping Traffic as inventory restocking continues along with rising demand. Retail Sales also improved with sales on a year-over-year basis jumping to 4.6% last week from 4.0% the prior week. Business Lending demonstrated some improvement in each of the past two weeks. While still down 18% year-over-year, bank loans have demonstrated a modest pick-up for the first time since early January. Disappointingly, Mortgage Applications deteriorated slightly in the past week even as interest rates fell slightly and the looming expiration of the first time homebuyer tax credit (buyers must have a signed agreement of sale by April 30 to qualify).

Events and data in recent weeks have prompted market participants to view the tailwinds that caused the markets to go sailing higher for much of 2009 as beginning to fade. They now view them as having become more balanced with the rising headwinds associated with increasing global frictions.

We continue to expect the powerful economic and profit growth to weaken in the second half of 2010. The weakening is likely to result from the fading of the extraordinary global policy efforts that created a tailwind for growth and the rise of new headwinds as some actions are reversed. The early stage of this transition is already underway leading to heightened market volatility. While there is still plenty of good news acting as tailwinds for the markets, there is increasingly more of a balance with the bad news, or headwinds. The winds of change blowing in the markets include the following:

Tailwinds

1. -The Federal Reserve (the Fed) is our friend (for now)
2. -U.S. Gross Domestic Product (GDP) growth is above average
3. -S&P 500 earnings growth is strong
4. -Credit and housing markets continue to heal
5. -China’s double-digit GDP growth (but slowing loan growth)
6. -Steep yield curve
7. -Massive global fiscal stimulus in the pipeline

Headwinds
-No job growth (yet)
-Federal, state and local budgets are awful
-Anti-business tone in Washington
-Commercial real estate woes remain
-China and India inflation risks
-European debt problems exacerbated by weak economies
-Bank lending is weak

These are not in any particular order since the importance placed on them by the market varies from day to day. Some of them will switch from being tailwinds to headwinds this year, like the actions of the Federal Reserve, while others may switch from being headwinds to tailwinds such as job

Want more details?  Click here to explore each of the winds that are currently driving the choppy market environment.

LPL Financial Research Weekly Market Commentary

Over the past week, the LPL Financial Current Conditions Index rose by 0.2 to 1.6, making a new high for the year. The index reflects current conditions aligned with the high end of our base case outlook and low end of our bull case outlook, established at the end of last year. Consistent with this outcome, the markets have achieved gains better than our original base case outlook for 2009, but not as strong as those in our bull case.

The improvement in the index can be primarily attributed to Retail Sales and Shipping Traffic. Most components of the CCI have improved substantially since the start of the year.

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The LPL Financial Current Conditions Index is a weekly measure of the conditions that underpin our outlook for the markets and economy. The CCI provides real-time context and insight into the trends that shape our recommended actions to manage portfolios. This index has proven to be a useful tool for investment decision-making. This weekly index is not intended to be a leading index or predictive of where conditions are headed, but a coincident measure of where they are right now. We want to track the conditions in real-time to aid in investment decision making.

There are thousands of indicators-some lead the economy, some lag, while others merely offer a lot of statistical noise. We chose to create our own index tailored to the current environment to provide the clearest and most useful way to track how conditions are aligned with the expectations embedded in our investment recommendations. The components of the CCI are periodically changed to retune the index to those factors most critical to the markets and economy over the next year so it may continue to be a valuable investment decision-making tool. 

Current Conditions Index 

Over the past week, the LPL Financial Current Conditions Index rose by 0.1 to 1.4, making a new high for the year. The CCI has had a late year growth spurt over the past several weeks. The index refl ects current conditions aligned with the high end of our base case outlook, established at the end of last year, for mid-teen gains in the stock market and mid-single digit gains in the bond market in 2009, as measured by the S&P 500 index and the Barclays Aggregate Index respectively. The markets have already achieved these gains. However, the CCI implies the economy and markets are on track for an outcome somewhat better than our original base case outlook for 2009.ver the past week, the LPL Financial Current Conditions Index rose by 0.1 to 1.4, making a new high for the year. The CCI has had a late year growth spurt over the past several weeks. The index refl ects current conditions aligned with the high end of our base case outlook, established at the end of last year, for mid-teen gains in the stock market and mid-single digit gains in the bond market in 2009, as measured by the S&P 500 index and the Barclays Aggregate Index respectively. The markets have already achieved these gains. However, the CCI implies the economy and markets are on track for an outcome somewhat better than our original base case outlook for 2009.