Summer Roller Coaster

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• Knowing the extent of the highs and lows and when it is going to be over play a crucial role in the summertime fun of riding a metal roller coaster. Riding a market roller coaster offers no such assurances and is no fun at all.

• While last week’s volatility is unprecedented, we can take some comfort that the overall moves and sentiment in the market this summer are familiar; they echo those of last summer.

• Last year, the roller coaster did not leave the track and the summer plunge turned into a steep climb as stock and bond yields rose to new post-recession highs. We continue to believe this summer’s drop will end with similar results and ultimately produce a modest single-digit gain for the S&P 500 in 2011.

Summer is a time when many Americans seek out amusement parks for the thrills of riding a roller coaster. The climbs and drops at high speed deliver an exciting mix of fear and exhilaration. But knowing the extent of the highs and lows and when it is going to be over play a crucial role in the fun of riding a metal roller coaster. Riding a market roller coaster offers no such assurances and is no fun at all.

To say last week was volatile for the markets would be a major understatement. The stock market posted one of its most volatile weeks ever with swings of greater than 4% during each of the first four days of the week, changing direction with each day. This pattern of performance has never before been seen in the 83-year history of the S&P 500 index. By Friday, stock market turbulence slowed. For the week, the S&P 500 was down 1.6% adding to the losses that now total 13% since the recent peak on July 7.

While the U.S. debt downgrade in the week before last grabbed a lot of attention and added to the lingering pessimism heading into last week, one of the primary drivers of last week’s volatility was that eurozone leaders, while making some successful efforts, have not gone far enough to resolve the debt problems in the eurozone. Investors feared a downgrade to France, and another banking crisis stemming from some French banks noted by Moody’s, as at risk of a downgrade due to their exposure to troubled debt. Another key driver was the better-than-expected economic data on retail sales and the labor market along with the Fed confirming they intend to keep short-term interest rates low until mid-2013. This optimism that the U.S. economic soft spot was firming vied with the concern that the pace of economic growth in the United States may soften further as stimulus begins to fade.

While last week’s volatility is unprecedented, we can take some comfort at the overall moves and sentiment in the market this summer are familiar; they echo those of last summer.

• At the low point of last week, the S&P 500 was down 17%, similar to last summer’s volatile 16% peak-to-trough decline.
• The 10-year Treasury note yield has fallen 1.6 percentage points from the high of the year, similar to last summer’s 1.6 percentage point decline from the high of the year.
• The drivers of the decline are similar to last summer, as well. Last year, Europe’s debt problems were a main cause of the market’s decline, as was an economic soft spot in the United States as stimulus began to fade when the Federal Reserve ended the QE1 bond buying program and state and local governments were cutting back on spending.

So, maybe we have been on this market roller coaster before, and, if so, we might be near the end. Last year, the roller coaster did not leave the track and the summer plunge turned into a steep climb as stock and bond yields rose to new post-recession highs. We continue to believe this summer’s drop will end with similar results and ultimately produce a modest single-digit gain for the S&P 500 in 2011. We believe the fundamental underpinnings of solid corporate earnings growth (up 19% year-over-year in the second quarter), low valuations (the price-to-earnings ratio fell to levels not seen since 1989 during the lows of last week), and firming economic data (as Japan’s economy rebounds from recession) will combine to support stocks, high-yield bonds, and other business cycle-sensitive investments.

However, there are factors we are watching to determine if this volatility is instead a precursor to a deeper and longer lasting bear market. In the next few weeks there are a number of potentially market-moving events that may continue some of the volatility that was so pronounced last week. „„

• With all the attention on Europe’s sovereign debt problems, this week’s meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy will garner much attention. The market wants to know how much larger the European bailout fund is going to be and under what conditions it may be used, although this is unlikely to be determined for a number of weeks.
• A lot of retailers report second quarter earnings this week. But the solid results will be tempered by an outlook clouded by the sharp decline in confidence seen in the widely-watched University of Michigan consumer sentiment index falling all the way back to the levels during the financial crisis. The question for markets is whether the stock market’s violent sell off has become such a negative for consumer and business confidence that it will impact the economy and profits.
• In 2010, the Fed’s annual Jackson Hole meeting at the end of August hinted that QE2 may be coming and got the markets to acknowledge improving economic and profit data and rebound. The Jackson Hole meeting at the end of the month will be closely watched for indications of how the Fed may respond to further economic weakness. In the meantime, this week Dallas Fed President Richard Fisher will speak. Fisher is one of three Fed officials who dissented to the Fed’s statement that interest rates would remain low through mid-2013 and his comments may add to volatility.
• U.S. economic growth has started to show signs of improving. This can be seen in a number of economic readings including the fall in initial jobless claims to a four-month low of 395,000 in the past week, retail sales running 4 – 5% above a year-ago levels, and signs that industrial production has increased. In the coming week, gloomy housing-related data is on tap, but stronger readings on manufacturing in the Philadelphia Fed survey along with leading economic indicators may provide positive data points.

Although we expect volatility to continue, we foresee a more muted level than last week’s market roller coaster ride and a climb over the months ahead. In general, we advise investors to do what they normally do on a roller coaster: hang on tightly, grit your teeth, scream if you need to, but do not jump off.

To download a complete copy of the commentary click here

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Standard & Poor’s 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.

Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.

Fiscal Fights for the Foreseeable Future

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• While the current deal making in Washington may alleviate the problem of having “run out of debt capacity”, the government will soon “run out of money” if another deal is not reached by the end of next month to avoid a shutdown.

• This serves as a reminder that the markets are going to have to deal with ongoing fiscal fights for the foreseeable future.

• Nevertheless, stocks may post a modest relief rally on the debt ceiling agreement averting sharp spending cuts and a potential default. The backdrop for the market outside of Washington has been improving with further evidence coming to light last week.

Last week’s decline of about 4% in the S&P 500 marked the biggest weekly loss in more than a year and was driven primarily by the debt ceiling impasse. Now that the parties in Washington have crafted a deal to raise the debt ceiling by $2.1 trillion in exchange for $2.4 trillion in spending cuts over the next 10 years a modest relief rally may ensue in the stock market.

However, the deal does not go far enough to put the United States on a path to fiscal sustainability nor does it decisively remove the threat of a downgrade to the nation’s AAA credit rating. The spending cuts to narrow the deficit will be phased in slowly with little effect until 2013, after the next election, resulting in minimal impact on the economy in the near-term.

We say a modest rally because stocks are still up 4% this year after having pulled back only mildly and because the market is likely to continue to be held captive by Washington for the rest of 2011. The budget agreement that averted a government shutdown earlier this year, and presaged the current battle in Washington, only funded the government for the 2011 fiscal year which ends September 30. While the current deal making in Washington may alleviate the problem of having “run out of debt capacity,” the government will soon “run out of money” if another deal is not reached by the end of next month to avoid a shutdown. This means another market volatility-inducing budget battle is on tap for early this fall. And the vote by Congress on finding the second $1.5 trillion round of spending cuts and boost to the debt ceiling is set for December 23, 2011.

In fact, the latest battle over the national debt reflects only a small portion of the nation’s total liabilities and interest cost accounts for only about 6% of government spending. The bigger problem is in the mandatory spending, or entitlement portion of the budget, where much bigger liabilities such as Medicare, Medicaid and Social Security account for nearly half of all spending and seven times what is spent on servicing the nation’s debt. The nation is still not on a path to fiscal sustainability. This serves as a reminder that the markets are going to have to deal with ongoing fiscal fights for the foreseeable future.

Nevertheless, stocks may post a modest relief rally in the coming weeks on a debt ceiling agreement which avoided sharp spending cuts and a potential default. Stocks would likely be higher if it were not for the concern over the impasse in Washington. The backdrop for the stock market outside of Washington has been improving with further evidence coming to light last week:

• Strong earnings (despite weak second quarter economic growth in the United States) and guidance for the rest of the year were reported
• Retail sales were reported up about 5% year-over-year for the third week in a row
• Initial filings of claims for unemployment benefits fell below the 400,000 level and have been improving steadily in recent weeks

The improving environment may inspire investors to re-engage the markets and reduce defensive positions as the debt ceiling concerns lift. Consider reducing defensive positions in favor of the following areas:

• Stocks in the economically sensitive Technology and Consumer Discretionary sectors
• Mid-Cap Growth stocks benefitting from a firming economic soft spot in the U.S., rebounding business confidence, and the acceleration in merger and acquisitions
• Japanese stocks benefiting from a rebound in the world’s third largest economy
• High Yield bonds as investors increasingly seek yield, rather than safety, in bonds

The flip side of the stocks market rally is that safe havens such as precious metals and even government bonds may surrender some of their gains achieved in the last week or so as gold soared to new highs. However, it is unlikely to be clear sailing for the rest of the year as volatility is here to stay.

To download a complete copy of the commentary click below

IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific
advice or recommendations for any individual. To determine which investment(s) may be appropriate for you,
consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of
future results. All indices are unmanaged and cannot be invested into directly.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest
rates rise and are subject to availability and change in price.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly
across many sectors and companies.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no
guarantee that strategies promoted will be successful.
The Standard & Poor’s 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.
Stock investing may involve risk including loss of principal.
Mid-capitalization companies are subject to higher volatility than those of larger capitalized companies.
High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher
interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a
diversified portfolio for sophisticated investors.
Technology Software & Services Sector: Companies include those that primarily develop software in various
fields such as the Internet, applications, systems and/or database management and companies that provide
information technology consulting and services; technology hardware & Equipment, including manufacturers
and distributors of communications equipment, computers and peripherals, electronic equipment and related
instruments, and semiconductor equipment and products.
Consumer Discretionary Sector: Companies that tend to be the most sensitive to economic cycles. Its
manufacturing segment includes automotive, household durable goods, textiles and apparel, and leisure
equipment. The service segment includes hotels, restaurants and other leisure facilities, media production and
services, consumer retailing and services and education services.

Earnings Season Preview

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• Investors have high expectations for earnings this year. However, having climbed all the way back to near the prior peak, earnings growth is slowing as businesses have stepped up spending on materials, capital, and labor.

• For the second quarter of 2011, corporate profits are forecast to have grown by just 8% from a year ago, the smallest gain in two years. We expect downward guidance on earnings in the second half of 2011 from business leaders in the coming weeks as they report their second quarter earnings, potentially leading to downward revisions to 2011 earnings by analysts, and acting as a headwind for stocks as the earnings season matures.

• During this earnings season, we are paying special attention to transitory impacts, business spending, and guidance from business leaders on the earnings outlook for coming quarters.

U.S. stocks rose last week, giving the S&P 500 its biggest two-week rally in 21 months, extending its climb since June 24, 2011 to 5.9%. That is the biggest two-week increase since October 2009 despite Friday’s 0.7% drop following the worst monthly jobs report since September 2010. Why the optimism? In a word: earnings.

The 2011 second quarter earnings reporting season kicks off this week. Four times a year investors focus on the most fundamental driver of investment performance: earnings. The performance of the S&P 500 and analysts’ revisions to their earnings per share (EPS) estimates are closely linked. [Chart 1]

Investors have high expectations for earnings this year. Analysts expect 18% profit growth in the second half of 2011, and a record $98 in EPS in 2011 for S&P 500 companies, representing about 15% growth for the year and a return to record profits.

Having climbed all the way back to near the prior peak, earnings growth is slowing. We believe EPS growth of closer to 10% is more likely in 2011, well below the 39% EPS gain in 2010. In addition to peaking profit margins, our outlook for 2011 EPS is bound, in part, by continued sluggish revenue growth resulting from sluggish economic growth in the developed markets, including the United States. We expect downward guidance on earnings in the second half of 2011 from business leaders in the coming weeks as they report their second quarter earnings, potentially leading to downward revisions to 2011 earnings by analysts and acting as a headwind for stocks as the earnings season matures.

In recent weeks, second quarter earnings estimates have been falling. Of the 128 companies that pre-announced second quarter earnings guidance in recent weeks, the ratio of negative-to-positive news was 2.55, worse than the average ratio of 2.1. For the S&P 500 companies as a whole, the consensus of analysts’ estimates have slid, and now point to average earnings per share of growth of just 8% from one year ago, the smallest gain in two years. Earnings growth is below the 10% growth rate of revenues as the rise in profit margins has stalled as businesses have stepped up spending on materials, capital, and labor.

The second quarter earnings season runs about four to six weeks starting about two weeks after the close of the quarter. During this earnings season we are paying special attention to transitory impacts, business spending, and guidance from business leaders on the EPS outlook for coming quarters.

• Transitory Impacts – The market rebound in the face of falling second quarter estimates (but resilient third and fourth quarter estimates) suggests that market participants believe the second quarter earnings growth rate slowdown is transitory and driven in large part by the supply-chain impact of the Japanese earthquake and tsunami on the world’s third largest economy, the violence in North Africa and the Middle East, and the European debt problems, offset partially by currency impacts from a year ago when the dollar was soaring. We will be watching closely to see how much of the slowdown appears to be transitory – and what is not.
• Business Spending – While investor attention is often directed on consumer spending as a driver of profits, we will be watching business-spending-driven industries more closely. Business spending and commodity prices are major drivers of S&P 500 profit growth while discretionary consumer spending has a much smaller contribution to the S&P 500. During the second quarter, commodity prices fell slightly and manufacturing growth nearly stalled. We will be watching to see how this translated into profits for the Information Technology, Industrial, Energy, and Materials companies for clues as to how rapidly their profit growth may slow in the second half of 2011.
• Guidance – We will be listening closely to conference calls and reading corporate earnings press releases to aid in assessing the likely movement in earnings expectations. Chief Executive Officer (CEO) confidence rose in the first quarter of 2011, to highs not seen since the prior business cycle peak in mid-2007, but it slipped in the second quarter as attention turned to Japan’s natural disasters and the violent clashes in North Africa and the Middle East.

It is important to keep in mind that the companies that report early in the season are most often not the bellwethers they are commonly thought to be. We will not really know how results are shaping up until just after the end of the month of July, when about half of the S&P 500 companies will have reported.

To download a complete copy of the commentary click below

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Stock investing may involve risk including loss of principal.

This research material has been prepared by LPL Financial.
The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

The sun is shining on investors as 2010 draws to a close. The economy has shown signs of reaccelerating from the summer soft spot, the stock market has made new two-year highs, as measured by the S&P 500 (returning to the level that preceded the September 2008 failure of Lehman Brothers), and the President signed into law a bill that extends all of the Bush tax cuts for two years, cuts payroll taxes, and expands jobless benefits.

The end of 2010 also seems to be setting the stage for the return of diversification. In 2008 and 2009, most markets moved together as the outlook for all financial assets was tightly linked to the global financial crisis and then to the recovery. During 2010, glimmers of the impending return of diversification became evident as markets began to behave more independently of each other. In May and June, as stocks and commodities asset classes fell, bonds steadily rose in value. And, inversely, in November and December, as stocks and commodities asset classes surged, bonds fell. A key potential benefit of having the investments in your portfolio behave differently is that it should serve to mute volatility, which is especially valuable when taking distributions from a portfolio. The return of the effectiveness of this important investment risk management tool is a welcome gift as investors look toward 2011.

However, the horizon for investors is not brightening everywhere. One area with a cloudy outlook is municipal bonds. The fiscal challenges facing U.S. states are serious and need to continue to be addressed in the coming years. However, we do not expect a stormy environment akin to the solvency troubles that plagued Europe in 2010. The state debt issues are different than those troubles in Europe in two main regards:
First, the magnitude of the problem facing some European nations is much greater. For example, the budget deficit-to-GDP ratio for some of the most troubled states, such as California, New York, and Florida, average about 1%, while European nations like Greece, Portugal, Ireland, and Spain average about 10%. Additionally, the total debt-to-GDP ratio for these same states average about 20% when including the states’ unfunded pension liabilities while those of the European nations are much higher at around 100%.
Second, the ownership of the respective bond markets is very different. Banks in the U.S. do not own much domestic municipal government debt while European banks own a lot of European government debt, which has magnified the problems overseas relative to those of the states.

No stormy skies or bright sunshine for 2011, we see a more middle of the road forecast, composed of a mix of clouds and sun. Recent years have seen extremes one way or the other and we see a 2011 that offers investors modest single-digit gains for stocks, low-to-mid single-digit gains for bonds, and an economy in the United States that muddles along at a 2.5 to 3% pace. As always, I encourage you to contact me if you have any questions.

Best regards,

Rose Greene

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) 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 indices are unmanaged and cannot be invested into directly.
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.
The Standard & Poor’s 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.
Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.
This research material has been prepared by LPL Financial.
The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity.
Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit Member FINRA/SIPC
Tracking #692722 | (Exp. 12/11)

Lame Duck Could Move Markets

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• While the major headlines are out of the way, what happens in Washington during the remainder of the year will still hold influence over the markets.

• The most important item facing Congress is the looming expiration of the Bush tax cuts. We expect an extension of the tax cuts (including the dividend tax cut) will be passed before the end of the year.

• Last week’s performance may be a sign that investors may begin to migrate from high-yield bonds toward high dividend-paying stocks, possibly ending the U.S. equity buyers strike.

The long-awaited events of last week included the mid-term elections and Federal Reserve (Fed) announcing the details of another stimulus program. Stock market momentum had stalled out in the two weeks leading up to last week as investors held their breath awaiting the outcome. The events unfolded just as the markets had anticipated and mostly priced in during the double-digit gain in the S&P 500 that took place during September and October. As investors breathed a sigh of relief last week, the stock market posted a solid 3.5% gain resulting in a new two-year high in the S&P 500 as pent-up demand for stocks was invested.

While the major headlines are out of the way, what happens in Washington during the remainder of the year will still hold influence over the markets. Some of the lame duck agenda items with potential market-moving impact include the expiration of unemployment benefits, government funding, and the Bush tax cuts.

Extended unemployment benefits will expire at the end of November if Congress fails to renew them in the coming weeks. People who exhaust their 26 weeks of regular state unemployment benefits can then receive up to 73 weeks of federally funded benefits, for a total of 99 weeks in highunemployment states. This summer, when the emergency benefits were last renewed, Republicans temporarily allowed extensions to expire for nearly two months. They objected to the extension because the cost to do so was not offset by other spending cuts and therefore added to the federal deficit, in violation of the pay-as-you-go rules. Since Republicans gained seats in the Senate last week, it could be even tougher to pass a renewal of the program potentially leaving millions without benefits during the peak consumer spending holiday season, posing risks to retailers and overall economic growth.

Before the mid-term elections, Congress passed a resolution funding the government until December 3, setting up a showdown over spending in the lame duck session. Also, the fiscal commission established by President Obama is due to report on December 1. There are indications that leading Democrats on the panel are seeking to present major changes to Social Security intended to ensure the program is solvent for the long run.

The most important item facing Congress is the looming expiration of the Bush tax cuts. Congress is likely to address the tax cuts in some way. Both parties risk a huge backlash if no action is taken and all tax rates revert to higher levels, which puts pressure on the 70% of the economy that is driven by consumer spending. This is a concern given that current economic growth is already sluggish. We continue to believe it is likely that Congress will pass a one or two-year extension of all the Bush tax cuts during the lame duck session, but admit it is a close call.

The potential for extending the dividend tax rate at 15% (as opposed to reverting up to 39.6% for the top bracket) and the ability of the companies in the Financials sector to boost dividend payouts made the sector the best performer last week. Financial companies that received TARP money must get regulatory approval to boost their dividend which may soon be forthcoming. The first quarter of the year has traditionally been when companies announce increases to their dividend payments. Last week, the Energy, Materials, and Industrials sectors benefitted from the Fed’s actions on Wednesday that weakened the dollar.

Investors’ appetite for yield has prompted strong inflows into the highyield bond market this year. Perhaps last week’s performance is a sign that investors may migrate from high-yield bonds toward high dividend-paying stocks, possibly ending the U.S. equity buyers’ strike that has resulted in outflows from U.S. equity mutual funds every week during the second half of 2010. We will be watching money flows closely to see how they react to the changes in Washington.

To download a copy of this report click below

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The Standard & Poor’s 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.

High-Yield/Junk Bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

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

Stock investing may involve risk including loss of principal.

Energy Sector: Companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy-related service and equipment, including seismic data collection. The exploration, production, marketing, refining and/or transportation of oil and gas products, coal and consumable fuels.

Consumer Discretionary Sector: Companies that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles and apparel, and leisure equipment. The service segment includes hotels, restaurants and other leisure facilities, media production and services, consumer retailing and services and education services.

Consumer Staples Sector: Companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages and tobacco, and producers of non-durable household goods and personal products. It also includes food and drug retailing companies.

Health Care Sector: Companies are in two main industry groups—Health Care equipment and supplies or companies that provide health care-related services, including distributors of health care products, providers of basic health care services, and owners and operators of health care facilities and organizations. Companies primarily involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products.

Financials Sector: Companies involved in activities such as banking, consumer finance, investment banking and brokerage, asset management, insurance and investment, and real estate, including REITs.

Industrials Sector: Companies whose businesses manufacture and distribute capital goods, including aerospace and defense, construction, engineering, and building products, electrical equipment, and industrial machinery. Provide commercial services and supplies, including printing, employment, environmental and office services. Provide transportation services, including airlines, couriers, marine, road and rail, and transportation infrastructure.

Manufacturing Sector: Companies engaged in chemical, mechanical, or physical transformation of materials, substances, or components into consumer or industrial goods.

Materials Sector: Companies that are engaged in a wide range of commodity-related manufacturing. Included in this sector are companies that manufacture chemicals, construction materials, glass, paper, forest products and related packaging products, metals, minerals and mining companies, including producers of steel.

Technology Software & Services Sector: Companies include those that primarily develop software in various fields such as the Internet, applications, systems and/or database management and companies that provide information technology consulting and services; technology hardware & Equipment, including manufacturers and distributors of communications equipment, computers and peripherals, electronic equipment and related instruments, and semiconductor equipment and products.

Telecommunications Services Sector: Companies that provide communications services primarily through a fixed line, cellular, wireless, high bandwidth, and/or fiber-optic cable network.

Utilities Sector: Companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power.

This research material has been prepared by LPL Financial.
The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

September 14, 2010
KNX Business Hour with  Frank Mottek on KNX 1070 NewsRadio

Click below to listen in on what Rose had to say about current market conditions on KNX Business Hour with Frank Mottek.

John Canally, CFA
Economist
LPL Financial

How Likely Is A “Double Dip”?

There has been increased talk recently about the possibility of a “double dip” recession occurring in the United States. A “double dip” recession would mean that the United States economy — which has most likely been in an economic recovery since the summer of 2009 — would slide back into another recession at some point in the near future. In our view, while the odds of a double dip have increased in the past few months, we don’t think a “double dip” is likely to occur given the current economic and policy backdrop. However, a sudden surge in commodity prices, a sharp increase in global central bank policy rates, a collapse in overseas economic growth, rapid reigning in of fiscal stimulus in the United States, and/or a dramatic flattening of the yield curve would cause us to change our view.

Highlights

After a blistering two-week stretch of mostly sub-par economic data, this week is a very quiet one for economic data and policy events in the United States.

The June employment report capped off another disappointing weak of economic data, reviving talk of a “double dip” recession.

How likely is a “double dip” recession?

To read the complete article CLICK HERE

When it comes to where we are in the economic cycle, expert opinions vary widely. Some experts think the economy could be headed for a double-dip recession, while others say it’s headed for a slow but steady recovery.

Rose was interviewed on this topic by Ben Baden, who wrote the following article published in Yahoo! News on June 21.

Article Highlights

• Be realistic.
  “The last of the last recovery dollars are being distributed out to the states and [it's] the end of the tax credits for home buyers, which were huge stimulators for the economy and helped it rebound last year,” says Rose Greene, certified financial planner with Rose Greene Financial Services in Los Angeles, an affiliate of LPL Financial. “It will not feel good, but it makes sense. This isn’t something that just happens when you wake up one day.”
• Don’t try to time the market.
  Greene says, investors shouldn’t gamble their money by trying to time the market. “The average investor needs to know that trying to time the market is a fool’s following,” she says. “We might get lucky once, but it will ultimately bite you.”

Read 5 Tips for the Average Investor on Yahoo! News, or download a copy saved as a PDF.

Weekly Market Commentary, June 1, 2010
Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• “Sell in May and go away” only works about one-third of the time. With a pullback having already taken place, we find little value in this old adage.
• We believe investors should “buy in June and stay tuned” this year.
• Staying tuned to the conditions in the economy and markets will be important to investment decision making in the coming months as the economy transitions from a recovery to sustainable growth.

The old adage of “sell in May and go away” has been repeated so many times we are still often asked if this is a sound investing strategy. We do not find sound reasoning behind this maxim. Instead, we believe investors should “buy in June and stay tuned” this year.

We expressed caution in mid-April, given our outlook for a pullback in the stock market. However, now that the pullback that began on April 23 has occurred, we have spent most of May calming fears of another stock market plunge and, in general, we believe this is a good opportunity to buy stocks rather than sell. Unfortunately, investors cannot simply buy now and go away since the headwinds for the economy and markets are increasing during the second half of the year. Investors must stay tuned to the transitioning conditions for economic and profit growth warranting a tactical approach to portfolio management.

The reasoning behind “sell in May and go away” stems from the historical evidence that stock market returns, on average, are weaker over the six months from May through October, by about 2%. However, returns during this period have been positive about two-thirds of the time in the post-WWII period. This means one should only “sell in May and go away” one-third of the time. We believe 2010 warrants a different strategy.

Staying tuned to the conditions in the economy and markets will be important to investment decision making in the coming months as the economy transitions from a recovery to an environment of sustainable growth. These economic transitions are often uneven as the drivers of growth shift from government policy to private businesses while the leading indicators of economic activity peak and momentum begins to slow.

We believe the market is due for a rebound, as we stated last week in our commentary, entitled: Ten Reasons for a Rebound. However, the rebound is likely to be followed by more volatility as headwinds arise in the second half of the year, for several reasons:

• As the Fed signals coming rate hikes.
• China’s economy begins to respond to the efforts to slow the pace of growth.
• Policy stimulus fades in the United States leaving behind the drag of a huge federal budget deficit.
• Europe’s growth and solvency problems continue.
• As economic indicators peak in the United States during the second quarter, economic momentum begins to slow.
• Investors must stay tuned this summer to find attractive opportunities when presented and successfully take profits when necessary. We will be watching the LPL Financial Current Conditions Index closely for the impact of these headwinds on economic and market conditions.
  

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IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

The Standard & Poor’s 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.
This research material has been prepared by LPL Financial.

The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Weekly Market Commentary, May 24, 2010
Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Highlights

• We believe this pullback is merely part of the higher volatility in the markets we have been expecting this year to accompany the transition from recovery to sustainable growth.
• We offer ten reasons why we expect the markets to rebound during the second quarter.
• We still believe that while the next week or two could be up or down a little, four or six weeks from now stocks will be up and headed back near the highs of April.

Our outlook for 2010 remains for modest gains in the stock and bond markets, accompanied by a lot of volatility. Over the last couple of months, we presented our reasons for why we believed the stock market, as measured by the S&P 500, was due for another 5-10% pullback. While the current pullback that began on April 24 came as no surprise, the month long decline has exceeded our expectations with a peak-to-trough decline of 12%. Nevertheless, we continue to believe it is a pullback and not the start of a new bear market. This pullback is merely part of the higher volatility in the markets we have been expecting this year to accompany the transition from recovery to sustainable growth.

The market pullback has a number of drivers:

• Financial reform legislation has weighed on the Financials sector.
• China’s measures to slow growth have been raising fears that the sudden withdrawal of stimulus to one of the world’s biggest growth engines may be premature and tip the global economy back into recession.
• Last week’s decline in the Index of Leading Indicators, the first decline in a year, is a sign that economic growth may be slowing.
• However, the big issue affecting the market has been the debt problems in Europe and fear of another global credit crisis.

We expect the markets to rebound during the second quarter for the following ten reasons:

1. Although unlikely to improve much in the near-term, the European debt and deficit problems are unlikely to get much worse. The trillion dollar rescue package has been passed ensuring adequate capital to meet the financing needs over the next few years for Europe’s most troubled economies. Europe has some silver lining to the problems they are facing since the lower euro is a boost to the competitiveness of European exports helping to balance out weaker domestic growth.
2. The derivatives and leverage tied to the sovereign debt is very different than the financial crisis of 2008 (for example, debt-to-GDP (gross domestic product) for Greece is 1-to-1, while at Bear Stearns and Lehman Brothers it was 40-to-1). The smaller magnitude of the debt problem is unlikely to lead to another global financial crisis.
3. The concerns over the debt problems in Dubai and Iceland faded quickly after a month or two of intense concern last year. The budget and debt problems now weighing on Greece are an aftershock of the global financial crisis and not a sign of a new crisis developing. The problems are akin to what many people and businesses that overindulged during the credit boom are now experiencing, as the negative consequences of the global recession have forced belt tightening to try to make ends meet while restructuring debt. That is what happens at the end of a credit crisis and recession, rather than at the beginning.
4. Fortunately for investors, expectations for the Eurozone are low and do not need to be cut drastically leading to further declines in markets. For example, U.S. exports to Europe, European oil consumption, and Europe’s GDP are all already expected to be very low or negative.
5. The problems in Europe are good for the U.S. consumer by putting more cash in consumers’ pockets. The falling price of oil is pulling down gasoline prices as we head in to the peak demand summer driving season and the money flowing into Treasuries is leading to lower mortgage rates and a new wave of refinancing
6. As indicated by the LPL Financial Current Conditions Index, conditions remain favorable for growth.
7. Stock market valuations are now low at a forward price-to-earnings ratio of about 13 times. Also, the stock market is technically oversold by even more than it was overbought in mid-April when we were concerned about a pullback, suggesting selling may soon stall and buyers attracted by value will re-emerge.
8. China’s growth remains on track and the weakness in Europe may keep Chinese officials from invoking further measures to slow their economy in the second quarter.
9. Financial reform legislation may see a lot of changes to moderate it in conference before it is signed by the President, given some objections by the Fed and Treasury. This may help stabilize the Financials sector which has been one of the sectors that has led the stock market lower.
10. The outlook for The Federal Reserve (Fed) rate hikes may now be pushed out with the futures markets now pricing in the first hike not taking place until 2011

We still believe that while the next week or two could be up or down a little, four or six weeks from now stocks will be up and headed back near the highs of April.

What would change our minds? Not a level in the stock market, but a level on spreads and other indicators of contagion like borrowing rates in Europe and signs of bank stress. Material deterioration in indicators of contagion such as:

• The TED spread, a measure of stress in the banking system based on the willingness of banks to lend to each other, has risen this year to a slightly above average 35 basis points (bps), but remains well off of the crisis peak of 463 bps in 2008 and below the levels of 2008 that led up to the peak of the crisis in October 2008.
• The level of European interest rates and credit default swaps, which haveboth declined from the peak levels prior to the announcement of the rescue plan, but some southern European countries are elevated from levels at the start of the year.
• The value of the euro, which has fallen sharply this year but has stabilized in the past two weeks around $1.24.
• Corporate bond issuance, which has contracted sharply reflecting tighter financing conditions.
• The volume of central bank liquidity swaps, which has picked up reflecting the need for dollar-based financing overseas.

These factors would prompt us to re-evaluate our outlook and may warrant a more defensive investment stance.

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IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

The Standard & Poor’s 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.

Investing in international and emerging markets may entail additional risks such as currency fluctuation and political instability. Investing in small-cap stocks includes specific risks such as greater volatility and potentially less liquidity.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
A basis point is a unit relating to interest rates that is equal to 1/100th of a percentage point. It is frequently but not exclusively used to express differences in interest rates of less than 1%.

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Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit