Thank you to all our clients who signed our recent Mariner Compliance letters and DocuSign emails. This was a big effort, and we are 98% completed with the process. As a reminder, on our clients’ end, there are no changes. It is only in our regulatory world that we at Legacy Wealth Planning will be dealing with a new entity to help us comply with all the rules and regulations in our industry.

It is appropriate to be writing this letter on Halloween as there is no shortage of news to give us worry and concern. Israel/Hamas war, Ukraine war, stubbornly high inflation, and a stock market that in the last couple of months is in correction mode again.

Looking back at history, the S&P 500 has crossed below its 200-day moving average 219 times since 1950. Forward three, six, and 12-month returns following each crossover averaged 2.8%, 4.4%, and 7.0%, respectively, hardly worrisome, while stocks traded higher two-thirds of the time 12 months after the index violated its 200-day moving average. While these statistics may appear counterintuitive, a break below the 200-day moving average often implies investors have likely already discounted a large degree of downside risk. It is also important to remember the market’s long-term tendency to advance over time (the S&P has only spent 29% of trading days below the 200-day moving average since 1950). Finally, the market is oversold and may be due for a bounce, like the one we saw yesterday and today.

Another dynamic at play here is housing affordability is now the lowest since 1985 when mortgage rates were double digits. This affordability metric considers median home prices, household income, and the prevailing mortgage rate, and so in this case, affordability captures the uniqueness of each period. For example, in the current environment, home prices have not moderated much despite high borrowing costs because housing inventory is so low. Those who refinanced in recent years to amazingly low fixed rates have what we would call “golden handcuffs”, keeping them content in their current homes and providing a strong disincentive to move. Despite headwinds, the U.S. could experience structural changes in the labor market, residential real estate, and inflation as the post-pandemic economy progresses into the New Year. As markets adjust to a new regime, investors should recognize the economy is becoming less interest rate sensitive and they should focus on leading indicators such as the ratio of part-time workers and not on lagging metrics such as the headline growth stats mostly cited in the media.

Moving forward, LPL Research expects a strong job market, cooling inflation, the end of Fed rate hikes, stable interest rates, and growing corporate profits to help stocks overcome these worries and keep this young bull market (a rising equity environment) going. And we believe the macroeconomic environment and seasonal tailwinds will provide enough support for stocks to move modestly higher over the balance of the year, though the path may be bumpy.  Contact us if you have any investment questions or concerns.

-Mark and Elise

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #499884-1 (Exp. 11/24).