LPL's chief investment officer reads market tea leaves

Burt White is sticking to his previous call that stocks will produce 10% gains in 2014, with room potentially to move slightly higher.
AUG 11, 2014
LPL Financial's chief investment officer, Burt White, thinks the broad stock market is on track to produce gains of 10% this year, with room potentially to move slightly higher. Mr. White's mid-year outlook for the Standard & Poor's 500 Index is in line with his call at the start of the year, which was for stocks to register gains between 10% and 15%. “We're bullish for the rest of the year, but we think you're going to get a lot more volatility,” said Mr. White earlier this week in an interview in San Diego during LPL Focus, its annual meeting for its financial advisers. “Our view is that the economy continues to chug along nicely,” he added. “We anticipate that earnings growth is going to end up being the real catalyst.” As for his forecast at the beginning of the year, he said, “We're about halfway there, although we have a ways to go.” At noon on Friday, the S&P 500 was down 0.6% for the day, with the index hitting 1,943.2. For the year-to-date, the S&P 500 was up 5.2%. “We think the second half of the year can generate high single digit (increases) for the S&P 500, and largely that's going to come from earnings growth, which is coming in 8% year over year,” Mr. White said. “I think that's going to continue.” The trailing price to earnings ratio for the S&P 500 at the end of August 8 was 18.47, according to Dow Jones market data. The historic average for the S&P 500's PE ratio is between 15 and 16. While valuations may be getting close to “flashing red,” other indicators such as sentiment and fundamentals are not out of whack. Indeed, Mr. White regards some sectors favorably. “You're seeing the most value in the growth sectors,” he said. “Technology is trading at a 25% discount to the average PE ratio of the last 20 years. And industrials and growth [stocks] in general look relatively cheap, especially relative to some of the other sectors, such as utilities.” Accordingly, he said that he is overweight across those three sectors in a typical client portfolio to the level of high single to double digits.

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