Global Portfolio Strategy | August 17, 2021

Key changes from July’s report:

  • Downgrading emerging markets from neutral to negative
  • Upgrading United States from neutral to positive

We see further (but modest) gains for stocks over the rest of the year, powered by a very strong economic growth outlook and tremendous earnings momentum as the economy fully reopens. Our year-end 2021 S&P 500 Index fair-value target range is 4,400—4,450, based on a price-to-earnings ratio (PE) of 21.5 and our 2022 earnings per share (EPS) estimate of $205.

After more than a 95% gain since the March 2020 lows, the S&P 500 may be due for a pause, consistent with the second years of bull markets historically that have come with increased volatility and historical seasonal weakness in August and September. Key risks include spread of the Delta COVID-19 variant, high inflation, rising interest rates, likely 2022 tax increases, and geopolitics.


  • Our equities recommendation remains overweight. We continue to favor stocks over bonds, with a preference for the United States, based on our expectation for a very strong economic and earnings recovery in 2021.
  • § As the economic recovery progresses in 2021, we would expect cyclical value stocks to lead. Our favored sectors—mostly on the value side of the ledger—include energy, financials, industrials, and materials.
  • Our positive view of small caps is supported by the early stage bull market and economic expansion and strong earnings.
  • § Our downgraded view of emerging markets (EM) equities largely reflects increased risk from China’s regulatory crackdown and heightened geopolitical risk.
  • We maintain our neutral view of developed international equities while awaiting Europe’s and Japan’s emergence from the pandemic.
  • We continue to recommend a slight underweight allocation to fixed income. Although we’ve seen a move lower in yields recently, reduction of Fed policy support and a strengthening global recovery may push yields higher over the course of the year.
  • § Higher rates may still put some pressure on bond returns while economic improvement may help support equities going out the remainder of the full year.
  • We favor a blend of high-quality intermediate bonds that is underweight U.S. Treasuries with an emphasis on short-to-intermediate maturities and sector weightings tilted toward mortgage-backed securities (MBS).

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This material has been prepared for informational purposes only, and is not intended as specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors and they do not take into account the particular needs, investment objectives, tax and financial condition of any specific person. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing. Any economic forecasts set forth may not develop as predicted and are subject to change.

Stock investing involves risk including loss of principal. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Value investments can perform differently from the market as a whole and can remain undervalued by the market for long periods of time. The prices of small and mid-cap stocks are generally more volatile than large cap stocks. Bonds are subject to market and interest rate risk if sold prior to maturity.

Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Corporate bonds are considered higher risk than government bonds. Municipal bonds are subject to availability and change in price. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield. Mortgagebacked securities are subject to credit, default, prepayment, extension, market and interest rate risk.

Credit Quality is one of the principal criteria for judging the investment quality of a bond or bond mutual fund. Credit ratings are published rankings based on detailed financial analyses by a credit bureau specifically as it relates the bond issue’s ability to meet debt obligations. The highest rating is AAA, and the lowest is D. Securities with credit ratings of BBB and above are considered investment grade. Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. It is expressed as a number of years.

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

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-toearnings valuation ratio.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

All index data from FactSet.

For a list of descriptions of the indexes referenced in this publication, please visit our website at

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