U.S. – China Trade Update

Trade tensions between the U.S. and China have been building over the course of 2018. These tensions have escalated over the last month, but while risks are rising, economic disruptions have remained minimal. We continue to believe the final economic impact of current trade tensions won’t be insignificant, but will be small relative to the short- to intermediate-term positive impact of deficit-financed fiscal stimulus, business-friendly changes in the tax code, and deregulation. We do remain concerned with Trump administration efforts to simultaneously shift terms of trade with all major trading partners: China, the European Union, Canada, Mexico, and, to a lesser extent, Japan, who together accounted for over two-thirds of total U.S. trade. While all of these negotiations are important, trade relations between the U.S. and China — the world’s two largest economies — remain the focus.

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Playing The Capex Theme

Capital investment is accelerating, a trend we believe should continue. One of the most encouraging aspects of the U.S. economy currently is that capital spending is accelerating just as some tailwinds are starting to kick in. As we discuss in this week’s Weekly Economic Commentary, capital expenditures (capex) are being supported by several factors, including strong earnings growth, corporate tax cuts, immediate expensing of capital investments, repatriation of overseas cash, high business confidence, and deregulation. So how should investors play this theme?

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Capex Rising

Increased business capital expenditures, or “capex,” remain one of the most important pieces for improving the long-term growth trajectory of the U.S. economy. Capital expenditures help increase productivity, and improved productivity is the foundation for sustainable higher growth for developed economies. Both survey and hard data continue to confirm that we might be seeing a rebound in capex, but how can we know it’s sustainable? The answer may be in our beach reading. Like the veteran detective in a favorite page-turner, we look for means, motive, and opportunity. For capex spending, means translates to additional sources of funding for projects, motive comes from increased business confidence and tight labor markets, and opportunity from fiscal incentives and global growth.

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Fed Preview: Connect The Dots

The Federal Reserve (Fed) is widely expected to hike rates for the second time in 2018 at the conclusion of its two-day policy meeting on Wednesday, June 13. Given that the hike is all but priced in, the hike itself would mean little to markets. Instead, Fed watchers will be looking at any meaningful changes in the policy statement, a new set of economic projections, and Chair Jay Powell’s post-meeting press conference to gauge any changes to the future path of interest rates. There’s a reasonable chance that the median expectation for the number of rate hikes in 2018 in the new projections may shift from three to four, but we believe it’s more important to monitor any changes in the Fed’s inflation views to determine the likelihood that the Fed may shift to a more aggressive path of rate hikes. Unless we see a shift in the Fed’s view of inflation, we will continue to maintain a base case of three total rate hikes in 2018.

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Time for Value to Shine?

When will value have its day in the sun? The growth style’s historic run of outperformance has continued this year, despite the emergence of several drivers that have traditionally served as catalysts for value stock outperformance. Generally, value stocks benefit from an economic growth tailwind, whereas growth stocks tend to be more in favor when the growth potential they offer is scarce. Year to date, the Russell 1000 Growth Index has returned 9.5%, compared with just 0.5% for the Russell 1000 Value Index. Over the past 10 years, including the 2008–09 financial crisis, large cap growth stocks have outperformed value stocks by about 80 percentage points [Figure 1]. Based on the longest available data series*, the current growth stock rally is actually the longest ever. So as summer approaches, we ask: When will value finally have its day in the sun and start to shine?

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Washington DC Fly In

Good afternoon!

It is with great excitement we are reaching out to tell you about our most recent trip – Judy and I had the privilege to travel to Washington DC on May 8th and 9th. Out of the 16,000+ LPL Advisors across the country, we were invited to join 8 additional advisors, along with some of the LPL home office staff, for a fly-in. It was a busy 48 hours, during our time we traveled with the LPL lobbyist throughout DC to meet with the following:

Congressman Josh Gottheimer (D-NJ)

Congressman Bruce Poliquin (R-ME)

Congressman Trey Hollingsworth (R-IN)

Senator Tim Scott (R-SC)

Congressman Juan Vargas (D-CA)

Democratic Whip Steny Hoyer (D-MD)

Congressman French Hill (R-AR) and

Congressman Peter Roskam (R-IL)

Our focus was to spend those two days meeting with both sides of the aisle to hear about the work and efforts they are making, but most importantly to advocate on your behalf. There are a number of current policy initiatives that we specifically were focused on in our discussions on the hill. You can read more information about the specific LPL views below or directly from the lplgovernmentrelations.com website:


LPL will continue to work with policymakers at the federal and state levels to promote rules establishing a harmonized best interest standard for the financial services industry, while ensuring that investors maintain access to all available financial services.

During the trip, the chief legal officer from LPL and her chief of staff had a meeting with the SEC to work towards the next solution as the DOL Fiduciary Rule was rescinded. This was the topic Judy had the opportunity to provide testimony back in 2015 for the Ways and Means Subcommittee on Oversight hearing.


LPL is committed to identifying and advancing solutions to protect senior and vulnerable adult investors from exploitation and fraudulent practices. We will collaborate with policymakers and industry partners at the federal and state level through advocacy and thought leadership to promote and support laws and regulation that will enhance protection of senior and vulnerable adult investors.


LPL will engage with Congress to advocate for the preservation and enhancement of incentives for retirement savings. Tax incentives are a critical motivator both for the individual investor and employers who want to offer retirement savings plans.

We left DC feeling confident hearing how much bipartisan efforts were taking place, despite what might be the focus of today’s news cycles. We continue to find ways to ensure we are taking the best care possible of you and your assets. It is our promise to you to have a voice and advocate for you.

If you have any questions or would like additional information on some of the policies we were advocating for, please do not hesitate to ask. Hoping everyone enjoys their summer! As always, we would love to see pictures of your “Lakeview” whatever they may be!