October 5, 2026 | LPL Research

At roughly $1.0 trillion this fiscal year, interest costs now exceed what the government spends on defense or Medicaid. The Congressional Budget Office (CBO) expects net interest to climb from 3.3% of GDP to 4.6% over the next decade. That projection was built on a 10-year yield averaging 4.1% this year and settling around 4.4% longer term, and we are above that path. By the CBO's own estimate, rates one percentage point above its baseline would push debt to 222% of GDP by 2056 instead of 175%.

The bigger near-term risk isn't the 10-year, though. It's the short end. As of August, $7.25 trillion of Treasury debt, about 22% of the total, sits in Treasury bills. Bills mature in a year or less, and they typically reprice within a few months when the Fed moves. The average interest rate on marketable debt was about 3.1% in August. Every dollar that rolls over now rolls into a world where bills yield between 3.95% and 4.3%, and coupons pay between 5.0% to 5.50%.

September 28, 2026 | LPL Research

The latest developments in the Iran conflict have shaken the fragile consensus view that disruptions to the Strait of
Hormuz and the Red Sea would soon be cleared. U.S. military bases and naval escorts in the region have been fired
upon. The critical East-West pipeline in Saudi Arabia that had been providing a partial bypass for the bottlenecked
Strait of Hormuz is not yet fully operational and faces continued attacks. Energy stockpiles are dwindling in the U.S.
and around the globe. Despite reports coming out of last week’s UN summit that the U.S. and Iran are exploring a
deal to open Hormuz (which President Trump rejected over the weekend), WTI crude remains very elevated at $93
per barrel (as of September 25).

Predicting the path of this conflict is extremely difficult, as the back-and-forth continues. As asset allocators, we
prefer to maintain our energy sector overweight and positive view of the broader commodities complex while
waiting for a lasting fix to restricted tanker traffic in the Strait of Hormuz and, to a lesser extent, the Bab el-Mandeb
Strait. We will believe it when we see it, but recent headlines have provided some encouragement for a diplomatic
resolution. Ongoing pressure from China, Gulf allies, sanctions, and voters’ affordability concerns ahead of the
midterms may help provide the final push needed to bring the conflict to a resolution soon.

September 21, 2026 | LPL Research

For decades, operating margins (earnings before interest and taxes, or EBIT, divided by sales) behaved like a cyclical series. When margins rose well above trend, the forces of competition, input costs, capacity additions, and customer pushback eventually compressed profitability. As Jeremy Grantham, investor and co-founder of asset manager GMO, famously said, “Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism.”

This has been a less reliable rule since the Global Financial Crisis (GFC), as S&P 500 operating margins did not revert to their historical average, but remained remarkably steady in what appeared to be a stepped-up new range from 2010 to 2019. The post-COVID-19 period has seen yet another step-change higher, and recent figures show an upward trend rather than a range. The current trailing-12-month operating margin is at a record high of approximately 16.5%, a level that several strategists thought to be a secular peak. Forward-looking bottom-up estimates sourced from Bloomberg suggest calendar year records will continue to be made in 2026 (19.8%), 2027 (22.1%), and 2028 (23.6%). While these out-year estimates may ultimately prove too optimistic and likely reflect “adjusted” rather than GAAP figures, analysts are clearly not anticipating a reversion to long-term or more recent averages. To put it mildly, current and forecasted margins appear stretched.

September 14, 2026 | LPL Research

With so much attention focused on what the Fed might do at its policy meeting this week, it’s a good time to look back at history to get a sense of how stocks might respond should policymakers hike rates as the market now expects. LPL Research had been characterizing the rate decision as a coin flip until Fed Chair Kevin Warsh’s hawkish comments at the Jackson Hole meeting and the strong August jobs report. With the fed fund futures market now pegging the odds of a hike at near 90% following Friday’s CPI report, we now expect a hike.

To get a sense of how stocks may react if the Fed does indeed hike rates next week, we looked back at how the S&P 500 performed after initial Fed rate hikes over the past 30 years. As illustrated in the “Initial Fed Rate Hikes Have Generally Been Well Tolerated by the Stock Market” chart, stocks typically struggle for a few months before regaining their footing.

During the six tightening cycles since 1994, stocks generally struggled during the first several months following the initial rate increase. On average, returns were negative through the first four months before improving significantly by five to six months after the initial hike.

Importantly, those early challenges have not typically translated into longer-term losses. In most cases, equity markets ultimately recovered and delivered healthy returns over the subsequent 12 months as investors adjusted to higher borrowing costs and focused on the underlying strength of the economy and earnings. The average 12-month gain for the S&P 500 post-hike is 6.7%, with a median of 10.7%. It’s important to use the median statistic in this case because of the 42% gain in the S&P 500 after the initial rate hike in March 1997.

September 8, 2026 | LPL Research

The debt and deficit arithmetic are real concerns

The Congressional Budget Office’s (CBO) February baseline puts the FY2026 deficit at $1.9 trillion, or 5.8% of gross domestic product (GDP), against a 50-year average of 3.8%. Actual receipts and outlays are tracking above that. Federal debt held by the public sits at roughly 101% of GDP and is projected to reach 120% by 2036, surpassing the 1946 record of 106%. Gross federal debt runs to $63.7 trillion by 2036, according to the CBO's projection.

The primary deficit, which excludes interest, is projected to decline from 2.6% of GDP to 2.1%. In other words, the deterioration in the fiscal path from here is almost entirely an interest expense story. The government's operating gap is stabilizing. Its financing costs are not. And unlike discretionary spending, Congress can’t change these expenses with a vote.

Interest expense is the compounding problem, and the CBO's projection may be optimistic

Net interest reached roughly $1.0 trillion, or 3.3% of GDP, in FY2026 — eclipsing the 1991 record. The CBO projects it will double to $2.1 trillion, or 4.6% of GDP, by 2036. Interest already consumes about 19% of federal revenue and is projected to consume 26% by 2036. It exceeds defense spending every year of the outlook and surpasses Medicare by FY2028.

The overly optimistic part? The CBO's interest projections embed an interest rate assumption that the curve is already trading above. The February baseline assumed the 10-year Treasury would average 4.1% in 2026 and drift to 4.4% by 2031, holding there through the projection period. The 10-year closed August at 4.75%.

August 31, 2026 | LPL Research

Should the recent value rotation be viewed as a regime shift-driven change in market preference, or a simple reversal trade? We think there is a compelling case to be made for the former. In a regime of higher interest rates and stubbornly above-target inflation, the market is increasingly focused on capex intensity, free cash flow conversion, and the cost of capital. Therefore, it makes sense that companies with visible cash generation have broadly regained relative appeal. This does not mean “growth” stocks cannot work. After all, growth is a core component of determining intrinsic value for a diligent stock operator. It simply means investors are less willing to pay premium multiples for earnings streams that require rising amounts of reinvestment to sustain in a “higher for longer” interest rate environment.

As a quick trip down memory lane, the Russell 1000 Growth Index outperformed the Russell 1000 Value Index by ~675% cumulatively from the late 2010s through the end of last October. The market regime during the majority of this period was one of low economic growth, low interest rates, and subdued inflation, and the U.S. equity market was fixated on software platforms that delivered consistent earnings growth with minimal reinvestment requirements that allowed for generous share repurchases. More recently, since roughly the end of 2022, artificial intelligence (AI) further supported growth outperformance, despite the burgeoning shift in the macro regime as inflation and interest rates began to rise. This new regime solidified as inflation remained sticky and the Federal Reserve maintained higher interest rates. Simultaneously, the capex required for the AI buildout continued to grow, and hyperscale cloud businesses (“hyperscalers”) continued to invest at a faster pace to meet the compute demanded by AI labs.

This brings us to 2025, when slowly but surely, investors started to question just how much capital this new technology would require, what kind of returns should be expected from this invested capital, and how long will it take to show up? This increased level of scrutiny presented itself in equity index performance starting late last year as the equal-weighted S&P 500 began outperforming the traditional market-cap-weighted S&P 500 as the market broadened out. However, the value vs. growth performance reversal was even more stark. As shown in the “Value Has Taken Over Leadership in the Current Regime” chart, since last October, the growth index has generated total returns of just 0.8%, while the value index has generated total returns of 28%.

August 24, 2026 | LPL Research

Second quarter earnings results — and it seems fair to call them a blowout — have increased our confidence that the earnings outlook can support stocks over the balance of 2026. Not only has the pace of earnings growth surprised us (we expected a percentage increase in the high 20s), but the guidance was good enough for analysts to raise estimates for the second half and 2027. As shown in “Earnings Growth on Track for Four Straight Quarters Over 20%,” not only have earnings grown at over a 20% pace during each of the last two quarters, but they will likely do so in the third and fourth quarters as well — even without the “other income” from mark-ups on private investment holdings that boosted “all-in” S&P 500 earnings growth to over 50% in the second quarter. Further, S&P 500 profit margins are at record highs and are expected to go higher — with or without the technology sector. Despite high oil prices and rising borrowing costs, non-technology operating margins have reached record highs and are expected to inch higher over the next few quarters.

August 3, 2026 | LPL Research

The Setup: A Market Built for Patience

The municipal bond market enters the second half of 2026 in a familiar but underappreciated position: absorbing record supply, supported by resilient demand, and operating under a Fed that we expect to remain on hold for the balance of the year. That combination doesn't produce dramatic price returns, and it doesn't need to. With tax-equivalent yields for investment-grade municipals still sitting in the top quartile of their 10-year history, this is a market where the coupon does the heavy lifting. For investors who have spent the last several years waiting for a "better entry point," the second half of 2026 is a reminder that in fixed income, the entry point is the yield. And the yield remains generous.

The first half wasn't a straight line. Munis posted solid gains in January and February before a rate-driven sell-off in March, triggered by escalating geopolitical tensions and an inflation repricing, pushing returns temporarily negative. As well, despite July’s negative returns, the market has been resilient, with the Bloomberg Municipal Bond Index remaining in positive territory (through July 31) as strong investor demand kept tax-exempt yields anchored even as Treasury yields backed up. That relative resilience, with munis outperforming Treasuries during a rate scare, is itself a signal worth noting. It reflects a demand base that has become structurally deeper, steadier, and more retail-driven than at any point in recent memory.

August 3, 2026 | LPL Research

The S&P 500 settled a whirlwind July moderately lower but maintained healthy year-to-date gains. Just one month into the second half, some of our key market themes cited in LPL's Midyear Outlook 2026 wasted no time making themselves known.

Key themes emerge: Geopolitical conflicts and energy supply concerns returned to the front burner, while artificial intelligence (AI) hyperscaler earnings results offered a mix of skepticism and optimism.

Our view for H2: Nonetheless, we continue to expect a supportive backdrop for stocks over the balance of 2026. Expect earnings to remain the primary driver of stock market gains, supported by healthy fundamentals across several non-tech sectors. At the same time, investors should remain mindful of risks. Here, we unpack fundamentals and discuss some keys to additional stock market gains over the second half.

 Macro Backdrop Remains Challenging
As we wrote in our Midyear Outlook 2026: Policy, Buildouts, & Bottlenecks, our expectations for positive second half returns partly hinged on improvement in the macro backdrop. Well, shortly after the LPL Research team published that view, disruptions to the Strait of Hormuz intensified and the Houthis opened a new front in the battle to restore tanker flows in the Persian Gulf by attacking Saudi tankers in the Red Sea. So, after oil dipped below $70 in early July, the relief provided was short-lived as the U.S. conducted strikes on Iran over the past two weeks and oil prices shot back up over $90 a barrel. Oil has since settled in the $80s after a series of pauses, additional attacks, more threats, and reports of scheduled mediated talks.

At a high level, these developments do not change our stock market outlook for the second half. Our forecasts are slightly below consensus in part because of geopolitical uncertainty — on top of the doubts surrounding the monetization of massive AI investments. As we’ve seen before, the Trump administration will likely find an offramp from the conflict soon, because $100 oil and $5 gasoline are sure-fire ways to lose votes in the upcoming midterm elections, now just over three months away.

July 27, 2026 | LPL Research

LPL Research explores whether hyperscalers can generate attractive returns on massive AI investments through a framework focused on ROIC, growth, and capex.

Market context: The first half of 2026 was a tale of two quarters for U.S. equity markets, as the S&P 500 experienced a drawdown of ~4.5% in the first quarter, followed by a ~15% rally in the second quarter. As investors look forward to the second half, the artificial intelligence (AI) trade remains top of mind, much as it has over the last three-plus years.

The capex spotlight: With second quarter (Q2) earnings season well underway, attention is laser-focused on capital expenditure (capex) spending signals from the cloud computing "hyperscalers" driving the majority of spend.

A framework for ROIC: Here, we take a data-driven approach to help frame the debate on the return on invested capital (ROIC) on hyperscaler AI capex, using various scenarios for a hypothetical "average hyperscaler." We then compare those return profiles to similar return generating businesses, with the end goal being a clear-minded approach to thinking about the hyperscaler business model for long-term investors.

July 20, 2026 | LPL Research

Key Talking Points

Global growth remains uneven, with the U.S. economy continuing to outperform while China faces softer demand and a less consistent recovery. For an in-depth outlook, consult the July Economic Navigator.

China's sharp decline in crude oil imports has helped offset some of the oil price pressures stemming from Middle East tensions, suggesting demand weakness is currently balancing supply risks.

U.S. inflation trends are improving, as core consumer inflation continues to moderate, reducing the likelihood of Fed rate hikes in the near term.

Import prices remain a key inflation risk, with higher costs for industrial supplies, consumer goods, and Chinese imports indicating that some global price pressures are still working through the pipeline.

The U.S. economy remains well-supported by resilient consumers and strong AI-driven business investment, helping sustain above-trend growth despite geopolitical uncertainty and signs of a gradual cooling in the labor market.

July 13, 2026 | LPL Research

As we develop the outlook for the next few quarters, we must assume a more challenging period for the Federal Open Market Committee (FOMC) and its new chairman, Kevin Warsh. In our view, Warsh will likely experience only a brief honeymoon period as he steps into his new role given inflation remains stubbornly sticky, particularly in core categories, limiting the Fed’s flexibility and exposing policymakers to potential criticism if progress stalls. At the same time, the ongoing Iran conflict introduces geopolitical risk that keeps energy markets volatile and inflation expectations elevated. With the crisis extending past 100 days — and potentially receiving an extension after last week’s strikes — continued disruption of the Strait of Hormuz risks compounding price pressures, leaving Warsh to inherit a policy environment where exogenous shocks, not just domestic demand, are shaping the inflation trajectory. In that context, market participants would be less patient, and the usual grace period for new leadership could vanish almost immediately.

Consumer inflation data underscores just how difficult the path back to price stability will be. The most recent core inflation print from May rose 0.2% month over month, keeping the annual rate just under 3%, which is psychologically important but still meaningfully above the Fed’s 2% target. Headline inflation climbed to 4.2% year over year, the highest since mid-2023. Inflation was driven heavily by rising gasoline and energy costs. While energy is often volatile, the concerning element is broader pressure in services, particularly medical care, which continues to push higher even as health insurance costs have moderated over the past six months. Transportation costs are another stress point, reflecting both strong travel demand and elevated fuel prices. This mix of resilient demand and supply-side shocks creates a “no easy wins” backdrop for policymakers, where inflation declines only gradually and unevenly.

In short: the deeper challenge for Warsh — and for the Fed more broadly — lies in the persistence of services inflation. Services inflation is slower to adjust, and sustained progress toward the 2% target will require a meaningful cooling in services, which remains elusive. The risk in the current environment is that prolonged geopolitical stress keeps energy prices elevated through the summer, amplifying second-order effects across sectors and complicating the Fed’s policy calculus, leaving rates on hold as a result.