Despite a strong rally this year, LPL Financial Vice President and Chief Equity Strategist Jeff Buchbinder says valuations across the market — including in tech — are reasonable, and stocks are trading cheaper on forward earnings now than they were back in January. It's a detail that cuts against the instinct to treat a market sitting at highs as automatically expensive, and it's the foundation for the rest of LPL's bullish case.
The reason, Buchbinder said, is that earnings have simply grown faster than prices. LPL came into the July earnings season already forecasting below-consensus numbers, and even that turned out too conservative: he now expects Wall Street's roughly $360 consensus estimate for next year's earnings to move toward $380. Analyst estimates rose about 5% during the reporting season — a period when estimates typically fall — a move he called tremendous, and one that holds up even after stripping out non-operating valuation markups tied to private holdings like Anthropic, OpenAI and SpaceX.
That earnings strength, in his view, is why the multiple hasn't kept pace with the price move — the market has effectively grown into its valuation rather than expanded it.
Buchbinder's outlook comes against the backdrop of a market that is trading just shy of record highs. The S&P 500 Index (SPX) ended Monday's session at 7,753,11, marginally lower than the record closing level of 7,757.64 it hit in the previous session (last Friday).
MarketFramework’s Positioning Edge tool shows profitable and unprofitable ES traders are closely aligned, with profitable traders holding 46.2% long exposure versus 50% for unprofitable traders. For ES, that creates a mild contrarian bearish signal rather than a strong one. If the market weakens, the heavier long positioning among unprofitable traders could leave that cohort more vulnerable to further losses and potential long liquidation. However, the 3.8-percentage-point gap is relatively small, so positioning alone does not indicate a high-conviction directional trade.
The AI payoff question is starting to get answered
LPL's other big highlighted theme is the shift in the artificial intelligence (AI) debate — from "how much are companies spending" to "is it actually paying off." Buchbinder said this quarter provided real evidence: hyperscalers, particularly Microsoft and Amazon, were able to convince the market that AI investment is generating attractive profits through cloud-business strength. That's a meaningful data point given how much of the market's move this year has been staked on the AI buildout eventually monetizing.
He noted the market came into earnings season skeptical, and even the semiconductor and memory-name selloff earlier in the summer helped reset expectations to what he called "a reasonable place" — a dynamic he thinks supports current AI-related valuations rather than undermining them.
Where LPL is positioned right now
Buchbinder laid out LPL's current sector stance in full:
Overweight:
- Energy — LPL's single highest-conviction call, driven by ongoing disruption risk to Middle East tanker flows rather than a standard supply-demand thesis. Buchbinder framed it explicitly as a geopolitical hedge.
- Industrials — LPL's second-favorite overweight, offering AI-adjacent exposure with more attractive valuations and less hype/volatility than mega-cap tech names.
- US equities over international — a third high-conviction position.
Neutral:
- Technology — downgraded from overweight to neutral in June (more on the reasoning below).
- Healthcare — currently neutral, but under active internal discussion for a possible upgrade, with Buchbinder expecting earnings-growth acceleration in 2026–27 once one-time acquisition-related charges and write-downs roll off.
Underweight:
- Consumer discretionary — the one clear underweight, driven by building inflation pressure on consumers. Buchbinder flagged autos and homebuilders as the segments most squeezed by the combination of higher oil prices and higher interest rates. That said, he noted this was also a source of surprise: broader consumer data (retail, restaurants, travel, bank delinquency figures) has come in more resilient than LPL expected.
The AI positioning reset — and why the selloff wasn't really about earnings
Asked why markets seemed to punish strong earnings beats during the quarter, Buchbinder tied it directly to positioning, not fundamentals. He said AI-related positioning — across roughly half the market, by his estimate — had gotten so stretched heading into earnings season that LPL downgraded tech to neutral back in June. Much of the earnings-season weakness, he argued, was simply a continuation of that unwind: a reset of "overexuberance" rather than a verdict on the results themselves.
The important part for traders: he described current positioning as "pretty neutral" now that the reset has largely played out — which he framed as a potential setup for tech to make another run, rather than a reason for continued caution.
The Fed: close to a coin flip, and it forks the sector playbook
Buchbinder said LPL leans slightly toward no hike at the Fed's September meeting, but called the odds close to 50/50. The firm does not expect a rate cut at all this year, pushing that possibility out to early 2027. He tied hike risk directly to the recent run-up in oil prices tied to Middle East disruptions, which is feeding stickier inflation.
LPL has distinct sector expectations depending on which way the decision goes:
If the Fed hikes (most likely scenario if oil prices stay elevated):
- Energy benefits directly.
- Tech could hold up relatively well despite rate sensitivity, since major players already have AI-buildout funding secured.
- Financials would likely underperform — a hike would flatten the yield curve, and banks need a steeper curve to do well.
- Dividend/income sectors (real estate, utilities, staples) face a mixed picture: defensives could catch a bid on hike-driven risk-off sentiment, but a rising long end of the curve is a headwind for income-oriented names.
If the Fed holds, or eventually cuts (LPL's base case is a hold, with cuts pushed to early 2027):
- Expect a broader, more indiscriminate rally spanning cyclicals, secular growers, and defensives alike.
- Industrials stand out as a favorite in this scenario.
- Sectors carrying the most debt — utility-type hyperscalers, industrials, materials — benefit most as rates fall.
- Yield sectors (utilities, staples, real estate) become more attractive on a relative basis as rates decline.
Consumer resilience surprised LPL
A recurring theme across the conversation: consumer spending held up better than LPL expected heading into earnings season, showing up across retailers, restaurants, travel names, and even bank data on credit card delinquencies, which came in close to expectations and reasonably healthy. That resilience is notable given persistent inflation pressure and elevated oil prices.
The bottom line
Taken together, the picture Buchbinder is painting isn't one of a market getting ahead of itself — it's one where earnings quality, breadth, and margin trends have actually improved enough to make current valuations look reasonable, even after this year's gains. Layered on top is a market that just worked through a positioning-driven reset in AI-related names.
