![]() We are very aware that the 3-month to 10-year segment of the US Treasury yield curve briefly inverted during the quarter, but are more interested in the fact that the 2- to 10-year segment, which we view as a recession indicator, did not. US growth and corporate earnings may be in a soft patch, but a second half pick up seems likely. The US remains in a slowly developing economic cycle with historically low unemployment and little inflation. Rather, global economic data is generally improving. Like many headlines, I think this one is backward looking. Focus on Where the Economy Is Heading, Not Where It Has BeenĪ recent headline in The Financial Times claimed that global economies were in a synchronized downturn, a reversal from the synchronized growth we saw last year. Setting political views aside, equity investors should recognize that he may take steps, either fiscally or through policy, to bolster US equity returns. As I have remarked in the past, President Trump, rightly or wrongly, seems to equate stock market performance with the success of his administration. Though I always caution against letting politics sway investment decisions, I do think it is important to be mindful of policy actions that may affect near-term results. The second quarter is probably a period of blocking and tackling, with no significant up or down moves, but look for better results in the second half of the year. Overall, we still see value in US equities and even more value in emerging market equities. ![]() Given the current low rate environment, a higher P/E is justified. However, those long run statistics have to be viewed in the context of prevailing interest rates. US equity valuations were pretty cheap in December 2018 and now after the first quarter recovery, they are slightly above the long run historical average. We are still looking at S&P earnings of $160-$170 at 19x earnings, so I think there is a little, but not a lot of room for the S&P 500 to appreciate further. Though consensus forecasts now call for a 5% decline, we think profits will be closer to flat and view this as an earnings soft patch, not a case of continued deterioration throughout the year. Then, toward the tail end of 2019, as year-over-year earnings comparisons improve and trade tensions ease, we could see stocks resume their upward trend.Īt end of 2018, analysts’ consensus called for the S&P 500 to show flat year-over-year profit growth. That doesn’t necessarily mean a decline, but maybe no more significant gains until summer. After all, delivering a 14% return for a full year is something of a feat, let alone over three months. A month later, the S&P was at 2903 and since then has surpassed the record high on both an intraday and closing basis.Īfter such a strong run that set new record highs, we expect markets to pause, digest the large gain and solidify their footing. As usual, I was the most bullish at the table, asserting that the record would be reclaimed before our next meeting in September and perhaps even in the coming weeks. One of the questions we debated was “when will the S&P 500 recapture 2940?” That was the record set in September 2018. ![]() Stocks Expected to Pause, Then Resume Upward Trend in Second HalfĮarlier this year, I traveled to Singapore for the semi-annual Wigmore Association meeting. After what now seems a brief intermission, the bull market’s show has gone on. We believed that if the Federal Reserve softened its stance on raising interest rates or the China/US trade talks showed progress, investors might suddenly feel better about the capital markets. If you recall our comments in the midst of the decline, we focused on what it would take to spark a rebound and we determined it wouldn’t take much. While the magnitude of the rally may prove a bit overzealous, the positive market direction made sense based on headline news and data early in the year. Bond sectors linked to equities – such as high-yield – did exceptionally well. Fixed income markets were also quite strong as interest rates fell. ![]() Global equities, whose fourth quarter decline was less dramatic than their US counterparts, happily joined the party, rallying throughout the first quarter. US equities, represented by the S&P 500, had their best single quarter since 2009 and their best first quarter since 1998. But here we are at the end of the first quarter and instead of a closing bow, equities are once again showing resiliency and strength. In the midst of last quarter’s climactic downfall, investors couldn’t help wondering if the curtain was finally falling on the great bull market. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |