At current levels, the S&P 500 trades at ~18.4x our 2020 EPS estimate of $180. There’s probably room for even more multiple expansion given the current state of policy accommodation and expectations for improved fundamentals in the months ahead.
US equities continue to benefit from an unchallenged bullish narrative that includes a de-escalation in trade tensions, monetary accommodation (Fed still increasing its balance sheet), rising expectations for an earnings rebound and still-light positioning given large net outflows in 2019. Valuation concerns at almost 19x
The first week of earnings season is always dominated by large cap banks. We expect the numbers and guidance will be fine as most management teams sounded upbeat when they spoke at the Goldman conference in mid-December. But investors looking for vastly improved Net Interest
Most investors are underestimating the durability of the economic cycle, which is probably influenced by last summer’s brief yield curve inversion and the duration of the recovery. We all know that economic cycles don’t just die of old age. Most of the time, they die
We think we’ve seen this before. The monetary and fiscal stimulus to buffer trade tensions has already started to improve the leading indicators of global growth. Monetary easing is in the pipeline and fiscal measures in Emerging Asia should continue to provide tailwinds. We expect
The initial market response to Iran’s missile attack followed the script, but the event is now viewed as a small positive as it appears both sides seem eager to deescalate.
Markets aren’t completely ignoring rising Middle East tensions. As noted yesterday, the issue will likely be assigned an appropriate risk premium to, at least temporarily, keep a lid on multiple expansion.
US-China trade is clearly the short-term focus for markets. But not too far behind is US inflation data following the recent core PCE reading of 1.5%.
Economic data featured US December manufacturing ISM coming in below estimates at 47.2 vs consensus for 49 and November’s 48.1.
Monetary easing this year from the Fed, Emerging Markets and fiscal stimulus from EM Asia in particular, has arrested the trade-induced slide in global growth. The recent Q4’19 rally in the SPX started when global manufacturing PMI began forming a base.
