Morning Notes — Further Rotation

The catalyst calendar into year-end has already started thinning out. Based on scheduled events, there doesn’t seem to be anything significant enough to challenge the current narrative and change the upward trajectory of equities. The bullish narrative is based on strong themes including: 1) de-escalating US-China trade tensions; 2) Fed balance sheet expansion; 3) US economic resilience and; 4) a possible inflection in global growth. At current levels, the implied forward multiple for the S&P 500 is ~17.8x if you use the current ‘consensus’ 2020 EPS estimate of ~$180. The average multiple over the last 20 years has been 16.2x, so the market reflects some of those bullish themes already but sentiment isn’t flashing bullish extremes and positioning indicators look mostly neutral. While some good news is already priced in, there’s little to suggest that markets are stretched.