Movin On Up (In Market Cap)
Modest Pullback or Something Bigger?
Small cap stocks have performed well so far in 2019; however, we believe the environment is getting tougher.
Large caps may take the baton and sustain leadership as small cap performance potentially enters a weaker phase.
Small and large cap stocks may both deliver gains over the rest of the year, but we expect large caps to lead.
The Bull Turns 10
Following such a strong rally since the December 24 lows, a pullback is reasonable to expect.
We expect additional stock market weakness beyond last week’s more than 2% decline to be modest.
Fundamentals remain sound, valuations are reasonable, and most technical indicators we follow point to further potential gains ahead.
Five Key Questions
During the 10-year bull market, the S&P 500 Index has more than quadrupled in value.
It might be the longest bull market, but the 1990s bull market saw substantially higher returns.
Market breadth continues to support higher equity prices and eventual new highs.
The Rally Continues
Stocks may keep going higher, but the easy gains likely have been made.
Stock valuations, when compared with bond yields, are actually historically cheap.
The overall technical backdrop supports a continuation of the bull market.
Key Takeaways from Fourth Quarter Earnings
The market rally continues, with stocks off to their best year’s start since 1991.
Near-term stocks are quite overbought and a pullback could be warranted.
Yet, from a sentiment perspective, we still aren’t seeing signs of the over-the-top optimism that is consistent with major peaks.
That Was The Easy Part
Earnings growth for the fourth quarter is tracking to a solid 17%, above prior estimates but below the pace of the previous three quarters.
The bar has been substantially lowered for the first quarter, setting up potential upside surprises, particularly if trade uncertainty is diminished.
We expect S&P 500 companies will be able to at least deliver mid-single-digit earnings growth in 2019, driven by solid economic growth, fiscal stimulus, and share buybacks.
Article Reprint: 'A Pox On Both Your Houses'
Stocks posted their best January in more than 30 years after a historically bad December.
Stocks’ bounce was the easy part; the next 10% will likely be much harder.
There are technical signs that suggest December marked a major low and potentially higher prices are ahead.
Is the Fed Almost Done?
The White House and Congress must come to terms on full immigration reform to avoid another shutdown. Published 01-25-2019 Philip Orlando, CFA, Senior Vice President, Chief Equity Market Strategist, Head of Client Portfolio Management
We expect the Fed to pause interest rate hikes this week.
While the market environment has been challenging, we think recent weakness increases the chances of a positive market response post-tightening cycle.
Whether the Fed’s rate hike campaign is already over, or will end fairly soon, history indicates that doesn’t suggest a recession is right around the corner.