That Was The Easy Part
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
Fourth Quarter Earnings Preview: From Great to Good
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.
Lower Valuations Offer Long-Term Opportunity
S&P 500 earnings growth will slow in the fourth quarter but is still expected to be strong.
U.S. economic growth, tax cuts, higher oil prices, and corporate stock buybacks are among the positive drivers.
However, earnings may be capped by trade tensions, slower economic growth abroad, and a rising U.S. dollar.
A significant drop in stock market valuations may portend above average stock market performance, based on history.
Stocks also look attractively valued relative to bonds based on a comparison of earnings yields.
Though it is difficult to think long-term during volatile market environments, low valuations have been closely tied to future positive long-term stock performance.
Strong Week Ahead of Big Weekend
Last week’s losses were driven primarily by increased recession fears related to U.S.-China trade tensions, a possible Fed policy mistake, and sharply lower oil prices.
Recent volatility may have provided one of the most important ingredients of a stock market bottom: fear.
We see elevated put/call ratios, increased trading volume, and extremely negative breadth as signs of fear, a potentially bullish development with the S&P 500 at/above recent lows.
Corporate America Impresses Again
Last week’s stock market rally was driven by optimism (now clearly warranted) surrounding U.S.-China trade talks and a more dovish Fed.
The events added to the positive fundamental case for stocks here, while stock valuations are quite reasonable.
The technical picture is muddled, but big gains to start this week—should they hold—would help increase the odds of further gains from a technical analysis perspective.
Third quarter earnings season was again very impressive, with S&P 500 Index earnings growing 28% year over year, the fastest pace since the fourth quarter of 2010.
A pickup in economic growth, strong manufacturing activity, and tax cuts were the key growth drivers.
Guidance was generally positive despite tariffs and ongoing trade policy uncertainty.
Getting past the midterm election removes uncertainty and enables investors to focus on fundamentals, which we believe can be positive for stocks.
Gridlock may potentially help shorten and smooth out the path to a possible trade deal with China.
Industrials and healthcare stocks may be post-election winners, while scrutiny on financials may increase.