Market and Economic Commentary

Last year’s trade war caused political uncertainty, erosion of business confidence, and a global manufacturing recession.  To combat the slowdown, numerous central banks reduced interest rates or otherwise increased monetary support over the past six months.  Low inflation gave them cover to do so.  That stimulus seems to be winding its way through the system, and worldwide manufacturing activity seems to be bottoming.

While global trade issues weigh on manufacturing, services and consumer consumption maintain a positive growth trajectory.  With trade deals slowly coming together, some indications in manufacturing reflect potential stabilization and improved, forward growth dynamics.

Market indicators appear healthy after bouncing from oversold conditions in December of 2018.  Technology stocks, as represented by the NASDAQ, are approaching overbought conditions.

Despite the strong market, sentiment indicators are generally still in the “neutral” range.  Individual investor sentiment, as represented by the AAII survey remains well below “greed” readings.  And Put/Call ratios still show investors hedging for downside protection, not speculating on continued higher prices.

The earnings multiple (P/E) for the S&P 500, now 18.3x, stands well above the 5 and 10-year averages.  For 2020, analysts project earnings growth of 9.6% and revenue growth of 5.4%; these assumptions appear to be priced into the market at present.  A high bar has been set.  Actual earnings, along with updated guidance, will tell the tale.

Download the full report in pdf here:IMVA Investment Review-January 2020