This week, the Federal Reserve updated their economic projections. They are now forecasting 1-2 rate cuts this year, and by the end of 2025, they predict rates will be 1% lower. The labor market remains strong with low unemployment, and the inflation rate has decreased but is still over the 2% target. Depending on the […] Read the full article…
• The Federal Reserve is aggressively raising rates (1.5 – 1.75%), but continues to lag the market with 2-year Treasuries at (2.8% on July 5). • The economy is likely to go into a recession, if not already in one (based on the Atlanta Fed GDPNow forecast). I expect the recession to be shallow. • […] Read the full article…
For most of 2021, Fed Chairman Powell was talking about inflation as being transitory. Now Powell is talking much tougher on inflation. During his confirmation hearing on January 11, he said the following, “As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our […] Read the full article…
We have been hearing about inflation concerns for months. On Wednesday, Federal Reserve Chairman Jerome Powell said temporary inflation could last into next year. Also on Wednesday, the normally very bullish Prof of Finance, Jeremy Siegel from Wharton said a fresh surge of inflation is making him nervous. He went on to say, that inflation […] Read the full article…
S&P 500 earnings estimates for 2021 and 2022 continue to look very strong. Average earnings growth from 2008 – 2019 averaged just over 10%. Earnings forecasts from 2019 through 2022 are forecasted to grow at rate of 12.3%, including the pandemic dip. This is based on S&P Dow Jones estimates for the S&P 500 companies. […] Read the full article…
On Monday, Vanguard’s Investment Strategy Group released their monthly economic and market update. • Vanguard expects 7% GDP growth for the full year 2021 • Inflation is expected to peak this year and decline in 2022 • Interest rates for the 10Y are expected to rise late 2022 reaching 3% in 2024/5 Vanguard’s team noted […] Read the full article…
In our last article, we discussed the views of Howard Marks, Co-Chairman of Oaktree Capital. Howard expressed the view that low interest rates have driven down future return expectations across all asset classes. Today, I’d like to summarize the view from the Vanguard Group, including their forecasts for returns to various asset classes over the […] Read the full article…
This time of year, we put heavy focus on developing assumptions for future market returns and adjusting our model portfolios. The process is complex, but boiling it down we build a composite view based on a wide range of expert opinions on the economy and markets from experts such as JP Morgan, Fidelity, Vanguard and […] Read the full article…
In Part 2, we reviewed economic data and saw that the recovery in aggregate for the US has been very strong. This is not to say all industries have recovered. Still, there are concerns in particular with small business and continuing and new unemployment claims. Let’s turn attention now to the market valuations and discuss […] Read the full article…
In this part 2, we will take a look at the current state of the US economy recovery. One of the key data sources I use for macro economics is the St Louis Federal Reserve Economic Data (FRED). This data is free to the public. In this post, I’ll present a mosaic for the US […] Read the full article…
We are roughly six months into the market correction for Coronavirus. Over the next three posts, I will provide a market outlook. In part 1, we will look the impact on stock earnings and returns. In part 2, we will review the current state of the economy and relative value of equity market segments. In […] Read the full article…
• US stock market returns for 2020 by sector have ranged from -38% (energy) to +18% (tech). • Sector returns are correlated with estimated earnings growth for 2020 • Current forecasts for earnings are highly uncertain given pandemic and lack of company guidance • For these reasons, we are keenly focused on earnings reports that […] Read the full article…
• We estimate the fair value for the US stock market (S&P 500) using a discounted cash flow model • We assume a negative earnings shock of 20 – 30% in 2020, followed by a 3-year recovery • Using this model, the fair value for the S&P 500 falls in a range 2,542 – 2,905 […] Read the full article…
Q3 earnings season is nearly complete with 90% of the S&P companies having reported. For Q3, 75% have beaten their earnings forecast. Sales forecasts were exceeded in roughly 60% of the reports. Operating margins have been under some pressure. QTD, operating margins stand at 11.34% vs. last years 12.13%. Still, the Q3 2018 margin was […] Read the full article…
Sentiment surveys are used to gauge consumers and businesses views on how the economy is doing. The Leading Economic Indicators for the US includes consumer sentiment as one of the ten components. The idea here is that sentiment could give us a clue about where the economy is going. Sentiment surveys from different sources tend […] Read the full article…
The US stock market is in a wait and see mode. The US economy continues to grow, but the Federal Reserve is concerned about trade uncertainty and the possibility of global growth slowing. The Federal Reserve is now forecasting a rate cut in 2020. This is a very large shift from Q4 2018 where the […] Read the full article…
The ^VIX (also known as the fear gauge) is up over 15 today at 17.42. Tension with China over the trade negotiations continues to dominate financial news. I think the dispute could last for some time and there is no question that increased tariffs could impact equity returns. Year to date the market is up […] Read the full article…
• Morgan Stanley’s Michael Wilson, chief US equity strategist, sees further downward revisions in earnings for 2019 • Jurrien Timmer, Fidelity Director of Global Macro, is more bullish based on looking at the context for the earnings revisions • We find the weight of the arguments in favor of glass half full and continue to […] Read the full article…
• As I write this, the S&P 500 index is trading at 2631. • The S&P 500 has risen ~11% since the December 24th low. • Based on prior levels, we are approaching a resistance level. • Expect volatility to continue but focus on earnings and economic data for direction. Technical analysis refers to using […] Read the full article…
• Gundlach thinks recession signals are close, but not signaling recession right now. • Interest rates are a wild card as the Fed switches from ‘pragmatic’ to ‘put’ mode. • Gundlach thinks European equities are a value trap. He likes emerging markets (still). • His strongest warning was to avoid junk bonds and beware of […] Read the full article…