Research

Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

Weekly Headings

July 12, 2019

Key Takeaways

For the next several weeks, we will go from talking about the proverbial forest (macro headlines) to focusing on the trees (corporate earnings). The forest has grown to record levels (S&P 500 crossing the 3,000 level for the first time and notching its ninth record close of the year) on the back of policy “fertilization.” The thaw in trade tensions between the U.S. and China following the Trump/Xi G-20 meeting and a growing synchronized global central bank dovish tone (highlighted by Fed Chair Powell in his testimony this week) have increased optimism that the U.S. (and global) economic expansion will gain momentum. In fact, the S&P 500 P/E (LTM) has soared to ~18x to reflect a market priced close to perfection. However, outside of the strong June U.S. employment data, other U.S. economic data (manufacturing, housing) and global data (Europe PMIs in contraction) suggest “clouds” of weakness forming. As earnings are the fundamental driver of the equity market, 2Q earnings season will give us a picture of how healthy the “trees” are as many of the big banks kick-off the reporting season next week. Below are some of the key dynamics to monitor throughout the upcoming earnings season:

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