{"id":41986,"date":"2017-10-06T03:37:35","date_gmt":"2017-10-06T10:37:35","guid":{"rendered":"http:\/\/siliconeer.com\/current\/?p=41986"},"modified":"2017-10-06T03:39:07","modified_gmt":"2017-10-06T10:39:07","slug":"recent-market-trends-2","status":"publish","type":"post","link":"https:\/\/siliconeer.com\/current\/recent-market-trends-2\/","title":{"rendered":"Recent Market Trends"},"content":{"rendered":"

Seasonally, this is a challenging time for the market.\u00a0 In such periods, it is helpful to examine the bearish and bullish arguments for the market.\u00a0 In this article we do just that, we also take a look back at recent activity and then look forward, writes Ketu Desai.<\/strong><\/p>\n

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While the market has lacked clear direction in recent weeks, volatility has picked up. In fact, at points, 40% of the S&P was down 10% or more from their 52-high, including large tech stocks such as Amazon and Netflix. The recent volatility has led many investors to risk-off assets, gold has had a nice rally, as have Treasury bonds.<\/p>\n

The market has lacked clear direction because market participants have been balancing bearish and bullish arguments.\u00a0 On the bear side, geopolitical risks have come to the forefront as North Korea continues to be a destabilizing force. Valuation and the length of this bull market remain a hurdle for many bearish investors.\u00a0 While valuation is elevated relative to historical measures, it is also important to note when making such comparisons to keep in mind the interest rates and inflation environment.\u00a0 Interestingly, the trailing P\/E for the S&P is more than one turn lower than it was a year-ago, and the forward is approximately the same.<\/p>\n

Bears are also concerned about the political climate and the ability of the administration to get moving on its agenda. While the Fed has communicated its plans to reduce its balance sheet, it is a risk, given that it is unprecedented. The bears would also argue the market is losing steam.\u00a0 A good example of that is, according to Factset, companies that reported positive earnings surprises for Q2 have been down 0.3% on average. Historically, earnings beats have resulted in a 1.4% gain.<\/p>\n

On the bull side, the argument starts with economic fundamentals and corporate earnings.\u00a0 For the first time in a decade, the world\u2019s major economies are growing in sync.\u00a0 All 45 countries tracked by the OECD are on track to grow this year, and 33 of them are poised to accelerate from a year ago, according to the OECD.\u00a0 German GDP is on pace to grow faster than 2% for the first time in years.\u00a0 Eurozone unemployment is at an eight-year low.\u00a0 Japan\u2019s economy grew at an annualized pace of 4% in the second quarter.\u00a0 Even countries like Brazil are turning it around.\u00a0 Brazil coming out of its deepest recession ever, is now forecast to expand 0.3% this year, and 2% in 2018.\u00a0 A rebound in commodities such as iron-ore and copper are helping many emerging market nations.\u00a0 The IMF\u2019s global price index for all commodities is up 27% from the start of 2016.\u00a0 Much of the rebound in commodities is driven by China.<\/p>\n

The IMF in July raised 2017 and 2018 growth estimates for China, citing strong credit growth and fiscal support.\u00a0 It also increased euro-area growth projections, highlighting diminished political risks.\u00a0 The IMF expects the global economy to grow 3.5% this year and 3.6% in 2018, up from 3.2% growth in 2016. The three other periods in the past 50 years with synchronized growth saw the trend continue for a few years.<\/p>\n

While growth is not spectacular domestically, it is stable at around 2%.\u00a0 Recent figures such as services PMI and retail sales are encouraging that growth could accelerate a bit more in the third and fourth quarter. Second quarter growth got revised up to 3%.\u00a0 Consumer confidence is near the highest levels since 2000, behind low unemployment, stable inflation, and increasing home values.<\/p>\n

Earnings remain strong, according to Factset, earnings grew 10.2% in the second quarter and are expected to grow 5% in the third quarter.\u00a0 Bulls would also argue, equities are more attractive relative to bonds, as equities earn 2.24% greater than bonds versus a historical average 0.61%.\u00a0 Finally, bulls would argue that many of the world\u2019s largest investors such as Norway\u2019s sovereign-wealth fund and Japan Post Bank are increasing allocation to equities, providing support and a lift to equities.<\/p>\n

The continued volatility should remain.\u00a0 We should have plenty of action with the Federal Reserve expected to start its balance sheet reduction and political debate over the tax reform and other agenda items.\u00a0 The outcome to these events will help bulls and bears settle the argument for the reminder of the year.<\/p>\n

Interested readers can reach Ketu Desai by email ketu@isquaredwealth.com<\/a>. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Seasonally, this is a challenging time for the market.\u00a0 In such periods, it is helpful to examine the bearish and bullish arguments for the market.\u00a0 In this article we do just that, we also take a look back at recent activity and then look forward, writes Ketu Desai. While the market has lacked clear direction…<\/p>\n

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