< .. What a different January second makes? remember this time last year? what a difference January first the last year, look what’s going on! the market was pricing in earnings recession, remember that phrase earnings recession that stocks were really cheap fast forward? the opposite is happening! the recession didn’t happen the earnings recession certainly didn’t happen! the economy is strong, but stocks have gotten a little bit on the expensive side, so the issue is whether we can finally return to earnings growth after an essentially flat year in 2019.
Most strategists are expecting mid-single digit earnings growth which would take some pressure off the high multiple the market has, right now. Early reports from companies reporting at the end of December 2019 are mixed with big names like FedEx Nike micron General Mills and Carnival, seeing first quarter earnings reduced by analysts. A few others like autozone and Costco have seen their earnings estimates increased by analysts, overall I’d say the trend is a little bit lower than expected looking at risks in 2020. The markets are at new highs because many believe the risks from trade and tariffs is lower so there’s a lower risk.
The risk from the Fed many believe is also lower as they will likely remain neutral decent job growth the risks from the US consumer also a bit lower but there’s some risks out there, moderate risk, a lot of people bring up buybacks, we’ve been buying back stock for 10 years with a lot of companies but a lot of people feel there may be a limit to how far we can go with that the belief that global growth is bottoming and turning around is very high risk, many believe it’s unlikely 2019 it’s going to be this bottom in the global economy. That’s been a big driver of the stock market.
Nothing’s really changed in Europe, for example and there’s very few structural reforms there another issue that shows up a lot among strategists in the last week is: wage growth concerns. Many believe wages will likely be higher in the years to come putting some pressure on margins now everyone knows that the stock market is a game of expectations.
The thing that happened last year is we had very low expectations starting the year prices were lower, but now it’s the opposite! we have high prices high multiple, so the expectations are really high and we know it’s always better to have lower expectations than higher expectations that’s the thing that concerns me the most right now …>
HufNews’s correspondent from the Wall Street.
