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Send  Share  RSS  Twitter  26 Oct 2016

ECONOMY: U.S. Stocks: Stalled on the Runway

 





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No earnings-fueled takeoff ahead
But this year seems to be no exception to the annual pattern of analysts steadily lowering expectations. See the most recent downward shift in the chart’s blue line. In fact, analysts have cut third-quarter U.S. earnings expectations by 8% since the start of the year – bigger than the downward revisions in the first two quarters.

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Early third-quarter earnings have beaten these reduced expectations at a higher-than-average rate. Yet fewer companies are raising their future guidance than in a typical quarter. Political uncertainty in the U.S. gives companies more reason to hold off on investment. Firms are likely to express similar caution this week when more than one-third of the S and P 500 reports earnings.

Ultimately, we believe earnings beats in this environment won’t be enough to spur a sustained rally, especially given how elevated U.S. valuations are relative to history. We see greater clarity on future Fed policy and the political outlook as more likely to drive risk appetite and stock performance in the months ahead. Against this backdrop, we like U.S. companies able to increase revenues and earnings in a low-growth world, such as selected technology stocks. We’re cautious of traditional dividend payers and prefer dividend growers instead. Outside the U.S., we prefer Asia ex-Japan stocks whose earnings momentum is improving.


 
 
 
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