A time for caution on US equities
With US-China trade tensions still weighing on the economic outlook and causing uncertainty for the corporate climate, investors have to be selective in their US equity exposure
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ONE of the themes that I have been tracking since the second half of 2018 includes the convergence of the American economy's growth rate towards the decelerating growth rate of other major economies. I believe this theme has and is still playing out as of the time of writing.
A slew of recent economic data continues to corroborate this theme. Management guidance of American companies from various sectors during the recent earnings season painted a similar picture. With regards to business confidence, readings suggest that Sino-US trade tensions are weighing on the outlook and are still causing uncertainty for the corporate climate.
The momentum of earnings revisions has been trending negatively, with estimates for the S&P 500 Index for fiscal years 2019 and 2020 lowered by 2.6 and 2.3 per cent respectively year-to-date (as of Feb 15, 2019). With lower earnings estimates, current valuation multiples suggest a fairly-valued equity market as a whole after the latest rally.
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