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
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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