Bull Market: Ninth Inning or Double-Header?

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The S&P 500 reached historic all-time highs last week, but not everyone is convinced of the bull market’s ability to keep charging ahead. The worry is that we are in the ninth inning, but we think this game is instead a double-header. There has been some FOMO – fear of missing out – but overall fund flows do not indicate an imminent melt up. Equity flows have picked up in the last few weeks but bond flows are still far outpacing equities for the year.

Investors may be worried that stocks are overvalued; however, the 2019 forward P/E based on today’s S&P 500 price is less than 17x. While this is marginally above the historical average P/E of 15.8x between 1990 and 2018, the current level of earnings has hit a record high. There are additional signs of a double-header:

  • Q1 GDP blasted past expectations with a three-handle at 3.2%
  • Initial jobless claims (unemployment claims) are at a half-century low
  • Industrial production is still expanding with March durable goods orders surging 2.7%, the fastest in seven months
  • The Federal Reserve has affirmed that interest rate hikes are on hold, while other central banks remain accommodative
  • Inflation is still below target, with a recent core PCE reading (the Fed’s preferred measure) well below 2%
  • First quarter earnings growth — the biggest indicator — is just shy of being positive according to Lipper

The market hit all-time highs due to the plethora of good news. Remember it is fundamentals that drive markets. Please follow fund flows on page 80 of the Global Perspectives book and read the latest commentary.

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