Climbing the Wall
Recent economic data is pointing to a slower growing economy in the second quarter and possibly into Q3. Beyond the tired debate over when the Fed will start raising interest rates and by how much, concern is developing about slowing corporate revenues and earnings.
In a slowing environment current Price/Earnings multiples around 18X could keep a lid on stock prices until the market starts looking ahead to Q4 and early 2016 when many market participants feel the economy will start putting up better numbers.
So, we could be in for a period of choppiness in equity markets, especially if Q1 earnings reports are weaker than expected and CEOs start cutting Q2 projections.
We still think that lower energy prices will be with us for awhile and are stimulative for our overall economy, and Europe’s too. As well, we wouldn’t be unhappy to see the dollar level off during a period of slowing growth in the next few quarters, helping our big exporters a bit.
Finally, we would be surprised if the Fed weren’t smart about their timing and velocity of interest rate hikes. So, overall we are happy to use this period of potential volatility to pick away at our favorite groups of stocks and bonds-Climbing the Wall of Worry.
As always, contact me at firstname.lastname@example.org with your questions. Bob Hunter