How Are Global Stock Markets Setting Up for 2015?
The Bottom Line:
U.S – Great
China – Fair
Europe – Not Great
Emerging Markets – Not Great
Bonds – Mixed
The Story:
U.S. – Valuations in most industry groups are not extended as most stocks in most all industry groups are still trading at less than 20 times next year’s projected earnings including Tech and Healthcare, even Biotech. Industrials look to be good values, with a solid U.S. economy and China apparently not sinking, at around 15 times next year’s earnings projections. In Financial stocks, big insurers look safer than most big banks, although there seems to be long term value in both. Overall we like large and mid-cap stocks a little better than small cap, although some small cap sectors should not be ignored, like banks and industrials. Energy stock trends are down. A stable bottom forming is probably the best we can hope for in the near to intermediate term.
China –China seems to be willing to do what’s necessary to keep their economy moving forward next year, although many of their current policies seem anti-investor, as the government tries to wring some of the excesses out of their system. Caution seems prudent.
Europe – Political turmoil and monetary policy inaction creates uncertainty. Neither managers nor large investors know what to do. In the meantime, with the exception of Germany, Euro economies are struggling. It will be interesting to see if lower energy prices help with stronger car and retail sales over there.
Emerging Markets – Most emerging markets seem to be more affected by fears of fallout from lower commodity prices, political uncertainties and higher interest rates than developed markets. They should be watched for potential bottoming, but it’s not apparent now.
Bonds-U.S. Treasuries are still a safe haven from overpriced sovereign debt from Southern Europe when investors figure out they are over paying. Treasuries are not cheap with a Fed that probably wants to raise interest rates mid-2015, or sooner. So, shorter maturities are probably the way to go. Municipal bonds are attractive on a yield and quality basis with a stronger U.S. economy resulting in improved tax receipts.